Today's Editorial

Today's Editorial - 02 July 2024

Optimise India’s PLI scheme

Relevance: GS Paper II & III

Why in News?

The Union government initiated the production-linked incentive (PLI) programme in 2020 and approved a total of 14 PLI schemes with an outlay of Rs. 1.97 trillion.

More About News:

  • The PLI schemes were advertised as India’s masterstroke to make India a manufacturing nation. 
    • To be implemented over five-six years, the schemes were expected to bring in trillions of investment and engender billions of exports.
  • More than half of the lifetime of most of the PLI schemes was over when that government completed its term. 
  • More than half of the intended duration of most PLI schemes had passed when the government's term ended.
    • Despite this, the government had disbursed less than Rs 10,000 crore in incentives.
  • This disbursement amount is less than 5% of the total PLI outlay. Some of the PLI schemes did not even begin implementation.

A thinly spread messy package

  • Digital and environmental manufacturing, which includes electronics, electric vehicles (EVs), solar cells/modules, and batteries, is key to the future of industrialization and driving GDP growth. Each of these priorities has a Production-Linked Incentive (PLI) scheme to support their development.
  • The PLI for Large Scale Electronics Manufacturing (PLI-LSEM), the first notified PLI for attracting large investments in mobile phone manufacturing, and PLI for IT Hardware (PLI-ITH) targeted at the production of computer devices, aimed at raising India's electronics manufacturing to $300 billion a year.
  • The PLI for Automobiles and Auto Components (PLI-A&AC) envisaged incentivizing the automobile industry to manufacture advanced automotive technology products, including EVs and hydrogen fuel-cell vehicles.
  • The PLI on batteries targeted establishing a 50 Gigawatt hour (GWh) manufacturing capacity for advanced chemistry cell (ACC) batteries.
  • The PLI on High Efficiency Solar Modules (PLI-HESM) targeted building manufacturing gigawatt scale capacities for high-efficiency solar PV modules.
    • Between them, these five PLIs had an outlay of Rs 1.4 trillion, and prima facie well-targeted.
  • The government, however, initiated nine more PLIs, in traditional/non-technology/ small industries food processing, textiles, air conditioners, pharmaceuticals, steel, drones, etc. with insignificant outlays.
    • Too many thinly spread PLIs lost the strategic bandwidth and made the PLIs a messy affair.

Poorer execution:

  • PLI-LSEM (outlay Rs 40,951 crore) was implemented satisfactorily, largely due to Apple establishing production in India.
  • PLI-ITH 2.0 (increased outlay Rs 17,000 crore) approved 27 applications with a promised investment of Rs 3,000 crore. 
  • PLI-A&AC approved 20 out of 115 applications without indicated investment commitment.
    • The scheme lost its way in procedural and technical approvals SOPs for testing and certification applications were released resulting in the government awarding the first PLI Automotive Certificate. 
  • Under PLI on batteries, the government had to cancel 20 GWh capacity allotted to Hyundai Global Motors Company Limited due to impersonation issues. No replacement was found.
    • No replacement was found until the Union government 2.0 completed its term.
  • The government awarded a total of 39.6 GW of fully/partially integrated solar PV module manufacturing capacity under the PLI-HESM, but no information was further provided about the progress in investment and production under the scheme.
    • A few smaller PLIs (e.g. textiles and steel) could not start. Others made hardly any difference.

Pathetic disbursement

  • The government disbursed PLI incentives of only Rs 10.45 crore in 2021-2022.
  • In 2022-2023, against a budget provision of Rs 7,480.79 crore for nine PLI schemes, only Rs 2,916.97 crore was actually disbursed.
  • There was no disbursement acceleration in 2023-2024 as well as the government could make a paltry budget provision of Rs 8,082.84 crore (for 11 PLI schemes). 
  • Taking into account the claim made by a senior official that the PLI incentives of Rs 6,800 crore were released during 2023-2024, the government could disburse only Rs 9,727 crore in PLI incentives until 2023-2024.
    • This was a pathetic 4.92% of Rs 1.97 trillion of the PLI schemes outlay.

Way Forward: Streamlining India's PLI Schemes

  • The PLIs cannot solve a lack of general industrial competitiveness of Indian companies caused by a lack of technology innovation and higher cost of inputs.
    • PLIs will only be effective in attracting global technology leaders if they compensate for the relatively lower profitability in India.
  • Retain, strengthen, and upscale execution of the four strategic PLIs  PLI- LSEM (with an inclusion of a few specific high-technology electronics products), PLI on batteries, PLI- HESM, and PLI- A&AC for electric vehicles.
  • Three PLIs on pharmaceuticals and medical equipment should be consolidated into one and focussed only on the production of APIs and high-tech new technology medical equipment.
  • All other PLIs, including PLI-ITH, should be wound up. Further, the thought of meaningless new PLIs on toys, footwear, leather, etc. should be banished.
  • The government must establish a high-powered technology-rich PLI Authority to professionally plan and execute the five PLIs in place of poorly equipped ministries and departments which currently design and implement.

PLI scheme

  • The PLI scheme, launched in March 2020, initially targeted three industries- mobile and allied component manufacturing, electrical component manufacturing, and medical devices. 
  • The PLI scheme was designed to increase indigenous manufacturing capability while also reducing imports and creating jobs.
  • The incentives, calculated on the basis of incremental sales, range from as low as 1 per cent for the electronics and technology products to as high as 20 per cent for the manufacturing of critical key starting drugs and certain drug intermediaries.

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