The Production-Linked Incentive (PLI) Scheme was announced for pharmaceuticals and medical devices in March 2020, and notified in July 2020 for mobile and allied equipment. The scheme has received the green signal from the Union Cabinet (PIB, 2020). Subsequently, ten sectors have been identified for the scheme; these are advance chemistry cell (ACC) batteries, electronic/technology products, automobiles and auto components, pharmaceuticals drugs, telecom and networking products, textile products (manmade fibre segment and technical textiles), food products, high-efficiency solar PV modules, white goods (ACs and LED), and speciality steel (PIB, 2020). A financial outlay of Rs 1,45,980 crore spread over a five-year period has been approved (PIB, 2020).
The objective of the PLI scheme is to boost manufacturing, promote exports, and make India part of global supply chains. It also aims to reduce imports and encourage labour intensive employment in these sectors. Implementation of schemes lies with the relevant department or ministry and the ultimate proposals will be assessed for each sector separately by the Expenditure Finance Committee (EFC) and ratified by the Cabinet (PIB, 2020). The PLI scheme is part of the Enhancing India’s Manufacturing Capabilities and Enhancing Exports strategy via the Atmanirbhar Bharat Abhiyan. It replaces the Merchandise Exports Incentive Scheme (MEIS) introduced in 2015 to boost exports. The Atmanirbhar Bharat Abhiyan was first proposed by Prime Minister Narendra Modi on May 12, 2020. The PM announced an economic package of Rs 20 trillion (Rs. 20 lakh crores) to tide over the coronavirus crisis. The economic package would play an important role in making India ‘self-reliant’ and would benefit labourers, farmers, honest taxpayers, MSMEs, and the cottage industry. The five pillars on which Atmanirbhar Bharat is to be based are: Economy, Infrastructure, Technology driven system, Vibrant demography, and Demand.
The contribution of the manufacturing sector to GDP declined to 15.1% in 2019-20, causing concern. India continues to implement the National Manufacturing Policy (NMP), aimed at increasing the share of manufacturing in GDP to 25% by 2022. Provisions under the NMP include programmes to develop skills, facilitate financing for SMEs, and increase demand for manufacturing and infrastructure through government procurement. The Make in India programme was launched in 2014 to attract investment to achieve these targets.
The importance of the manufacturing sector stems from the jobs that it can provide: for example, the textile and clothing sector employs 45 million people. The share of manufacturing in employment increased from 9.6% in 1960 to 11.5% in 2010, which is modest in comparison to other countries (Ray and Kar, 2020). The contribution of manufacturing to exports is significant, comprising 60% of total exports in 2018. India has run a deficit in its balance of trade in manufactured goods during all the years (except in 2020) with growth in imports outstripping that of exports. Exports of labour intensive sectors have particularly stagnated and India’s competitiveness in these sectors has declined over time (Hanson, 2020). Chatterjee and Subramanian (2020) argue that there is scope for India to increase its exports in labour intensive sectors. Since 2007, India’s exports have increased significantly in two categories: chemicals and vehicles. The latter contributes 7% to GDP, and comprises 8.0% of merchandise exports. Some estimates suggest that this sector employs 29 million people, directly or indirectly. The chemicals sector has the potential to employ 8 to 9 million people.
The question that is critical is how will the PLI scheme overcome the problems that the Merchandise Export Incentive Scheme (MEIS) faced regarding export subsidy? There have been some criticisms of the PLI scheme and this revives discussion on the role of industrial policy in a country. The question is whether countries should encourage ‘champion firms’, which in the Global Value Chain (GVC) parlance translates to ‘lead firms’. India has enacted very few GVC specific policies, though there are many horizontal or vertical policies (Ray and Miglani, 2020). The issue of scale becomes critical in this context. It has often been argued that Indian manufacturing firms are too small to compete globally with low-cost manufacturing in other countries (e.g. Vietnam). Can the PLI scheme help achieve the scale?
