Production Linked Incentive
Recently the government announced the following scheme that would make…
“Indian manufacturers globally competitive, attract investment in the areas of core competency and cutting-edge technology. It will lead to more inclusive growth and create huge employment opportunities.”
PLI or the Production Linked Incentive has been the buzzword for quite some time. Let’s look at the story in more detail.
PLI? What is it?
PLI or the Production Linked Incentive is a scheme launched in July 2020 by the government with an aim to create more jobs, attract foreign investment and encourage domestic units to expand.
This scheme has a 5-year tenure, considering financial year FY 2019-20 as the base or first year and has a total budget allocation of over Rs 1.96 lakh crores. The total incentive for the entire scheme is estimated at $26 billion.
There is a three-stage application process. First, submit the application. Two, baseline determination process. Three, disbursement process.
There are so many schemes. Why PLI?
If you compare the percentage contribution to GDP vs the percentage of job creation, you will notice a peculiar trend. When this survey was done in 2019, the results were surprising.
The services sector contributed to 54% of GDP but share in job creation was only 32%.
On the other hand, the contribution of the manufacturing sector to GDP was 17% and created jobs for 26%. The agricultural sector followed with 16% GDP contribution and 42% Job Creation.
This statistics essentially shows that the services sector has maximum share in GDP, but it could not absorb the labour from the agriculture sector because of low jobs creation.
Previously, consumers and industries resorted to importing manufactured goods as it was more economical, thereby affecting the manufacturing sector. Inadequate infrastructure, domestic supply chain and logistics are major contributors to the poor performance. The cost of finance is exorbitantly high. Availability of quality power, sufficient Research and Development and the skilled force is a dearth. The design capabilities do not meet expectations.
By creating more jobs in the manufacturing sector and increasing its GDP contribution, the workforce can be re-directed from the Agri-sector. For example, all the electronic manufacturing companies that are Indian or having a registered unit can apply. Samsung, Pegatron and Flex are looking to expand their presence in India as a result of the scheme.
Thus, the PLI aims to focus on this sector, create more jobs, reduce our dependence on China and accelerate our journey in becoming a higher middle-income economy.
Why is this so effective?
There is an incentive of 4% to 6% on incremental sales over the base year of goods manufactured in India, which sums to a reasonable amount.
This scheme has gained much limelight because of its many advantages, a few of which are listed below.
One, PLI is an outcome-based, result-oriented scheme. That means the incentives will be disbursed only after the production has taken place within the country.
Two, the incremental production to be achieved at a high growth rate determines the incentive. This makes it necessary for beneficiaries to make additional expansion and investment, thereby increasing the sector’s GDP and growth.
Three, the beneficiaries become globally competitive and mainly aims at those players who can cater to such high volumes.
Four, the sectors are chosen to incorporate cutting-edge technology, integrate with global value chains, link closely to the rural sector and create more jobs. The sectors chosen provide a pandora box of opportunities that can be exploited to accelerate growth.
The importance of PLI stems from the fact that it will help companies achieve the size and enable Indian products to compete in the global market, with a high rate of export.
Sectors covered under PLI
This scheme has already been notified in the following sectors:
- Mobile Manufacturing and Specified Electronic Components
- Critical Key Starting materials/Drug Intermediaries and Active Pharmaceutical Ingredients
- Manufacturing of Medical Devices.
Ten sectors have been identified for the scheme. These are:
- Advance Chemistry Cell (ACC) Battery
- Electronic/Technology Products
- Automobiles & Auto Components
- Pharmaceuticals drugs
- Telecom & Networking Products
- Textile Products: MMF segment and technical textiles
- Food Products
- High-Efficiency Solar PV Modules
- White Goods (ACs & LED)
- Speciality Steel
Incremental production of over $140 billion in the next five years for an incentive of $5 billion in electronics and mobile manufacturing has been predicted. 60% of this is estimated to reach the overseas market as exports. At present, India ranks sixth in terms of manufacturing GDP. The PLI scheme aims that the additional manufacturing output in the next five years will exceed more than a year of India’s manufacturing GDP.
Abividyaa
