What Is PLI For?

Context: There are various significance and challenges associated with the Production-Linked Incentive (PLI) scheme.

About Production-Linked Incentive (PLI) scheme

• Objectives: PLI is meant to deepen domestic supply-chains and so, over time, promote greater competitiveness in Indian industry.
• Methodology: The PLI scheme provides a subsidy, typically 4-6 per cent of sales, for firms in 13 sectors to make a list of “desirable” end products, components or assemblies.
• Indigenisation: Various industry ministries publish lists of items to indigenise.
• Flexibility: Firms propose items they will manufacture in a green-field or brown-field facility with a specified minimum investment that varies by sector and the size of a firm.
• Tariff rationalisation: The scheme goes together with tariffs, fairly high ones, on the finished product and often on the components involved.
  • Eg: Mobile phones have over the last three years been subject to an import duty of 20 per cent.
• Strategic consideration: PLI incentivises local production of Active Pharmaceutical Ingredients that are needed to make drugs.

Challenges before PLI scheme

• Excessive focus on indigenisation led directly to a lack of competitiveness.
• India’s poor R&D ecosystem: India's gross expenditure on R&D is 0.65% of its GDP, significantly lower than the 1.5-3 per cent of GDP spent by the top 10 economies.
• Economic burden: Costing as high as Rs 2 trillion and huge opportunity cost as this could have been spend on building infrastructure and improving logistics to make all of India more competitive instead of benefiting a few firms.

Way forward

• Investment in R&D is essential to long-run competitiveness: Making PLI work Local production must lead to greater competitiveness, which in turn is about building technical capability.
  • That requires learning, learning how to manufacture efficiently, and learning how to further develop product technology.
• Focus on innovation and competitiveness, not indigenisation: British firm JCB has five factories in India, including its biggest worldwide. India is the largest market, investment and design centre and the base for exporting to over one hundred countries. This export success is best affirmation of competitiveness.
• Strict enforcement: Ensure that all conditions attached to the scheme, such as export commitments are honoured for the subsidy to be paid. Remove any further scope for bureaucratic discretion.
• Make achievements transparent, and publish the results: Let all know which firms have won which contracts for what committed volume, and how each is doing in adhering to the terms of the contract.
• Be clear of the sell-by date: No company should have any doubt about the duration of the scheme; it runs for five years and there will be no extension.
• Carry forward liberalisation: Through graded reduction in all tariffs on finished products and the components by 2025.