Context: The Central government’s Production-Linked Incentive scheme (PLI) offers benefits, which are easy to avail of, and it boosts output and exports without flouting WTO rules.
The PLI scheme is designed with four objectives:
Target specific product areas;
Introduce non-tariff measures in order to compete more effectively with cheap imports;
Blend domestic and export sales to make manufacturing competitive and sustainable;
Promote manufacturing at home while encouraging investment from within and outside India.
Various Incentivization Models:
Special Economic Zones: Creating special jurisdictions, tailored logistics, and specific incentives. E.g.: China in its Pearl River Delta;
Tax-based and credit-based approaches: to attract investment and employment.
Productivity and research and development-based approaches: incentivizing technology clusters (advanced batteries in China, for instance, and nano-technology in the US) and research in specific areas like plant biology or the human genome.
Production Linked Incentive (PLI) Scheme:
Boosts domestic manufacturing and attracts large investments: in the electronics value chain, including electronic components and semiconductor packaging.
Unique incentives mechanism: Under the scheme, manufacturing companies will get an incentive of 4 to 6% on incremental sales(over the base year) of goods manufactured in India for a period of the next five years.
While there are different incentivization methods followed worldwide, India’s PLI scheme resembles the ‘piece rate’ method, which has been declining in use worldwide.
While in this method, the incentives are initially given for quantity, they are ultimately designed to increase the quality.
Think of it as a ‘subsidy’ for sales, i.e., a straight boost to the top-line. Thus, it avoids credit incentives to turn into non-performing assets.
Multiplier impact: If the companies invest, then employment and development in that region follow, and with incentive payments, a virtuous cycle sets in.
Adheres to World Trade Organization (WTO) rules: By its very construct, the PLI scheme does not link the eligibility or quantum of its subsidy to exports and local value addition, thus making it WTO-compliant.
Way forward:“Nature is pleased with simplicity, and nature is no dummy,” said Isaac Newton.
Government should ease the system: by further improving logistics, ensuring water and electricity, and generally enabling companies to produce and get their products to market.
This will not only work in favour of employment and production but also kick-starts private investments.