Precision for ‘Make In India’

Context: As part of the Atmanirbhar Bharat Abhiyan, the announced extension of the production-linked incentive (PLI) to 10 more sectors, is a step in the right direction, if implemented effectively and transparently.

Benefits of current PLI scheme:

• Extension to multiple sectors: 10 sectors to be covered under PLI are pharma, automobiles and auto components, telecom and networking products, advanced chemistry cell battery, textile, food products, solar modules, technology products, white goods, and speciality steel.
• Sales linked support: Attracting fresh investments, leading to higher production and cash incentives at the rate of 4-6% of incremental sales.
• Selective Policy: PLI is a selective sectors scheme which proved success historically in pharmaceutical and automobile sector in India.
  • India has also become a hub for aeronautics and automobile parts through a conscious effort to attract foreign direct investment. 
• Domestic Procurement: An offset policy requiring 30% domestically sourced could make India suppliers enter Global Value Chains (GVCs) with a strategic plan.

Issues with increasing tariff to protect domestic firms:

• Hurts industrial development: While the applied trade-weighted real tariff increased from 4.88% in 2018 to 10.3% in 2019, (below WTO threshold), mainly because of the dumping of Chinese goods.
  • India missed out of the trade-in Networked Products (NPs), where it exports only 0.5% of global trade, as compared to China (20%), South Korea (5%), Singapore (3.5 %), Malaysia (2%).
• Widens trade deficit: The trade deficit with China reached a peak of $63 billion in 2017-18,
  • India’s non-oil exports reached around $250 billion in FY2011-12, but have since plateaued out, showing some revival in 2018-19 to about $280 billion.

Way Forward: 

• Think beyond import tariffs: The new PLI scheme, along with a 10-year plan in each of the selected sectors for support, is the right way forward.
• Key to PLI’s success: lies in
  • Transparency and removal of bureaucratic hurdles.
  • Streamlining system, with automatic approvals along with relevant industry bodies, will help create a level playing field. 
  • Better logistics, skilled mid-level management, predictable power supply and R&D.

Conclusion: PLI signals the recognition that laissez-faire won’t work in a fiercely competitive global market, where everyone else — especially China — aggressively uses industrial policy.