India’s PLI Scheme: A Modest Start with Room for Improvement

The government will conduct a review of its ambitious production-linked incentive (PLI) scheme in order to address the initial challenges faced by beneficiaries. The main focus of the review will be on sectors that have shown slower progress than expected. Commerce and industry minister Piyush Goyal will lead the review meeting, which will involve officials from all the ministries responsible for implementing the PLI scheme, as well as the participating companies.

All About the PLI Scheme

The government has allocated ₹1.97 trillion for the PLI scheme, which covers 14 key sectors including telecom, textiles, automobiles, white goods, and pharmaceutical drugs. The scheme aims to boost domestic manufacturing, create employment opportunities, reduce cheap imports, and increase exports. So far, the government has disbursed ₹2,874 crores to beneficiaries in eight sectors, namely mobile manufacturing, IT hardware, pharmaceutical drugs, bulk drugs, medical devices, telecom, food products, and drones.

Nevertheless, there has been lackluster progress observed in the remaining six sectors, namely steel, textiles, battery, white goods, solar PV, and automobiles. Incentive disbursements for these sectors have not yet begun, and individual ministries are currently conducting a detailed analysis to determine the reasons behind the slow progress.

To improve the scheme’s efficiency, Ajay Srivastava, a former official of the trade ministry and the founder of the Global Trade Research Initiative (GTRI), recommends that the government exercise caution regarding the possible misapplication of the incremental sales criteria when providing PLI incentives.

Srivastava’s report also recommends simplifying the criteria for the scheme to prevent misuse, as the current requirements, such as thresholds for investments, production, sales, localization, and input usage, can be challenging for manufacturers to fulfill. The report proposes that the focus should be on incentivizing local production of components rather than the final product.

Madan Sabnavis, the chief economist at Bank of Baroda, points out the difficulty of monitoring how the PLI scheme is being utilized, especially in cases where companies expand their operations. He suggests that the scheme should be a one-time incentive and should not be extended beyond the end date to avoid companies becoming overly dependent on it.