Today, the PLI scheme is available in 14 manufacturing sectors: mobiles, medical devices, telecom & networking products, automobiles and auto components, pharmaceuticals, drugs, white goods, specialty steel, electronic products, food products, textile products, solar PV modules, advanced chemistry cell battery and drones and drone components.
The PLI schemes are the cornerstone of the government’s push to domestic manufacturing. By subsiding production, the government aims to boost exports, curb cheap imports and generate jobs by creating global manufacturing champions.
How has the PLI scheme performed so far?
In its three years, the PLI scheme has been launched for different sectors at different times. The government has allocated Rs 1.97 lakh crore for the PLI schemes for the 14 sectors. Till March 2023, 733 applications were approved in 14 sectors with expected investment of Rs 3.65 lakh crore. Actual investment of Rs 62,500 crore has been realized till March 2023 which has resulted in incremental production/ sales of over Rs 6.75 lakh crore and employment generation of around 3,25,000.
Incentive claims of over Rs 3,420 crore have been received under the scheme for eight sectors – large-scale electronics manufacturing; electronics and technology products; bulk drugs; medical devices; pharmaceuticals; telecom and networking products; food items; and drones, of which over Rs 2,800 crore have already been disbursed. The highest disbursal of Rs 1,649 crore was made in large-scale electronics manufacturing, followed by pharmaceuticals at Rs 652 crore, and food products at Rs 486 crore.
“We expect the disbursement to pick up…Projects are on the ground, and investments and employment are happening. The disbursement will follow…But yes, there is a lag,” Rajesh Kumar Singh, the Secretary in the Department for Promotion of Industry and Internal Trade (DPIIT) siad recently.
There was an increase of 76 per cent in foreign direct investment in the manufacturing sector in 2021-22 ($21.34 billion) compared to 2020-21 ($12.09 billion).
Mobile phone sector is a PLI success story
India is set to cross Rs 1,20,000 crore in mobile phone exports in the current financial year compared to Rs 90,000 crore in the previous financial year, driven by tech giant Apple, on the back of the PLI scheme, says India Cellular and Electronics Association (ICEA). It says that mobile phone exports have already registered a massive 128 per cent growth in the months of April-May this year.
The government’s production-linked incentive scheme for mobile phones may drive Apple to shift at least 18% of its global iPhone production to India by FY2025, a recent report by Bank of America has said. Currently, India contributes 7% to Apple’s total smartphone production.
The PLI scheme helped improve the export mix in local production from 16% on-year to 25%, says the report, adding that this can enable India to become a “credible global supply chain alternative” for mobile phones and electronics.
India’s electronics imports stood at $77 billion in FY23, which is the second-largest import bill representing a fifth of the country’s trade deficit. However, the PLI scheme, the report says, will help in India’s efforts to cut imports and step up exports which can improve its macroeconomic outlook, and reduce the current account deficit by $112 billion over five years, provide stability in foreign exchange, and accelerate growth for capex, credit, and logistics sector.
Accoridng to a govenrment official, India has been able to increase the value addition in mobile manufacturing to 20 per cent within a period of three years whereas Vietnam achieved 18 per cent value addition over 15 years and China achieved 49 per cent value addition in over 25 years. Import substitution of 60 per cent has been achieved in the telecom sector and India has become almost self–reliant in Antennae, GPON (Gigabit Passive Optical Network) and CPE (Customer Premises Equipment).
Where PLI scheme doesn’t meet expectations
The eight sectors where PLI performance is healthy include large-scale electronics manufacturing, pharma, food processing, telecom, white goods, auto and auto components. Sectors which are not picking up well include high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, textile products and speciality steel.
One reason for the PLI scheme not resulting in desired level of investment is a very short window for the cheme. Now the government is reportedly considering reopening the PLI window for some sectors. For example, large global players have given the PLI scheme a miss in the battery sector. which is likely due to a short window as investment decisions take time to firm up. Apart from electronics (mobile phones and IT hardware), the other schemes have not seen large-scale participation by global majors. The solar PLI has seen only First Solar show interest. Sector majors are missing in the PLI scheme for semiconductor manufacturing too, though the government is reportedly reopening the scheme for this sector. The process to claim incentives is also a challenge for beneficiaries and the government is likely to make it smoother.
A Credit Suisse report said in December last year that the scheme has turned out to be a mixed bag as many of the schemes seem to be very generic (food processing, pharma and textiles) and incentivise regular business activity.
Some of the schemes have been designed to accommodate as many players as possible (over 50 in many cases), rather than a few champions, said the credit Suisse report. The industry has also complained about low incentives, high investment requirements and high sales threshold in many cases.
PLI for more sectors
The government is also planning to add more sectors to the PLI scheme. A govenrment official had recently informed that proposals for extending fiscal benefits under the PLI scheme for toys, leather and footwear and components for new-age bicycles are in advanced stages.
“PLI scheme is showing significant dividends across many sectors. The intention is to also roll out this PLI scheme for more labour-intensive sectors such as toys, leather and footwear and other such sectors where employment benefits will be more significant,” he said.