PLI Scheme

The Production Linked Incentive (PLI) Scheme is a government initiative aimed at boosting domestic manufacturing and exports across various sectors. With an outlay of Rs. 1.97 lakh crore, the scheme targets 14 key sectors, including electronics, pharmaceuticals, and automobiles. It offers incentives of 4% to 6% on incremental sales over a period of five to six years. The PLI scheme has witnessed significant investment, exceeding Rs. 1.03 lakh crore, leading to production and sales worth Rs. 8.61 lakh crore. Additionally, it has generated over 6.78 lakh jobs, with exports surpassing Rs. 3.20 lakh crore. Despite its successes, the PLI scheme faces challenges such as the need for a robust monitoring mechanism and coordination among stakeholders. However, it remains a critical tool in India's journey towards self-reliance and economic growth.

In response to India's need for job creation and the expansion of its manufacturing sector, the government introduced the Production Linked Incentive (PLI) Scheme. India's economy has predominantly been service-oriented, relying on high-skilled jobs. However, there's a growing recognition that incorporating a strong manufacturing base, particularly in low-skilled sectors, is crucial for providing employment opportunities on a large scale. This shift is essential to address the issue of jobless growth and to bolster the country's manufacturing capabilities.

The PLI Scheme aims to incentivize companies to invest in manufacturing sectors such as electronics, automobiles, and pharmaceuticals, thereby fostering economic growth and generating employment opportunities for millions of Indians. This is in line with India’s 5 trillion dollars economy goal. It will help India diversify its economy and create a more inclusive and sustainable model of development.

What is the Production Linked Incentive Scheme (PLI)?
The PLI scheme is a government initiative designed to boost domestic manufacturing, reduce reliance on imports, and create job opportunities. Initially, it was introduced under the National Policy on Electronics by the IT Ministry, primarily to offer incentives to electronic companies manufacturing products like mobile phones, transistors, and diodes.

When was the PLI scheme launched?
Launched in April 2020, the scheme initially focused on three industries: Mobile and allied Component Manufacturing, Electrical Component Manufacturing, and Medical Devices. Later, it was extended to cover 14 sectors.

How does the PLI scheme work?
Under the PLI scheme, both domestic and foreign companies receive financial rewards for manufacturing in India, based on a percentage of their revenue over a period of up to five years. These incentives are calculated on the basis of incremental sales. In certain sectors like advanced chemistry cell batteries, textile products, and the drone industry, incentives are determined by sales, performance, and local value addition over five years.

1. Mobile Manufacturing and Specified Electronic Components
2. Critical Key Starting Materials/Drug Intermediaries & Active Pharmaceutical Ingredients
3. Manufacturing of Medical Devices
4. Automobiles and Auto Components
5. Pharmaceutical Drugs
6. Specialty Steel
7. Telecom & Networking Products
8. Electronic/Technology Products
9. White Goods (ACs and LEDs)
10. Food Products
11. Textile Products: MMF segment and technical textiles
12. High efficiency solar PV modules
13. Advanced Chemistry Cell (ACC) Battery
14. Drones and Drone Components

• Purpose: Aimed at bolstering India's manufacturing capabilities and exports, aligning with the vision of 'Atmanirbhar Bharat'.
• Investment: An outlay of Rs. 1.97 lakh crore (over US$26 billion) has been allocated for 14 key sectors under the PLI schemes.
• Output-Oriented Approach: Emphasises increasing production and sales rather than investment in infrastructure.
• Time-Bound Nature: Has a defined period of five to six years, ensuring efficiency and timely results.
• Performance-Based Incentives: Offers incentives based on performance, with varying rates depending on factors like manufacturer category and value addition.
• Flexibility: Allows manufacturers to choose their base year, investment plan, and production targets within set guidelines.
• Aligned with National Priorities: Supports strategic sectors, reducing import dependency, fostering innovation, creating employment, and enhancing India's global competitiveness.

• WTO Compliant: Ensure compliance with World Trade Organisation (WTO) commitments.
• Promote fair treatment for domestic sales and exports.
• Attracting Foreign Investments: Attract foreign investments in advanced technology and core sectors.
• Boost exports and contribute to overall economic growth.
• Offering Incentives: Provide incentives such as concessions on import and export duties, tax rebates, and support for anchor investors. Facilitate affordable land acquisition for manufacturing units.
• Encouraging Sustainable Development: Encourage sustainable development and investments, particularly in labor-intensive sectors.
• Promote job generation and employment opportunities.
• Enhancing Efficiency: Create economies of scale and ensure operational efficiencies.
• Reduce compliance burden and improve ease of doing business.
• Promoting Domestic Manufacturing: Construct district-level export hubs to bolster domestic manufacturing.
• Reduce logistics costs and boost manufacturing output.

• Impact on MSME Ecosystem: Expected to have a significant impact on the MSME ecosystem, with 176 MSMEs among the beneficiaries across various sectors. Anchor units established in each sector are likely to create new supplier/vendor bases, predominantly within the MSME sector.
• Sector Approval Process: Sectors approved for PLI schemes undergo scrutiny by NITI Aayog and consultations with relevant Ministries/Departments. No new sectors have been added under PLI schemes as of now.
• Investment and Employment Generation: Witnessed over Rs. 1.03 lakh crore investment till November 2023, leading to production/sales worth Rs. 8.61 lakh crore. Direct and indirect employment generation exceeding 6.78 lakhs.
• Exports and Market Share: Exports surpassing Rs. 3.20 lakh crore, with significant contributions from sectors like Electronics, Pharmaceuticals, Food Processing, and Telecom & Networking products. PLI beneficiaries accounting for approximately 20% market share but contributing to around 82% of mobile phone exports in FY 2022-23.
• Localization and Import Substitution: Localization of various electronic components and reduction in imports of raw materials, particularly in the Pharma sector. Import substitution reached 60% in the Telecom sector.
• Specific Sector Impacts:
  • Commencement of production for 39 Medical Devices, including CT-Scan and MRI machines.
  • Sales of Telecom & Networking Products by PLI beneficiaries increased by 370% compared to the base year.
  • Substantial impact on investment in the Drone industry with a Compound Annual Growth Rate (CAGR) of 90.74%.
  • Increased sourcing of raw materials domestically, benefiting Indian farmers and MSMEs.
  • Sales of Organic Products and Millet procurement showing significant growth, enhancing Indian brand visibility in international markets.

1. Monitoring and Evaluation Mechanism:
   • Lack of a robust mechanism for monitoring and evaluating manufacturers' compliance with scheme requirements.
   • Need for clear criteria and independent audits to verify incremental production, sales, and value addition.
2. Coordinated Approach:
   • Requirement for coordination among ministries, departments, and stakeholders to prevent policy conflicts and duplication.
   • Need to align PLI schemes with other existing or proposed initiatives like Make in India and Digital India.
3. Supportive Ecosystem (a sudden surge in investment with a long term gap of necessary tools):
   • Necessity for infrastructure, logistics, finance, and skilling support to enable manufacturers to scale up production and exports.
   • Addressing bottlenecks and gaps in the ecosystem through reforms and investments.
4. Dynamic Design:
   • Requirement for a responsive design to adapt to changing market conditions and consumer preferences.
   • Periodic review and revision of PLI schemes based on stakeholder feedback.

• Compliance and Reporting Burden: Administrative burdens faced by companies to comply with reporting and documentation requirements.
• Sectoral Imbalance: Disparities in benefits received by different sectors leading to potential economic imbalances.
• Impact on Existing Investments: Diversion of investments from existing projects not covered under the scheme, affecting their growth prospects.
• Delays in Implementation: Administrative challenges and bureaucratic processes leading to delays in implementing the scheme for different sectors.
• Funding Constraints: Challenges in timely disbursement of incentives impacting scheme effectiveness.

As India strives towards achieving its vision of "Atmanirbhar Bharat," it's imperative to address the challenges associated with demand and investment beyond the scope of the PLI scheme. Unemployment and skill development must be addressed in tandem with incentive schemes to foster holistic economic growth.

Recent data from the Centre for Monitoring Indian Economy (CMIE) underscores the urgency of the situation, with India's unemployment rate rising to 7.8% in October 2023. To gauge the effectiveness of companies benefiting from such schemes, establishing a comprehensive set of parameters is crucial.

Furthermore, incentives should not be limited to the manufacturing sector alone; they should encompass all relevant industries, taking into account various contributing factors.

Looking ahead, the World Bank projects a significant GDP growth for India, with an anticipated increase of 6.5% in 2024-25. However, to maintain this trajectory and compete with emerging competitors like China, Indonesia, and Bangladesh, further initiatives are essential.

According to the latest report on Global Trade Outlook and Statistics by the WTO, India contributes just 1.8% to global exports of goods. While the PLI scheme has shown some promise in addressing this, its effectiveness must be rigorously evaluated, focusing on metrics like job creation, cost per job, and reasons for limited success. Extending the scheme to new sectors necessitates a deep understanding of its limitations and a proactive approach to address underlying issues.

In navigating the path towards self-reliance, it's crucial for the government to assess policy initiatives like the PLI scheme comprehensively, ensuring they align with broader economic objectives and contribute significantly to India's manufacturing prowess and GDP growth.