The central government launched the production-linked incentive (PLI) scheme in March 2020 with the goal to make India a competitive player in global markets and boost domestic manufacturing & exports. The scheme was originally designed for FY 2019–20 for some specific sectors, including mobile phones and allied equipment manufacturing, pharmaceutical ingredients and medical devices. In FY 2020, the scheme benetted ~150 manufacturing units, generating incremental sales of Rs. 46,400 crore (US$ 6,187 million). It also highlighted the potential for job creation over the next eight years. Consequently, the scheme has been expanded to accommodate an additional 10 ‘sunrise’ sectors to boost the economy and India’s self-reliance. In this blog, we’ll discover what the PLI scheme is, its objectives, benefits, impact and many more intricacies.
What is the PLI Scheme?
Under the PLI scheme, eligible companies receive financial incentives based on their incremental sales from products manufactured in India. These incentives encourage companies to invest in upgrading their manufacturing capabilities, adopting modern technologies, and expanding their production capacities.
By providing fiscal incentives through the PLI scheme, the government aims to boost domestic manufacturing, reduce reliance on imports, create more jobs, and enhance India’s competitiveness in the global market. The initiative supports India’s goal of becoming self-sufficient and more competitive in the international market.
Objectives of the PLI scheme
Key objectives of the scheme include:
- Protection of Identified Product Areas: Focus on safeguarding and nurturing specific sectors deemed critical for national interests, ensuring they thrive in a competitive environment.
- Implementation of Non-Tariff Measures: Introduce strategies that increase the cost of imports, thereby making domestically produced goods more attractive to consumers and reducing dependency on foreign products.
- Recognition of Exports in Growth Strategy: Emphasize the vital role of exports in driving overall economic growth while simultaneously fostering a strong domestic market. This dual focus aims to create a balanced economic ecosystem.
- Promotion of Domestic Manufacturing: Encourage local production by offering attractive incentives for manufacturers, thereby stimulating capital investments in key industries and enhancing overall output.
- Attraction of Core Knowledge Competencies and Cutting-Edge Technologies: Foster an environment conducive to innovation by drawing in skilled professionals and advanced technologies, which will bolster India’s competitive edge in the global market.
- Creation of Economies of Scale and Efficiency: Support the scaling up of production capabilities, leading to lower costs per unit and improved operational efficiency, ultimately benefiting both manufacturers and consumers.
- Job Generation and Employment Promotion: Prioritize the creation of new job opportunities across various sectors, contributing to the overall economic development and improving livelihoods.
- Construction of District-Level Export Hubs: Develop specialized export hubs at the district level to streamline the export process, enhance infrastructure, and support local businesses in reaching global markets.
- Reduction of Compliance Burden: Simplify regulatory frameworks and compliance processes, lets businesses to easily operate and innovate without being hindered by excessive bureaucracy.
- Improvement of Ease of Doing Business: Enhance the overall business environment by addressing challenges faced by entrepreneurs, thereby attracting more investments and fostering a culture of entrepreneurship.
Sectors Covered under the PLI Scheme
In March 2020, the scheme boasted an ambitious outlay of ₹1.97 lakh crore, targeting 14 key sectors to foster national manufacturing champions. The scheme encompasses critical areas such as (i) Mobile Manufacturing and Specified Electronic Components, (ii) Critical Key Starting Materials/Drug Intermediaries & Active Pharmaceutical Ingredients, (iii) Manufacturing of Medical Devices, (iv) Automobiles and Auto Components, (v) Pharmaceuticals Drugs, (vi) Specialty Steel, (vii) Telecom & Networking Products, (viii) Electronic/Technology Products, (ix) White Goods (ACs and LEDs), (x) Food Products, (xi) Textile Products: MMF segment and technical textiles, (xii) High-efficiency solar PV modules, (xiii) Advanced Chemistry Cell (ACC) Battery, and (xiv) Drones and Drone Components.
The PLI schemes for all 14 sectors have been officially announced by the relevant ministries and departments after receiving the necessary approvals. These schemes are currently being implemented by the responsible ministries and departments at different stages of progress.
Benefits of the PLI Scheme
The PLI Scheme offers numerous benefits, both for businesses and the broader economy. Some of the PLI Scheme benefits are listed below:
- Financial Support: By providing incentives, the government alleviates some financial burdens on companies, allowing them to invest in modern technology and production facilities.
- Increased Competitiveness: The PLI Scheme fosters a competitive environment, encouraging manufacturers to improve their efficiency and product quality to benefit from incentives.
- Job Creation: With increased production capacities, the scheme is expected to create millions of jobs, helping to reduce unemployment and boost economic growth.
- Technological Advancements: The focus on innovation and modern manufacturing processes leads to technological advancements, enhancing India’s position in global supply chains.
- Diversification of Supply Chains: The PLI Scheme aims to reduce dependency on specific countries for manufacturing, promote diversification of supply chains, and increase resilience.
Impact of the Production Linked Incentive (PLI) Scheme
- Significant Investment and Growth: By November 2023, the PLI Scheme has attracted over ₹1.03 lakh crore in investment, leading to production and sales of approximately ₹8.61 lakh crore and creating over 6.78 lakh jobs.
- Boost in Exports and Market Presence: Exports have exceeded ₹3.20 lakh crore, particularly from sectors like Large-Scale Electronics, Pharmaceuticals, Food Processing, and Telecom. PLI beneficiaries account for about 82% of mobile phone exports despite holding only 20% of the market share.
- Support for MSMEs and Localization: The scheme has benefited 176 MSMEs across various sectors and localized the production of electronic components, significantly reducing reliance on imports.
- Incentive Disbursement and Sectoral Growth: Approximately ₹4,415 crore has been disbursed in incentives across key sectors, including IT Hardware and Medical Devices. Production of 39 medical devices has commenced, bolstering local capabilities in healthcare.
- Enhancements in Pharmaceuticals and Telecom: The scheme has reduced raw material imports in the pharma sector and achieved 60% import substitution in telecom, with a remarkable increase in sales of Telecom & Networking Products.
- Promotion of Agriculture and Food Processing: The PLI Scheme has boosted the sourcing of raw materials from India, benefiting farmers and MSMEs while increasing sales of organic products and millet procurement.
- Alignment with Atmanirbhar Bharat: These initiatives support India’s vision of self-reliance, enhancing manufacturing capabilities and global competitiveness across 14 key sectors.
Conclusion
The Production-Linked Incentive Scheme is a transformative initiative that has the potential to reshape India’s manufacturing landscape. While the Production Linked Incentive (PLI) Scheme offers significant opportunities, several challenges must be addressed for its success. Effective implementation for seamless coordination among various government agencies and stakeholders, maintaining high quality standards, and Adequate infrastructure, including logistics, power supply, and industrial parks, is critical, and the demand for a skilled workforce in the manufacturing sector are some key issues that need to be addressed. If executed effectively, the PLI Scheme could indeed propel India towards becoming a global manufacturing hub, significantly impacting the economy and the lives of millions.
