PLI 2.0: Expanding Beyond Sales to Strengthen India’s Manufacturing and Exports

(Source – Indian Express, Section – Cover Page- Page No. – 01)

Topic: GS2 – Governance GS3 – Indian Economy

Context

The government is considering expanding the PLI scheme beyond incremental sales to include domestic value addition and exports to strengthen India’s manufacturing ecosystem.

Analysis of the news:

Expanding Metrics Beyond Incremental Sales

• The government is considering linking PLI incentives to additional metrics such as domestic value addition and incremental exports instead of just incremental sales.

• This shift aims to deepen India’s manufacturing base, strengthen supply chains, and enhance global competitiveness.

What is the Production Linked Incentive Scheme (PLI)?

The PLI scheme was conceived to scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation. Launched in March 2020, the scheme initially targeted three industries: Mobile and allied Component Manufacturing Electrical Component Manufacturing and Medical Devices. Later, it was extended to 14 sectors. In the PLI scheme, Domestic and Foreign companies receive financial rewards for manufacturing in India, based on a percentage of their revenue over up to five years.

Challenges in Value Addition and Localization

• Despite the PLI scheme’s success in attracting OEMs and contract manufacturers, value addition remains low across key sectors.

• To increase domestic manufacturing capabilities, deeper integration of local suppliers and component manufacturers is necessary.

• Enhancing localization in electronics manufacturing is particularly crucial to reduce dependence on imports and improve India’s global competitiveness.

Need for Large-Scale Manufacturing and Exports

• A significant hurdle in achieving self-reliance is the lack of large-volume manufacturing, which is essential to lower costs through economies of scale.

• Since India’s domestic market size is relatively small in sectors like telecom and electronics, expanding exports is critical to sustain production at scale and integrate into global supply chains.

Role of Foreign OEMs in Strengthening Ecosystem

• One proposed strategy is to leverage foreign OEMs to accelerate India’s manufacturing ecosystem.

• These firms have well-established supply chains and greater bargaining power with semiconductor and technology vendors.

• Over time, Indian firms can move up the value chain, similar to how Japan, South Korea, and China successfully developed their industries.

Job Creation and Sectoral Performance

• The PLI scheme’s impact on job creation has been uneven. While mobile phones, food processing, and pharma have performed well, textiles and advanced chemical cells have lagged.

• Aligning incentives with domestic value addition and exports could enhance employment generation across sectors.

Way Forward

To maximize the impact of PLI 2.0, India must:

1. Encourage localization of component manufacturing to boost value addition.
2. Expand export-oriented production to achieve economies of scale.
3. Strategically engage foreign OEMs to integrate domestic firms into global supply chains.
4. Enhance R&D investments and logistics infrastructure to improve global competitiveness.

A structured approach in PLI 2.0 could make India a global manufacturing hub, reducing reliance on imports and driving long-term economic growth.

PYQ: Consider, the following statements : (2023) Statement-I : India accounts for 3.2% of global export of goods. Statement-II : Many local companies and some foreign companies operating in India have taken advantage of India’s ‘Production-linked Incentive’ scheme. Which one of the following is correct in respect of the above statements? (a) Both Statement-I and Statement-II are correct and Statement-II is the correct explanation for Statement-I (b) Both Statement-I and Statement-II are correct and Statement-II is not the correct explanation for Statement-I (c) Statement-I is correct but Statement-II is incorrect (d) Statement-I is incorrect but Statement-II is correct Ans: (d)

Practice Question: The Production-Linked Incentive (PLI) scheme has played a crucial role in boosting India’s manufacturing sector. Discuss the challenges associated with its implementation and evaluate the need for expanding its scope to include domestic value addition and exports. (150 Words /10 marks)