9 May 2024 : Daily Answer Writing

Q1) What does the Production Linked Incentive (PLI) scheme seek to achieve? What are the key challenges to its successful implementation?

(250 Words/15 Marks)

Production Linked Incentive is a scheme that offer companies incentives on incremental sales from products manufactured in India. It was launched in year 2020-21 under Make-in-India to promote growth of domestic manufacturing.

PLI scheme seeks to achieve following objectives:

  1. Domestic Manufacturing: Incentives to manufacturers based on incremental turnovers; encourages expansion of manufacturing capacities, increasing the gross fixed capital expenditure (GFCF).
  2. Domestic production can create import-substitution in a number of sectors with high import dependency.

E.g., Solar panels, Pharmaceutical APIs etc.

  1. Growth of manufacturing sector will generate employment opportunities at various skill levels. As per government estimate, 60 lakh new jobs shall be created between 2021-22 to 2026-27.
  2. Incentives to foreign investors to Make in India reduces capital constraints.

E.g., 76% increase in FDI in the manufacturing sector in FY2022 over FY2021.

  1. Innovation and technology transfer through MNCs establishing their manufacturing base in India.

E.g., Foxconn as anchor investor in semiconductor sector, US-India initiative on Critical and Emerging Technology (iCET).

However, the PLI scheme faces the following challenges:

  1. High Initial Investment: To qualify for the incentives, manufacturers need to make substantial investments in expanding and upgrading their facilities. This can be a barrier for smaller domestic units and MSMEs.
  2. Lack of Skilled Workforce: The success of the PLI scheme depends largely on the availability of a skilled workforce. As per India Skills Report, only 46% graduates in India are employable.
  3. Supply chain disruptions in wake of COVID and Russia-Ukraine conflict have impacted global manufacturing. India is also import-dependent for many intermediate goods and raw materials.
  4. Apprehension of return to license-permit raj through rise in protectionist tendencies.

E.g., laptop import licensing policy.

  1. Structural issues like infrastructure deficit, slow clearances deter investments in manufacturing.

E.g., Vietnam emerging as preferred investment destination due to low labour cost, FTAs (RCEP).

  1. Lack of technology transfer raises fear of India turning into assembly hub of world instead of manufacturing hub; cancellation of Foxconn-Vedanta deal due to lack of technology partners.

Following measures can help address the challenges of PLI:

  1. Skilling, reskilling and upskilling of workforce to meet changing demand of jobs. Vocational education to enhance hands-on skills and experiential learning.
  2. Strengthening IPR protection to promote innovation. It will boost investor confidence and facilitate transfer of technology.
  3. Build in traditional advantages.

E.g., technical textiles, farm-to-fork approach in food-processing industry, design-led approach in semiconductor sector to utilize India’s IT capabilities,

  1. Addressing infrastructure deficit through frontloading infrastructure spending.

E.g., plug and play infrastructure like Dholera SEZ. Bring down the logistics cost below 10% of GDP.

  1. Regulatory reforms for hands-off approach from government; regulatory sandbox for emerging sectors and technologies such as generative AI, blockchain etc.

A combination of targeted policy interventions and proactive engagement with relevant stakeholders is needed to realize the full potential of PLI scheme. This will strengthen India’s march towards achieving goal of Atmanirbar Bharat.

 

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