Why some PLI schemes are in the slow lane; what govt is doing about it

• If employment generation is used as a metric, six of the 14 Production-Linked Incentive (PLI) schemes including textiles, solar modules, IT hardware, automobiles, advanced chemical cells (ACC), and specialty steel, are relatively in the slow lane.

Highlights:

• The Production-Linked Incentive (PLI) schemes, covering 14 strategic sectors, represent a transformative effort to position India as a global manufacturing hub. While the scheme has achieved commendable success in certain sectors, others are lagging, necessitating a nuanced review and recalibration.

Employment Generation: Mixed Outcomes

• Employment creation, a critical metric for assessing the success of PLI schemes, has revealed a dichotomy in performance:
• Fast-Performing Sectors:
  • Mobile Phones: India has transitioned from being a net importer to a major global player, exporting smartphones worth $15 billion in 2023-24. Apple’s ramped-up assembly operations in India are indicative of the sector's success.
  • Food Processing: Demonstrates robust job creation, nearing its target well ahead of schedule.
• Sectors in the Slow Lane:
  • Textiles, Solar Modules, IT Hardware, Automobiles, Specialty Steel, and Advanced Chemistry Cells (ACC): These sectors face challenges ranging from stringent eligibility norms to extended commissioning periods.

Challenges Hindering Progress

• Initial Setup Period:
  • Many PLI sectors require the establishment of domestic manufacturing from scratch, which delays immediate job creation. For instance, solar modules and ACC batteries have a gestation period of 1.5–3 years.
• Stringent Eligibility Norms:
  • Smaller entities struggle to meet the demanding criteria, limiting broader participation.
• Dependence on Imports:
  • Access to Chinese machinery and expertise, coupled with import tariffs, has posed hurdles in certain sectors.
• Over-Reliance on Large Players:
  • Initial incentives have disproportionately benefited larger companies, like Apple in mobile manufacturing. While this approach accelerates initial traction, the trickle-down effect to ancillary industries remains gradual.

Government Response and Future Strategy:

• Recognizing these challenges, the government is recalibrating the scheme to enhance its effectiveness:
  • Sector-Specific Adjustments: Schemes for drones, IT hardware, and textiles are under review, with increased outlays and relaxed criteria under consideration.
  • Encouraging Supply Chains: Initial success in sectors like mobile manufacturing is expected to percolate down, enabling smaller suppliers to set up operations, thereby boosting employment indirectly.
  • Focus on Long-Term Competitiveness: The goal is to achieve a critical mass in each sector, ensuring sustainability even after incentives are withdrawn.

Economic Potential:

• Despite initial hurdles, the PLI scheme’s long-term potential is immense:
  • Capex Impact: Rating agency Crisil estimates the scheme could drive industrial capital expenditure of ₹3–3.5 lakh crore, accounting for 8–10% of total capex in key sectors.
  • Global Integration: With companies like Apple increasing their supplier base in India, the scheme is helping India integrate into global supply chains.

Critics and Concerns:

• Critics argue that the scheme resembles subsidization and may not foster true competitiveness. Once incentives are phased out, the sustainability of the sectors remains uncertain. However, proponents believe the strategy to prioritize scalability and ancillary industry growth will mitigate these risks.

Prelims Takeaways

• About key industrial sectors