The success of the production-linked incentive (PLI) scheme
Context:
Raghuram Rajan, a former governor of the Reserve Bank of India (RBI), recently questioned the PLI scheme’s effectiveness in stimulating local manufacturing and exports in India. The Centre unveiled the PLI programme in 2020. Thousands of crores of rupees have been set aside to subsidise Indian manufacturing enterprises. The PLI scheme, according to the Centre, has strengthened local manufacturing, although others have questioned its efficacy.
Production Linked Incentive (PLI)
- Objective: The PLI program’s main goal is to increase domestic manufacturing in certain industries and lessen reliance on imports.
- Sectors Included: The PLI concept is relevant to several industries, including textile, food processing, pharmaceuticals, automotive, telecom, and electronics manufacturing. The government recognises industries with growth potential and provides incentives appropriately.
- Performance-Based Incentives: As part of the PLI programme, qualified producers get incentives based on their incremental production performance. The incentives granted an increase following production levels.
- Eligibility criteria: Manufacturers must meet strict eligibility requirements to take part in the PLI initiative. These requirements could include investment minimums, minimal output standards, technology adoption, and other pertinent metrics. For each area, specific guidelines are offered.
- Time frame: The PLI programme normally lasts for a set amount of time, typically five years or longer. The government establishes the timeline for each sector, and during the scheme term, incentives are paid out depending on the met production targets.
- Budgetary Allocation: Under the PLI model, the government allots a predetermined budget to each sector. The rewards that will be given out throughout the programme are covered by this budget.
- Incentive structure: Depending on the industry and particular requirements, the PLI plan offers various incentives kinds, including cash subsidies, direct benefits, interest subsidies, and tax benefits. The incentive system is intended to draw in investors and motivate producers to increase their output.
- Competitive Selection Procedure: Manufacturers are normally obliged to go through a competitive selection procedure to take part in the PLI scheme. This procedure could entail submitting thorough project proposals, completing eligibility requirements, and adhering to precise evaluation standards established by the government.
- Monitoring and Evaluation: The government keeps a careful eye on how PLI programme participants are doing. Manufacturers must regularly update customers on their production accomplishments and other pertinent metrics. Mechanisms for evaluation are in place to guarantee compliance and efficient use of incentives.
- Impact and Benefits: The PLI plan intends to significantly increase manufacturing, foster job growth, accelerate technology adoption, draw in foreign capital, and lower imports. Additionally, it encourages innovation, raises competitiveness, and supports the nation’s overall economic growth.
Points to ponder:(From newspaper)
Arun Kumar’s viewpoints
- Developing the micro sector: According to Arun Kumar, attention should be paid to developing the micro sector, where there are many job prospects, rather than safeguarding large-scale enterprises. The economy will experience enough demand as a result.
- Demand shift: According to him, the government’s actions have caused a demand shift from the unorganised to the organised sectors, which has resulted in the marginalisation and demise of industries with substantial employment generation.
- Demand shortage: Kumar emphasises that the economy is experiencing both a demand shortage and an economic slowdown. The most important thing should be to deal with this.
- eliminating inequalities: Kumar advises eliminating inequalities to increase demand since the demand for mass-market goods from lower-income groups will support overall economic growth.
- Insufficient research and development (R&D): Kumar draws attention to the inadequate R&D conducted by Indian enterprises. He emphasises the necessity of reducing investment risk in R&D and developing indigenous strength rather than relying on technology imports.
Nagesh Kumar’s viewpoints
- Targeting strategic sectors: To promote industrialization and development, Nagesh Kumar advises focusing on strategic sectors with great potentials, such as green industries, semiconductors, or electric vehicles.
- Global competition: As industrialization and manufacturing take place in a globally integrated environment, he emphasises the significance of keeping an eye on what other governments are doing and formulating policies appropriately.
- Demand that already exists and can be satisfied locally, according to Kumar, does not present a problem for the industries targeted by PLI. He challenges the need for imports when India has domestic manufacturing capabilities for some products.
- Investment and incentives: Kumar emphasises the necessity of encouraging investment to draw in companies and manufacturing. He asserts that it will be difficult to attract investments without efforts made in the areas of promotion, facilitation, and incentivization.
- Post-Facto Incentives: He makes it clear that PLI is a post-facto incentive given to businesses after they have produced additional output rather than a giveaway. To reward and promote their economic participation, incentives are offered.
Similar concerns and points of view:
- Structural issues: Addressing fundamental problems, such as boosting infrastructure, raising educational standards, and expanding R&D spending are vital, according to both experts.
- Bureaucratic control and cronyism: There is general agreement that these issues must be resolved. It is best to avoid favouritism and unproductive outcomes because of the discretionary nature of subsidy allocation.
- Regressive nature of indirect tax: Arun Kumar emphasises that high indirect taxes caused by subsidies can result in higher costs and prices and that subsidies are necessary to help exports and the poor. Kumar concurs that subsidies should be carefully assessed, especially in light of their effects on various societal groups.
