Mains Daily Question
Sept. 27, 2023
Q3. Highlight the challenges faced by the Production Linked Incentive Scheme that need to be addressed to harness its full potential.(10M/150W)
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Approach to the answer: Understanding and structuring the answer: Start your answer by explaining what is production linked incentive and then discuss the main demand of the question. Introduction: Describe what is Production linked incentive scheme (PLI) Body:Question has 2 main part – 1) potential of PLI scheme 2) challenges faced by the Production linked incentive scheme (PLI). Conclusion: In conclusion, can suggest some way forward to overcome the issues with PLI. |
Answer: In 2020, the Government of India launched the Production Linked Incentive (PLI) scheme for promoting domestic manufacturing, import substitution and the Make in India initiative. Initially launched for 3 sectors, later, it was extended to 14 sectors in 2021 due to the success and promotion of local production across categories.
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Objectives of Production linked incentive scheme: Production Linked Incentives (PLI) scheme is an initiative under the flagship Atmanirbhar Bharat Abhiyaan. ● To promote exports and make India an integral part of the global supply chain. ● To promote the competitiveness of Indian Industries like the automotive industry, steel industry, textile industry, and pharmaceuticals industry. ● To promote investments and manufacturing in sectors like white goods, Telecom, solar panels etc. |
Potential of PLI scheme
- Empowering Domestic Manufacturing: By augmenting the domestic manufacturing capacity and competence, the scheme aims at creating more jobs, attracting greater investments, reducing imports, and making India a global manufacturing hub.
- Addressing Manufacturing Challenges: PLI is often touted as the panacea to India’s manufacturing problems. Scholars believe that the PLI can significantly restructure India’s domestic manufacturing, push its share in the GDP to 25 per cent, and foster seamless upgradation of domestic firms into regional and global production networks.
Challenges faced by the Production linked Incentive Scheme (PLI):
- Value Addition vs. Assembly Issue: PLI incentives based on sales, not value addition, promotes assembly over actual manufacturing. (E.g., seen in Mobile and Allied Component Manufacturing)
- Ambiguities in Scheme Design: Lack of clarity in awarding incentives may lead to corruption and malfeasance.
- Unintended Consequences: Expanding PLI to labor-intensive sectors may create a dependency on subsidies. Removing them later could be challenging, leading to inefficiencies.
- Bias Towards Larger Firms: Disbursement suggests favoring bigger companies, neglecting the significant contribution of MSMEs to India's manufacturing.
- Lack of Sector-Specific Understanding: PLI doesn't address unique needs of different sectors. For instance, container manufacturing faces distinct challenges due to high costs and a small market.
- One-Size-Fits-All Approach: Treating all sectors equally hinders success. For example, technology-intensive industries like pharmaceuticals require more resources for R&D compared to textiles.
- WTO Limitations: WTO rules limit India's ability to link PLI subsidies to domestic value addition, potentially restricting the growth of domestic industries.
PLI scheme has seen major success in the Mobile and allied Component Manufacturing sector, with the largest mobile phone production and export between 2021 and 2023. To integrate India into global supply chains and make it a manufacturing hub, certain reforms are also needed, like focusing on supply chain co-location, increasing the efficiency of domestic manufacturing, infrastructure development and pushing for labour-intensive sectors to ensure long-term sustainability.
