The Modi-led government’s flagship Production Linked Incentive (PLI) scheme announced in 2020 has been arguably the most ambitious, proactive and focussed policy announcement under the ‘Atmanirbhar Bharat’ initiative for incentivising local production in strategic sectors. But its implementation has been patchy.

The 14 sectors selected to benefit from the ₹1.97-lakh crore programme were no doubt carefully chosen following the broad criteria of focussing on key technologies where India can “leapfrog and multiply employment, exports and overall economic benefits for the economy”.

Sectoral disparities

However, about four years after its launch, only the large-scale electronics manufacturing sector, which includes mobile phones, has emerged as an undisputed beneficiary of the scheme, attracting considerable investments, leading to accelerated production and exports.

Performance of a handful of others, such as pharmaceuticals, food processing, IT hardware and drones, have also shown some promise in terms of investments, incentive disbursals and exports. The scale, though, is much lower than large-scale manufacturing.

Other beneficiary sectors such as automobiles and auto components, drug intermediaries & APIs, medical devices, speciality steel, white goods, textile products, solar PV modules and ACC battery, have a lot of catching up to do.

Low disbursals

All in all, the disbursals under the PLI scheme have not been too encouraging. Three years after Finance Minister Nirmala Sitharaman announced an outlay of ₹1.97-lakh crore under PLI for a period of five years starting from 2021-22, the government has disbursed cumulative incentives of just ₹9,700 crore, per latest figures shared by senior Department for Promotion of Industry and Internal Trade (DPIIT) officials. This is less than 5 per cent of the total outlay. Moreover, only a few sectors, most prominently the large-scale electronics manufacturing represented mostly by mobile phones, have cornered a large chunk of the total disbursals.

The government, however, draws encouragement from the investments, jobs and exports already achieved under the scheme. Replying to a debate on Union Interim Budget in February, Sitharaman said that investments of ₹1.07-lakh crore had already been committed under the scheme leading to the creation of job opportunities for 7 lakh people. The PLI scheme also led to ₹3.4-lakh crore of exports and ₹8.7-lakh crore of production and sales. But the necessity to focus on sectors that are lagging behind remains paramount.

The PLI scheme, which is based on incentivising incremental sales of goods manufactured in India, comes with strict timelines and conditions of minimum investment and sales, which may have been acting as a barrier to investments.

Rejigging scheme

With India’s manufacturing future riding on the scheme, it is not surprising that the government is re-working rules for some of the sectors to make investing easier and more attractive.

Last year, the Union Cabinet approved a revised version of the PLI scheme for IT hardware as the initial version was not able to attract enough investors. PLI 2.0 for IT hardware came with a doubled budgetary and a longer tenure of six years, instead of the earlier four years, apart from a better incentive package. Earlier this year, the Ministry of Heavy Industries announced the extension of the PLI Scheme for automobile and auto components by one year with “partial amendments”. This was done to provide greater clarity and support to the sector, promoting growth and competitiveness, according to the Ministry.

The DPIIT is also in the process tweaking the PLI scheme for sectors including textiles, food processing, bulk drugs and solar PV modules to include more products and increase their tenures, according to officials.

Eye on imports

While reworking the existing scheme to increase its scope and attractiveness is an important factor for success, keeping an eye on other aspects affecting demand, such as imports, may also be crucial. Some may argue that the success seen in the mobile phones sector may actually predate the PLI (as a Phased Manufacturing Programme was introduced for the sector in 2015-16) and was also linked to the NDA’s decision to impose import duties on the product despite problems at the WTO.

It may also not be a coincidence that after the government decided to introduce import restrictions, although negligible at the moment, on the import of laptops and computers, applications of 27 IT hardware manufacturers were approved under the PLI 2.0 scheme for IT hardware in November 2023. These include ones from companies such as Acer, Asus, Dell, HP and Lenovo.

With the share of the manufacturing sector in India, at about 17 per cent of the GDP, still much below the coveted 25 per cent aimed for since the time of the UPA government, and employment generation continuing to be a big challenge for the economy, it is imperative that the government does all it takes to make the PLI scheme as huge a success as it was intended to be. After all, it is a competitive manufacturing sector which is key to increasing India’s presence in global markets.