Qualifying criteria crucial for the ten new sectors under the PLI scheme to succeed

If we can’t improve, let’s at least compensate. That seems to be the principle underlying the mega Production-Linked Incentive (PLI) scheme announced by the Centre for companies willing to set up manufacturing units for products that align with its Atmanirbhar Bharat vision. Enthused by the good response to the PLI scheme for mobile phones rolled out in April, the Centre now proposes to disburse ₹1.45-lakh crore to manufacturers of products ranging from advance chemistry cell batteries to solar PV modules in ten new sectors. Investors in the ten sectors are likely to be invited to submit greenfield proposals, which will then be screened and ranked by a nodal agency. Selected units will then receive direct incentives amounting to 4-6 per cent of their incremental sales (over a base year) for five years, to compensate for ‘disabilities’ due to the lack of a level-playing field with global competitors, as assessed by the Government. The April scheme for mobile phones and components was a success, attracting over 22 investment proposals with a promised output of ₹11.5-lakh crore. But for prospective investors in the ten new sectors lined up for PLIs, the devil may lie in the detail of the scheme.

Manufacturers will be required to jump through multiple hoops to qualify. After completing market assessments and framing their project proposals to stiff deadlines, they will need to satisfy an Empowered Committee that their project is indeed greenfield and will generate significant domestic jobs and value addition. PLI payouts are conditional on the unit attaining a minimum threshold of investment and sales in the first five years. The number of manufacturers selected per product and the quantum of the PLI will be capped. Reducing the ‘disabilities’ such as glitches in land acquisition and lack of a vendor base to a single number to provide incentive will be a tough task. The challenge will also be to convince new investors that the number arrived at is good enough to compensate them for the challenges they will encounter.

Overall, it is doubtful if such limited-period subsidies will motivate serious players to consider a long-term entry into sectors where there are hurdles to a healthy return on investment. The scheme is more likely to succeed in sectors where India represents a large captive market for global players, with substantial scope for local value addition. PLIs may present a short-cut to jump-starting the Atmanirbhar Bharat mission, but to keep it going, India will need to keep plugging away at its high barriers to the ease of doing business.

COMMENT NOW