What is Production Linked Incentive (PLI) scheme?
The PLI scheme was conceived to scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation.
PLI Scheme offers incentives to companies based on incremental sales in domestic facilities.
The PLI scheme guarantees 4-6 % incentives to companies for the step-by-step sale of manufactured goods in the country.
The PLI schemes’ goals include Make in India.
PLI Scheme was first established in April 2020 for the Large Scale Electronics Manufacturing sector.
What is Production Linked Incentive (PLI) scheme?
The Atma Nirbhar Bharat initiative in India inspired the introduction of this program.
So far, the government has announced PLI schemes for 14 sectors including:
Automobile
Renewable energy
Solar Modules
Auto components
Electronic systems
Aviation
Telecom
Food processing
Textiles & Apparel
Chemicals
White goods
Medical devices
Pharmaceuticals
Metals & mining
What is Production Linked Incentive (PLI) scheme?
Incentives:
Based on incremental sales.
They can be as low as 1% for electronics and technology products
or as high as 20% for the production of specified drug intermediaries and important key starting medicines.
Based on sales, performance, and local value addition over a five-year period in some industries.
Such as advanced chemical cell batteries, textile products, and the drone industry.
What is Production Linked Incentive (PLI) scheme?
Eligibility Criteria:
The eligibility criteria vary for different sectors under the PLI scheme.
Companies must have a registered manufacturing unit in India.
The applicant must touch the inception point to be eligible for the cost of the incentive.
₹10 crore for the MSMEs.
₹100 crore for others.
₹1000 crore for investment-oriented companies.
What is Production Linked Incentive (PLI) scheme?
Eligibility Criteria:
The applicant can open a new unit or take an incentive for operating the existing unit.
The scheme would support resource-friendly expenditure, including machinery, equipment, and technical enhancement, and would avoid expenditure for land and building.
PLI Yojana invites foreign companies to set up their units in India and encourages domestic enterprises to expand their production units.
Benefits
Introduction of non-tariff rules to increase the rate of imports.
Increase job opportunities.
Development of domestic industries by giving incentives.
Stable economy.
Reduce India’s dependence on China and other foreign countries.
Challenges
Organised sectors:
In India is the demand is shifting from the unorganised to the organised sector because of the various steps that the government has taken.
That has led to the further marginalisation and decline of sectors where employment generation is high.
The bulk of the PLI is focused on the organised sector in which employment generation is very little because of automation.
Challenges
Demand side problems:
At the macro level, PLI is a freebie to the corporate sector. And it is based on the idea of supply side economics.
We give incentives to the private sector to produce, but this will not work when demand is short.
Inadequacy of R&D:
Inadequacy of research and development (R&D) by businesses. Imports deter local R&D.
India invests much less than what most dynamic economies spend on R&D.
Challenges
Inadequacy of R&D:
Indian businesses spend less than others because investment in R&D is very risky.
Problem of repeatedly import technology rather than build internal strength.
Other problems:
No Common Set of Parameters:
The goal for Businesses for Incentives too high.
Domestic Businesses relied on one or two supply chains.
Way forward
Rather than protect large-scale industries, we need to boost the micro sector, which is where the bulk of the employment is, so that we can generate enough demand in the economy.
Shortage of demand and economic slowdown should be the number one priority to be dealt with.
Begin by investing in or developing certain core sectors, it will help in propelling development at large.
Way forward
In the current context, consider semiconductor industry or the electric vehicles industry as a core sector which will help in fostering industrialisation.
Targeting is very important when you decide to incentivise certain industries.
Rather than targeting certain strategic sectors we must look at the future of sustainability consideration such as green industries.
We need to be watchful of what other governments are doing and develop our own strategies accordingly.
Way forward
To boost demand reduce inequalities, so that demand for mass consumption items will give a boost to the economy as a whole.
Create good employment data.
Build internal strength
R&D investments have to be enhanced.
Infrastructure has to be fixed.
The quality of education has to be improved at all levels.
Cronyism, and the bureaucratic approach needs to be relaxed.
Way forward
Which companies and which sectors get the subsidy and which get the priority then is influenced by cronyism to a large extent in the Indian context.
Subsidies need to be distinguished.
Specific subsidy is given to sectors or to companies and are based on micro-level decisions that are taken by the government. In that case cronyism can play a negative role there.
Indirect taxes tend to be regressive, so those at the bottom need to be supported by subsidies.
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