Description

The Production-Linked Incentive (PLI) scheme, introduced in 2020 with an allocated budget of $23 billion, was designed to enhance domestic manufacturing and reduce reliance on Chinese imports. However, the initiative has failed to deliver the expected results, leading to its impending expiration.

The scheme aimed to increase manufacturing’s share in India’s GDP to 25% by 2025, but instead, the contribution has declined from 15.4% to 14.3%. As of October 2024, only 37% of the anticipated production targets had been met, with $151.93 billion worth of goods manufactured.

Key issues such as delays in subsidy disbursement, excessive bureaucratic hurdles, and compliance difficulties hindered the effectiveness of the initiative. Many companies struggled to meet investment and production requirements, leading to an underwhelming performance in several sectors.

Understanding PLI Scheme

The Production-Linked Incentive (PLI) scheme was a flagship initiative launched by the Indian government to:

• Strengthen domestic manufacturing capacity

• Reduce dependence on imports, particularly from China

• Promote exports and job creation

• Enhance India's competitiveness in global markets

Initially, the scheme was introduced for three sectors:

• Mobile and Allied Component Manufacturing

• Electrical Component Manufacturing

• Medical Devices

Subsequently, it was expanded to 14 key industries, including automobiles, pharmaceuticals, food processing, textiles, steel, solar panels, and IT hardware.

Under the scheme, both domestic and foreign companies were eligible for financial incentives, which were calculated as a percentage of their incremental sales revenue over a five-year period.

Performance Evaluation Of PLI Scheme

While some industries benefited significantly, others failed to meet targets due to challenges such as delayed policy implementation, investment shortfalls, and global economic disruptions.

Success Stories:

• Mobile Phone Manufacturing - A major success under the scheme, with production increasing by 63% between 2020 and 2024, reaching $49 billion. Global giants like Apple and Samsung played a pivotal role in export growth.

• Pharmaceutical Industry - The sector witnessed robust growth, with exports almost doubling to $27.85 billion (FY 2023-24). India solidified its position as a key player in the global pharmaceutical supply chain.

• Food Processing Industry - Exceeded production targets due to strong domestic demand and export potential. However, some companies failed to qualify for subsidies due to non-compliance with investment requirements.

Underperforming Sectors:

• Steel Industry - Out of 58 approved projects, 14 were withdrawn due to challenges in meeting investment commitments. Slow adoption of advanced manufacturing technology also affected production levels.

• Solar Panel Manufacturing - The industry failed to compete with China, with 8 out of 12 companies unlikely to meet targets. High import dependence for raw materials contributed to the underperformance.

• Textile and IT Hardware Sectors - Struggled to achieve scale, mainly due to higher production costs compared to China. Delays in supply chain integration and limited innovation reduced global competitiveness.

Financial Disbursement And Sectoral Imbalance

Between April and October 2024, $620 million in PLI incentives were distributed. However, the distribution was highly skewed, with:

• 94% of the funds allocated to just two industries: Pharmaceuticals and Mobile Phones.

• Other sectors, including textiles, solar energy, and IT hardware, received minimal support due to their failure to meet production benchmarks.

Challenges And Reasons For Underperformance

• Bureaucratic Delays - Complex approval processes and red tape slowed fund disbursement, discouraging investment.

• Inconsistent Policy Implementation - Frequent changes in regulations created uncertainty for investors.

• Higher Production Costs - Many Indian manufacturers struggled to compete with China’s cost-effective supply chain.

• Supply Chain Disruptions - The COVID-19 pandemic and geopolitical tensions led to delays in project execution.

• Failure to Attract Global Investors - Despite incentives, many multinational corporations remained hesitant due to infrastructure gaps and policy uncertainty.

Conclusion: Future Of Manufacturing In India

While the PLI scheme achieved success in select industries, its overall impact fell short of expectations. If India aims to compete with China and become a global manufacturing hub, the government needs to address structural inefficiencies, improve ease of doing business, and ensure timely policy implementation.

Future industrial policies should focus on:

• Enhancing domestic supply chains

• Reducing dependence on imported raw materials

• Strengthening R&D investment for advanced manufacturing

• Ensuring faster approval processes and subsidy disbursement

Despite setbacks, India still has the potential to emerge as a global manufacturing powerhouse, provided corrective measures are taken in future initiatives.

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