As the COVID-19 pandemic hit the economy in 2020, the importance of being ‘Atmanirbhar’ came into focus. The Prime Minister pointed out the only way forward for India, was through local industries.
In the Union Budget 2021-22, the Finance Minister announced an outlay of INR 1.97 Lakh Crores for the Production-Linked Incentive Schemes for 13 key sectors.
In March, 2020, three PLI schemes were approved and these were followed by another 10 schemes in November, 2020. The Scheme cover sectors namely, mobile phones, allied equipment manufacturing, pharmaceutical ingredients, medical devices, food processing, telecom, electronics, textiles, specialty steel, automobiles and auto components, solar photo-voltaic modules and white goods.
PLI scheme is designed with these four objectives :
- Boost manufacturing in sunrise and strategic sectors.
- Curb Cheaper Imports
- Improving cost competitiveness of domestic manufactured goods
- Enhance domestic capacity and exports
Globally, manufacturing incentives are generally in these forms:
- Special Economic Zones (SEZ) - By creating special jurisdiction, automated logistics, many countries have boosted manufacturing. Eg. China in Pearl River Delta
- Tax and credit based- Many countries offer tax/credit incentives to attract investments
- Productivity and R&D based- Many countries focus to incentivize technology clusters. Eg. Advanced batteries in China, nano-technology in US
India’s PLI scheme is based on ‘piece rate method’ (quantity based) which is globally in decline. Tax incentives are applicable only when companies become profitable. Credit incentives often results into non-performing assets. However, revenue incentives encourage companies to invest. Incentives would be disbursed in an automatic way based on the company’s performance, which in a way would create ripple effect that will help other companies to grow.
The scheme invites foreign companies to set up units in India and it also aims to encourage local companies to set up or expand existing manufacturing units to cut down the country’s reliance on imports. The companies would be rewarded incentives based on incremental sales over base year. The scheme is gaining significant traction as the application process is not complicated and incentive structure is also very simple and tied to specific conditions.
Few of the many benefits of PLI Scheme:
- Scheme is helping IT sector. For the first time, multinational companies are setting up plants in India.
- Many supply chains were affected during pandemic, and they were looking to relocate out of China. India has now offered competitive regime and incentives to attract business.
- We will emerge as a design-led hub.
- Brought hope to climate action by incentivising companies to produce goods that
replace polluting technologies - Scheme will make Indian automotive industry more competitive.