Production-Based Incentive System

Introduction: PLI scheme is a policy tool in India to incentivize industrial growth

Outlay of INR 1.97 Lakh Crores

Aimed at boosting domestic Creation of 60 lakh new jobs,
for the Production Linked
manufacturing, attracting and an additional production
Incentive (PLI) Schemes
investment, and enhancing of 30 lakh crore during next 5
across 14 key sectors
exports years

In addition to the three schemes The incentives given, are Ambitious targets set to
announced in March 2020, GoI has calculated on the basis of increase production and
further introduced the following 10 incremental sales promote self-reliance
new PLI schemes in November 2020 (Atma-nirbhar Bharat)
Introduction: After 1st Phase of PLI Scheme, it expanded to 10 new sectors
Accelerating Innovation: India's Production-Linked Incentive Initiative

The PLI (Production Linked Incentive) scheme presents a unique opportunity for businesses and
investors to participate in India's journey towards becoming a global manufacturing hub. By
providing financial incentives based on incremental sales of locally produced goods, the scheme
aims to:
Enhance domestic manufacturing capabilities and reduce import dependence.

Attract investments by offsetting higher production costs in India.

Promote the "Make in India" initiative and establish India as a global manufacturing hub.

Boost exports by increasing surplus production of locally manufactured goods.

Generate substantial employment opportunities through new and expanded manufacturing

units.

Target sectors like automobiles, electronics, and textiles with high growth potential.
Accelerating Innovation: India's Production-Linked Incentive Initiative

Through the PLI scheme, the Indian government is demonstrating its unwavering commitment to
strengthen the country's self-reliance, promote economic growth, and position India as a globally
competitive manufacturing destination. By incentivizing domestic production, the scheme not only
boosts the manufacturing sector but also instills confidence in the stability and growth potential of the
Indian economy.

This not only supports the 'Make in India' initiative but also creates a favorable environment for
establishing or expanding manufacturing facilities within the country, promising a bright future for all
stakeholders.
Status & Implementation: A takeoff with turbulence – Early signs
Think of India’s PLI scheme like a plane taking off. There’s a big burst of energy at the start right?
But once it’s up in the air, navigating and steadying against all those tricky air pockets is just as
key

The electronics sector has Disaggregated data at the

witnessed a 200% surge in company level is limited, hence
investments since PLI scheme’s tough to quantify the impact of PLI.
launch

PLI’s implementation The electronics sector has

Foxconn & Samsung, major global
success hinges on witnessed a 200% surge in
players have announced new
addressing SME investments since PLI scheme’s
manufacturing facilities in India
participation, & launch
equitable
distribution of
incentives across
sectors.

The PLI scheme aims to boost domestic manufacturing, attract investments & enhance exports in key sectors.
How is it expected to impact economic growth: An attempt at forecasting

Quantifying the impact : PLI’s serving as a catalyst for growth through industry, government and
academia collaboration.

PLIs incentivize efficiency & quality, making Indian industries

globally competitive. (Target: 5-10% reduction in production
costs by 2027)

Increased production through PLIs leads to new job

opportunities across skillsets. (Target: 1-2 million new jobs
by 2027 in targeted sectors)

PLIs encourage R&D and technology adoption, fostering a

culture of innovation. (Target: 15-20% increase in R&D
spending in key sectors by 2027)

Enhanced product quality & pricing through PLIs lead to

higher export earnings. (Target: 10-15% growth in exports of
targeted goods by 2027)
Optimizing PLI Scheme Implementation: Insights for Equitable Allocation and Efficiency

Fragmentation of Production Capacities Uneven Distribution of

Approvals Across Industries:
The delay in implementing the scheme,
While some industries, such as food
with the process of selecting producers in 14

Challenges
processing and automobile components,
industries completed only in 2022, has led to
received a large number of approvals under
concerns about fragmentation of
the PLI Scheme, others, like pharmaceutical
production capacities.
intermediates, saw minimal approvals .
For instance, in the auto component
This uneven distribution raises concerns
industry, where 75 companies have
about the potential expansion of domestic
received approvals, there is a risk of
production in critical sectors and the risk of
fragmentation, hindering the realization of
long-term dependence on imports,
economies of scale essential for global
particularly from China, for essential
competitiveness.
products.

Budgetary Allocation and Spending Discrepancy Limited Expansion in Critical Sectors

Despite an initial outlay of Rs 1.97 lakh crore announced in 2020, actual spending
and allocations between 2021-22 and 2023-24 amounted to less than Rs 12,000
crore, representing only 6% of the committed spending
The mobile phone and IT hardware industries received over 57% of the budgetary
spending/allocations, indicating a significant disparity in allocation distribution
across industries.
Only nine new producers received approvals for producing pharmaceutical
intermediates under the PLI Scheme, suggesting a lack of significant expansion in
domestic production in this critical sector.
This limited expansion could perpetuate India's dependence on imports for
essential pharmaceutical products, posing risks to national security and economic
resilience
Suggestions on tackling the Challenges posed towards PLI schemes.
Streamlined Selection Process for Producers
To address the issue of fragmentation, consider
implementing a more streamlined and
efficient selection process for producers. This
could involve setting clearer criteria for
approval, such as minimum production
capacity or market share, to ensure that only
the most capable and competitive companies
receive support. Additionally, consider
providing incentives for mergers and
acquisitions within the industry to consolidate
production capacities and promote the
realization of economies of scale.
Enhanced Transparency in Budget Allocation
To address the issue of budgetary allocation and spending, consider
increasing transparency in the allocation process and setting clearer
guidelines for budget distribution. This could involve setting specific targets
for budget allocation across industries, with regular reviews to ensure that
spending remains on track. Additionally, consider increasing the overall
budget for the PLI Scheme to ensure that it can effectively support the growth
of domestic production across a range of industries.
China and South Korea as Examples
India can enhance its PLI scheme by learning
from China's Made in China 2025 and Korea's
Digital New Deal, focusing on technology,
green economies, and digital transformations.
By fostering partnerships, offering incentives,
and streamlining processes, India can
optimize budget allocation, transparency, and
regular reviews, promoting domestic
production growth, reducing import
dependence, and strengthening economic
resilience in a rapidly changing global
landscape.
Targeted Incentives for Expansion in Critical Sectors
To promote expansion in critical sectors such as pharmaceutical intermediates,
consider providing targeted incentives for companies investing in this area. This
could involve offering higher subsidies or tax breaks for companies that commit to
investing in production capacity for essential pharmaceutical products. Additionally,
consider partnering with research institutions and universities to develop new
technologies and processes that can improve the efficiency and competitiveness of
domestic production in this sector.