Budget 2023: Govt should extend PLI scheme to new sectors to boost manufacturing, say experts

Experts believe although the PLI schemes currently extended to 14 sectors have been beneficial, reduction in administrative inefficiencies, compliance burden would further help industry.

Representational photo of a worker pours molten iron from a ladle to make automobile spare parts inside an iron casting factory in Ahmedabad | Reuters 

New Delhi: The central government should expand its Production-Linked Incentive (PLI) scheme to newer sectors such as leather, toys, and renewable energy, say sector experts.

While largely there is a consensus among industry over the positive impact of the scheme, businesses and experts feel that extending the duration of the scheme, lowering administrative inefficiencies and compliance burdens, and providing a way forward in case of business contingencies, will further improve the programme’s efficacy.

In 2020, the central government introduced Production Linked Incentive (PLI) scheme for 14 sectors with a total incentive outlay of Rs 1.97 lakh crore (or about USD 26 billion). The first PLI scheme was announced in two tranches —  in March 2020 in three sectors, followed by the addition of another ten sectors in November 2020. In September 2021, the PLI scheme was extended to the drone and drone components sector. 

The 14 sectors are mobile manufacturing, manufacturing of medical devices, automobiles and auto components, pharmaceuticals, drugs, specialty steel, telecom & networking products, electronic products, white goods (ACs and LEDs), food products, textile products, solar PV modules, advanced chemistry cell (ACC) battery, and drones and drone components.

The key objective of the PLI schemes is to make domestic manufacturing globally competitive by boosting existing capacities in manufacturing for sunrise (new businesses) and strategic sectors, creating global champions in manufacturing and curbing cheaper imports, while also reducing import bills, enhancing export capacity and generating employment.

In a written reply to Lok Sabha in March 2022, Union minister of state for Commerce and Industry had said: “So far, 489 applications with expected investment of over Rs 1.89 lakh crore have been approved under 11 schemes”. He also noted that the PLI schemes in 14 sectors have the potential to create about 60 lakh new jobs over the next five years.

Expectations from Budget 

Apart from helping India achieve the goal of self-reliance, PLI schemes have given the country an opportunity to be cost-competitive to other manufacturing locations across the world, and have invited global players to make investments in India, said Abhishek Jain, Partner, Indirect Tax, KPMG India — a tax, audit and advisory firm.  

He added that the PLI coupled with other investment-driven incentives being offered by the central government such as Bonded Manufacturing [scheme] and FTP (Foreign Trade Policy) linked incentives, and state incentives have helped in increasing the share of manufacturing sector in India’s GDP (Gross Domestic Product).

“The two iterations (tranches) of Production Linked Incentive (PLI) [scheme] launched for the sectors so far have largely been successful in attracting investment commitments from both domestic and foreign manufacturers, thereby inching India closer to achieving its objectives of Make in India and Aatmanirbhar Bharat,” Jain told ThePrint.

The first iteration of PLI launched for mobile manufacturing and electric components, pharmaceuticals (critical key starting materials/active pharmaceutical ingredients), and medical devices manufacturing has largely been able to bolster India’s production capabilities, incentivise export-oriented production and reduce dependence on imports in these sectors.

Further, Jain said that going forward, the government can consider a PLI scheme to support the renewable energy sector such as PLI for manufacturing equipment needed for green hydrogen projects and biofuels. “This will help resolve the dependency of the Indian economy on crude oil imports to some extent. Other than this, PLI scheme for toys and furniture can be introduced by the government, considering that the market for these sectors is majorly dependent on imports,” he said.

Echoing similar views, the Confederation of Indian Industries (CII) has sought extension of PLI to wind turbine makers and component manufacturing for the development of new megawatt size turbines (3 to 5 MW) in the upcoming Budget. 

The industry body has also asked the government to consider an interest subvention of 5 per cent to modernise the components sector and make it much more competitive.

“This would be similar to the interest subvention of 5 per cent provided to the textile industry under the Technology Upgradation Fund (TUF) for textiles which is used for modernisation and capital investment in the sector,” it had said in its pre-budget recommendation to the finance ministry.  

Asked about the improvements that should be made in the PLI schemes to make it more successful, Jain said while the PLI policy framework has been received well by the industry players, most PLI schemes don’t provide the way forward in case of business contingencies, including change in investment plan and product-mix ratio?. 

“This leaves a lot of confusion for the companies as to how their PLI payout will get affected in case of deviations in commitment made as part of PLI application. The government can consider issuing clarifications around these areas, and can also consider building in more flexibility in the upcoming PLI schemes,” he said. 

According to a recent survey by Deloitte Touche Tohmatsu India, which saw the participation of 181 CXOs (corporation executives in leadership positions) across 10 industries in India, 70 per cent of CXOs felt that the government’s PLI schemes were outright beneficial. This was in comparison to 25 per cent who felt they were having a neutral impact and 5 per cent who said they were not helpful. 

Additionally, 60 respondents advocated that extending these incentives for the coming years would facilitate and increase their production capacity.  

“Respondents indicated that strengthening supply chains and lowering administrative inefficiencies and compliance burdens will further improve the programme’s efficacy,” Deloitte said in the survey.

Enumerating ways in which the PLI scheme could be improved, 59 per cent respondents advocated that prolonging PLI for additional years would increase their production capacity and 71 per cent leaders from food processing and 70 per cent leaders from telecom and technology sector concurred with this sentiment.

Currently, for majority of the PLI schemes the time duration is five years.

“Increased PLI coverage is considered by 56 per cent respondents as the most effective strategy for boosting industrial exports. This was also supported by 72 per cent leaders from the chemical sector and 80 per cent leaders in the textile industry,” the survey had found.

“A majority of the respondents across all sectors… advised broadening the scope of PLI programmes to include other sectors… Surprisingly, respondents did not expect the scheme to address skills and incentivise R&D under its purview,” it added.

About 39 per cent of respondents said that the PLI scheme should incentivise  additional employment generation and 43% said it should support research and development.

(Edited by Anumeha Saxena)