Written by Sh. P. Udayakumar and Reshma A R
Indian manufacturing companies have often been subjected to formidable challenges due to the lack of a level playing field when compared to competing nations. This has been shown to create disparities in the growth and development of Indian manufacturing companies as compared to the global giants and established companies boasting vast resources, scale, and brand recognition against which they compete within the international market.
For manufacturing companies and competitors in India to attain the level of quality and innovation that is necessary to compete effectively globally remains an ongoing endeavor. To address this issue and to boost the role of Indian businesses as manufacturing giants in the market, the government has initiated a proactive step by introducing the Production Linked Incentive (PLI) Scheme. The PLI Scheme is a strategic move that has been made in line with the Honourable Prime Minister’s clarion call for ‘Atmanirbhar Bharat’ or ‘Self-Reliant India’. The Department for Promotion of Industry and Internal Trade (DPIIT) is playing a pivotal role in overseeing the successful execution of all Production Linked Incentive (PLI) Schemes. This strategic effort by DPIIT is aimed at ensuring the effective implementation of these schemes, which are designed to bolster various sectors of the Indian economy. Through this coordinated approach, DPIIT acts as a catalyst in promoting industrial growth and competitiveness in India.
The scheme was first introduced by the Ministry of Electronics and Information Technology (MeitY) under the National Policy of Electronics in 2019, in order to position India as a global hub for electronics system design and manufacturing. The Scheme was extended to 14 sectors, including Advance Chemistry Cell (ACC) Battery, Automobiles & Auto Components, Pharmaceuticals drugs, Telecom & Networking Products, Textile Products: MMF segment and technical textiles, Food Products, High Efficiency Solar PV Modules, White Goods (Air Conditioners and LED Lights), Specialty Steel with an outlay of ₹1.97 trillion, to the aid in positioning manufacturing as a central driver of India’s economic growth while simultaneously creating substantial job opportunities within the country. PLI schemes play a major role in bolstering manufacturing in India as they incentivize incremental production.
The PLI Schemes have been proven to be successful in various sectors especially in the field of electronics and telecommunication. Remarkably, within a mere few months since the scheme’s inauguration, there has been a noticeable surge in investments, resulting in a substantial increase in job opportunities within the sector. Over the course of three years, a total of 733 applications have received approval across these sectors, projecting an anticipated investment of Rs 3.65 lakh crore. In reality, by March 2023, investments totaling Rs 62,500 crore have been actualized, yielding significant incremental production and sales, surpassing Rs 6.75 lakh crore, while also fostering the creation of approximately 3,25,000 employment opportunities.
With a considerable track record of success in recent years exhibiting promising performance in sectors including electronics, pharmaceuticals, medical devices, telecommunications, food processing, and white goods, the Union government is set to allocate a substantial sum of ₹13,000 crore to support companies actively pursuing benefits under the Production Linked Incentive (PLI) schemes for the Financial Year 2023-24. Additionally, the government is actively exploring opportunities to expand the PLI Scheme to encompass other sectors, such as the Leather, Footwear and Toys Industries , as well. The reason behind the expansion of the scheme to encompass the toys, footwear, and leather sectors is firmly grounded on the labor-intensive characteristics associated with these sectors and rooted in enhancing investment in these sectors.
India’s leather and footwear industry is a significant contributor to the nation’s economy. With a vast population of cattle, buffalo, goats, and sheep, India stands as one of the major global sources of raw materials for this sector and its high exports as well, being the second-largest exporter of leather garments, third-largest in saddlery and harnesses, and fourth-largest in leather goods. The footwear sector further leads the way, with exports worth US$1.8 billion from April to August 2022, contributing to an impressive overall export value of US$2.38 billion, with a growth rate of 29.81 percent compared to the previous year. Furthermore, it plays a vital role in employment generation, providing livelihoods to over four million people, including a significant portion from marginalized groups. Moreover the Toys Industry holds a 0.5 percent share in the global market, valued at around US$1.5 billion. Influenced by considerable factors such as a boost in domestic consumer base, rise of online sales, rise in disposable incomes among others have shown a considerable drop in the imports of toys into India, declining from US$304 million in 2018-19 to just US$36 million in 2021-22. In contrast, exports have shown a positive trend, rising from US$109 million in 2018-19 to a peak of US$177.04 million in 2021-22, with a subsequent 13 percent decrease to US$153.88 million in 2022-23. Despite setbacks, their potential and capacity for expansion remain a significant factor in promoting them to the forefront with the support of the government, hence making them a perfect fit for granting PLI schemes.
Despite notable successes in certain sectors, it’s crucial to acknowledge that there are limitations to the scheme. This becomes evident when examining sectors like high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, textile products, and specialty steel, which have encountered significant challenges in fully realizing the advantages of the scheme. In light of this, the government has demonstrated a proactive stance by directing its efforts towards addressing the critical issues raised by stakeholders who are actively participating in the PLI schemes. Firstly, there is a concerted drive to streamline the processing of claims, ensuring that beneficiaries receive their incentives in a timely and efficient manner. Additionally, the government is actively engaged in managing visa-related concerns. In certain cases, projects may require the specialized expertise of foreign professionals, particularly from China. Addressing visa-related matters ensures that projects can access the necessary talent pool to advance their objectives effectively. Furthermore, the government is keenly focused on mitigating any delays associated with obtaining the requisite environmental clearances. These clearances are often instrumental in launching and progressing projects smoothly.
Given that these schemes play a pivotal role in boosting the Indian economy, fostering the emergence of national manufacturing champions, and creating job opportunities within the country, it is imperative to recognize the need for an accelerated pace in their implementation. This urgency is essential to ensure that the manufacturing sector thrives and grows at an optimal rate. Only through such accelerated efforts can we envision a future where the scope and applicability of PLI schemes can be expanded to encompass a broader range of sectors within the country, further solidifying India’s position as a successful player in the global industrial landscape.
Sh. P. Udayakumar is the Ex- Chairman and Managing Director of National Small Industries Corporation as well as NSIC Venture Capital Fund Ltd. under Ministry of MSME, Government of India.
He is currently contributing as a Principal Advisor, TLGS Consulting Group. (https://tlgs.consulting/people/)
Ms. Reshma A R is currently a Manager at TLGS Consulting Group, and is a lawyer who graduated from the National University of Advanced Legal Studies in Kochi.