Why PLI Is Worth Doing

Source: The post is based on an article “Why PLI Is Worth Doing” published in The Times of India on 27^th September 2022.

Syllabus: GS 3 – Industries and industrial policies

Relevance: advantages and problems associated with Production Linked Incentive (PLI) scheme.

News: Vedanta Foxconn semiconductor factory in Gujarat has received an investment of $20 billion through the government’s flagship Production Linked Incentive (PLI) scheme. This has led to the analysis of the Production Linked Incentive (PLI) scheme.

How does PLI affect a specific product category?

PLI on a specific product category is accompanied by higher tariffs on the product.

This increases the import tariffs and usually results in higher price for the Indian consumer and lower prices of domestic products.

For example, iPhone 13 costs Rs 1. 29 lakhs in India versus Rs 92,500 in Chicago.

How PLI recognize the problem of manufacturing sectors and what are the steps taken for the improvement?

Problem: Manufacturing as a proportion of GDP has not picked up meaningfully despite reforms in 30 years. PLI reforms recognizes that India’s manufacturing productivity is almost 20-30% lower than the rest of Asia. It also recognizes that perfect conditions required for its growth will take time to come up.

Solution: The government will monetize that productivity deficit through PLI.

This will help them to invest in large global-scale capacities. Therefore, PLIs are the industrial variant of Direct Cash Transfer that help to boost the industries.

However, there is a concern for its affordability through budget and post PLI measures.

What are the concerns associated with PLIs?

Affordability: The total combined estimation for the 14 PLI programs is Rs 3.46 lakh crores and it is being argued whether the government will be able to spend this amount.

The amount is expected to be spent over five years and it would be 1. 5% of Union Budget expenditure (0. 2% of GDP). Therefore, it seems reasonable and can be supported by the government through budget.

Further, the total expenditure is dependent on milestone production achievements of the companies. If the maximum projected milestones are achieved by the companies, they would generate enough additional taxes to pay for the programme by itself.

Post PLI: Investment through PLIs is for a five-year period and this raises concerns for the companies for post five-year plans. It has been said that PLIs would help companies with incentives to build ecosystem and sustain itself without any further requirement of the incentives.