How to get PLIs transform manufacturing

News: Recently, the government approved Rs 76,000 crore incentives for promoting domestic semiconductor manufacturing.

There is a need to understand the role of trade and industrialisation in colonisation and its impact on our external trade policy.

It will help us to shape India’s current policies in sync with our aspirations of becoming a global economic powerhouse.

What are the lessons of the colonial trade regime?

During the colonial trade regime, industrialisation of the west was fuelled by access to cheaper raw materials and access to captive markets from their colonies.

Impact: It limited the industrial growth in the colonies and also subdued their dream to become independent. Because the colonies became dependent for their livelihood on trade with the imperial power.

Lessons Learnt: To become Self-reliant India needs strong domestic manufacturing industries.

How it impacted India’s external trade policy?

The above experience was the reason for India to strategize its post-Independence economic development around the central pillar of rapid industrialisation.

Protectionism was offered to safeguard industries from the competition of foreign producers. Whereas, the private sector, was confined to non-core sectors in a protected market.

However, due to many systemic issues, the doors of the economy have been opened to FDI in manufacturing and services after 1991.

Currently, the global disruptions caused by the Covid-19 pandemic have again triggered the need for setting up domestic critical manufacture units owing to supply chain disruption.

What are the policy challenges that needs to be addressed to get the most out of the PLI schemes?

As global tech giants seek to diversify their production base and supply chains, indigenous efforts towards self-reliance can be achieved by attracting hi-tech manufacture in India.

However, there are some policy challenges that needs to be addressed to get the most out of the PLI schemes.

First, issues related to Free Trade Agreements (FTAs) with the EU, UK, Canada and Australia hamper India’s access to markets. If India needs to manufacture on a global scale, these issues need to be addressed.

Second, there is a need to maintain consistency in import of critical subcomponents at par with other ‘ease of doing business’ parameters, especially for PLI-based production. Because, value addition will increase only over time, since the supply chains of hi-tech manufactures are highly diversified.

Source: This post is based on the article “How to get PLIs transform manufacturing” published in TOI on 20^th Dec 2021.