The right incentive – PLI scheme alone would not be enough

Source: The post is based on the article “The right incentive – PLI scheme alone would not be enough” published in the Business Standard on 14th June 2023

Syllabus: GS 3 – Changes in industrial policy and their effects on industrial growth.

Relevance: About issues with PLI Scheme.

News: The government is planning to hold a first-of-its-kind meeting to address implementation issues being faced by producers under the production-linked incentive (PLI) scheme.

About the PLI Scheme

The government cleared the first three PLI schemes in March 2020, while another 10 were approved in November that year. The allocation for the scheme was announced in Union Budget 2021-22, with the idea of creating national manufacturing champions, which would generate employment opportunities.

What are the challenges associated with the implementation of the PLI Scheme?

According to the latest numbers, the gross value added in manufacturing went up by just 1.3% at constant prices in 2022-23. This highlights that the schemes seem to have multiple issues. Such as,

Lack of clarity: In the auto industry, firms are looking for clarity on the incentives they are supposed to get. It has been reported that incentives could not be disbursed in 2022-23 because no auto company presented the required documents.

Lack of disbursements: Manufacturers are affected by disbursements in other sectors as well. For instance, in 2022-23, the government paid Rs. 2,874 crore to beneficiaries against a claim of Rs.3,420 crore. The outgo thus was about only 1.4% of the Rs. 1.97 trillion allocated for the scheme over a period of five years.

Aside from the documentation issues, the outgo has been low because the scheme has possibly not resulted in the kind of investment that was envisaged.

Affects competition: Investment and production in different sectors depend on a variety of factors. The state’s decision to select champions and provide fiscal incentives could affect competition. Like Faster Adoption and Manufacturing of (Hybrid &) Electric Vehicles scheme, manufacturers might use different ploys to take advantage of subsidies.

What should be done?

Policymakers should not excessively depend on the PLI scheme. It is not a way out of the inadequacies in the manufacturing sector.

Modern manufacturing depends on complex supply chains and giving fiscal incentives to one set of producers may not work. So, the government will have to work on improving the overall industrial environment.