Jury's out on production-linked incentive scheme

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Jury's out on production-linked incentive scheme

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• A major programme: The union govt. has launched a massive programme to push manufacturing in India, by upgrading the "Make in India" launched in 2014, by giving special subsidy called "Production Linked Incentives" (PLI). Goal is to raise capacity, boost sales, and push exports.
• Global situation: Nations have dumped trade barriers (of second world war) and hard currency conservation, and adopted the WTO style free trade practices. India too did that. Interestingly, without any financial incentives given, India grew in pharma and software IT on a global scale.
• How it happened: The pharma success came via new Intellectual Property laws (IPR) and Indians started making drugs using alternative processes. Then the IT success came when Dr MM Singh took STPs (software technology parks) out of income tax purview.
• Comparative performance: Not all nations who adopted free trade did equally well. China raced ahead dramatically, becoming an economic superpower. India's rising troubles with China, and the flood of imports, forced Govt to go for PLIS in 2020.
• More on PLIS: What started as a push to local electronics manufacturing spread to a total of 13 sectors, spread over five year period, to boost mfg. output. 

1. Sectors covered are automobiles, auto components, electronics, pharmaceuticals (APIs), special steels, white goods, food products, textiles, telecom etc.
2. Only sectors where either India has an advantage are being targeted - generics in pharma, or where India is too dependent - eletronics and APIs
3. PLIS will try to boost investments and exports 
4. India will try to integrate more into global supply chains
5. A total of Rs.1.97 lakh crore cash incentives will be given, on incremental sales on base year of 2020

• What needs to be done now: Experts say that a range of reforms is needed, before PLI can begin showing results. 

1. Rajiv Bajaj, while trying to enter some ASEAN markets, found that on land, labour, electricity, logistics and legal systems, they fared much better. So PLIS needs these issues to be resolved first.
2. Any global MNC derisking its operations by putting up a plant in India needs full ease of doing business. Such firms will supply to domestic market as well as export from here.
3. Sunset provisions in PLI are important, because many import restrictions have been imposed to facilitate PLIS. Otherwise Indian industry will simply get used to subventions and keep lobbying for more. 
4. The projects must be sustainable. Now exporting food (e.g. sugar) is not, because it is as bad as exporting water. That goes against India’s ecological goals. 
5. What is the real goal? Promoting exports or minimising imports? At least one large PC maker refused to enter India on PLIS due to suspicion it’s the latter not the former. It says that PLI is just an import substitution programme by another name, and a successor to the MEIS now wound up due to WTO pressure. [MEIS - Merchandise Exports from India Scheme]

• Good news: Apple is confident about PLIS, and with partners like Foxconn, it may move a big part of capacity to India. 
• Summary: Time will tell how PLIS pans out. With better directions from earlier stages, we may end up getting good results. Or not.

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