PLI Schemes in India: What’s the Verdict?

Introduction

On 11th June, the Union government announced that it would review the Production Linked Incentive (PLI) schemes launched in 2020. The PLI schemes, which had proposed incentives of ₹1.97 lakh crore in 12 different sectors (16 schemes) have drawn both praise and flak from the country.

The PLI schemes aimed to cover the cost disadvantages that companies face in manufacturing in India. If that helps set up manufacturing in the country, it is expected to create backward and forward linkages over time, increase employment and boost the economy. 

The schemes have been hailed for both increasing production and generating employment. Some have criticised it, most recently Raghuram Rajan, who critiqued the PLI for smartphone manufacturing, saying that, even though India has started manufacturing and exporting more, the value of its imports of intermediate goods outweighs the value of exports.

 It is unclear whether these schemes have succeeded in achieving their objectives, which is probably what prompted the government to do a review.  However, a more fundamental question, the choice of sectors needs to be addressed. 

Why were the sectors chosen?

12 sectors were chosen - auto components and automobiles, aviation, chemicals, electronic systems, food processing, medical devices, metals and mining, pharmaceuticals, renewable energy, telecom, textiles and apparel, and white goods (also mentioned in the table below)

The initial notification said that two types of sectors were chosen - strategic and sunrise. Also, the government said that the schemes aimed to take India further on the path of ‘Aatmanirbharta’ (self-reliance), make Indian companies globally competitive, reduce import dependence and create global champions in manufacturing. But some of the sectors don’t really fit any two types. Our analysis finds that out of the 12 industries chosen, at least two were selected for strategic reasons, and three are probably sunrise sectors. We think that five were selected to reduce import dependence (mostly on China) and could not assign any reason for another four sectors. We found two overlaps - electronics systems and food processing. 

Many sectors (Pharmaceuticals, Telecom, White Goods, Medical Devices)  in which we are import dependent have been wrongly termed as strategic, probably because most of the imports are from China. White goods (household consumer goods), for example, aren’t strategic at all. This is married to the ‘Aatmanirbhar’ mission and promotes import substitution. Reducing dependence on China might be a worthy goal, but producing in India might be the wrong answer. 

In the case of sectors like textiles and apparel, and metals and mining, none of the two reasons apply. But the ministry website says that these schemes aimed to generate employment and make Indian companies '‘global champions'’ because these sectors have a high demand domestically. In the case of food processing, some evidence states that it might be a sunrise industry, but that can be contested as India’s exports here are very high.

This inconsistency with real and displayed reasons is worrying and begs the question of what the government actually wants to achieve. If reducing import dependence is the goal, they should just mention that outright. If the objectives aren’t clear, we can’t judge whether the PLI schemes have been successful or not.  

Why the schemes need a review

We need greater clarity on the success of the PLI schemes. For example, according to the latest data, only ₹2900 crore of the announced ₹1.97 lakh crore have been released by the government. There are questions about job creation as well. In a recent LinkedIn post, former Reserve Bank of India Governor Raghuram Rajan criticised these PLI schemes using data about job creation, generated investment, etc.

To be sure, we were unable to find that data in the public domain. Also, not all of the schemes have been successful, with six not receiving any disbursement. Such data is essential to see if these schemes have been successful. 

 There are also discrepancies between the applications received and approved for various schemes, as shown by the data we have compiled. The government needs to arrive at a sector-objective-scheme agreement for any of it to be successful, especially considering the schemes have an outlay of 0.7% of the country’s GDP.

The way forward

The government should formulate a framework to assess the effectiveness of these PLI schemes. Reviewing the performance of the schemes can be an effective way of doing it as it will allow the government to measure the intended and actual objectives. The government can evaluate if there is an increase in domestic manufacturing, foreign investment, number of jobs and identify the sectors that need any improvements.

This analysis can help the government get visibility on whether the scheme is producing the intended results and whether the investment is justified or if it needs to be revisited.

Periodic reviews can help ministries make necessary policy changes/adjustments based on the changing market dynamics, trends, and global competitiveness. As industries and technologies evolve rapidly, this will help keep the schemes relevant and aligned with the needs of the government/economy. This also provides an opportunity to get feedback from participants, industry associations, and other stakeholders. The insights will be valuable for streamlining the processes and addressing the issues.

There still needs to be more data about PLI schemes and how they are performing that is available in the public domain for citizens to access. Even the figures mentioned by Raghuram Rajan in his LinkedIn post couldn’t be found in the public domain or on the Department for Promotion of Industry and Internal Trade (DPIIT)  website. Gathering the data that we have was quite tiresome, as it is not easily accessible on ministry websites, and you have to comb through considerable data to get the information. Making all the developments and statistics of the scheme publicly available will be an essential step for transparency, accountability, and involvement of the people in decision-making.

Public access will help stakeholders, investors, and experts to understand the criteria, application/evaluation process, and outcomes of these schemes, which can help gain confidence in the initiatives and increase participation. This data will also allow policy researchers, academic institutions, and economists to evaluate the impact and effectiveness of these with strengths and weaknesses. 

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