PLI scheme reviewed

The production-linked incentive (PLI) policy, launched more than three years ago, has made only modest headway. Just 2% of the taxpayer money that is meant to be expended under the 14 PLI schemes has been disbursed so far, more than half-way through the tenure. Also, the beneficiary firms belong to some half a dozen sectors only—notably mobile manufacturing, where domestic assembling has flourished in a possible prelude to full-scale production, and pharmaceuticals, where the country’s global competitiveness in branded generics is well-established. The government is now looking to make the PLI terms simpler and easier to comply with. Obviously, the intent is to lure global players with financial and technological strength to create a modern manufacturing ecosystem.

There has long been a well-recognised need to spur the transition of Indian labour from agriculture to industrial production of goods to facilitate more remunerative vocations. Conventional economic logic would have it that India captured a decent share of the global manufacturing landscape, at least after China’s shift from labour-intensive to high-end production over the last couple of decades. But that was not to be. Over the last half century and more, manufacturing output remained within a narrow range of 14-17% of GDP.

The proposed tweaking of PLIs might help boost investor interest in certain areas. A shifting of the sops to core production may also improve their efficacy. But it is unreasonable to expect a big turnaround with these changes, which are facile in nature. Capital subsidies, or the benefit of shared/subsidised infrastructure (as available for NMIZ units) or even tax concessions (SEZs) haven’t been enough to catalyse a revival of Indian manufacturing. Clearly, there is no shortcut to becoming a manufacturing powerhouse; it is a task that demands all-encompassing changes in economic structure, involving land, labour, logistics, tax, technology assimilation, and human resource development (social re-engineering). The necessary reforms will require to be undertaken at the right doses, and at the right times. They must respond to the real world of the rapidly evolving global markets that rewards a slam dunk industrial cost structure, even in disregard of geopolitical overtures.

If Apple is planning to shift a significant part of its global iPhone production to India and Micron has scaled up its India plans by adding a chip-making facility, they and their likes would be betting on the country’s fast-growing markets for high-end digital devices, and the robust talent pool of young engineers. Subsidies would matter to them much less; after all, India at present can’t beat the competitors with much higher fiscal capacities like the US and the EU on this score. As far as the more important elemental reforms are concerned, India has always been behind the curve, with its halfhearted, sub-optimal efforts. The Goods and Services Tax, for instance, was expected to add incremental points to the economic growth. But given its flaws, it might well be the case it has had a net negative effect on Indian manufacturing, given how it has hurt the informal-sector players. The recent initiatives to slash logistics costs (Gati Shakti/National Logistics Policy) and the added thrust to infrastructure are indeed steps in the right direction, but these would require to be a forceful continuum to yield the desired results. On the external front, the good news is tariffs and other barriers to global trade have eased to an extent that even protectionist reversals can’t rebuild them much. Financial Express