Features of PLI Schemes:
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Goal: To boost manufacturing in chosen sectors, both for domestic and export markets.
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Features: Under the Scheme, companies will get incentives on incremental sales from products manufactured in domestic units.
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Implementation: The scheme is implemented by the concerned ministries/departments.
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Chosen Sectors:
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Mobile handsets,
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automobiles and auto components,
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advanced electrical batteries,
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pharmaceutical products,
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personal computers and laptops,
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air conditioners,
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IT hardware,
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Chemical cells,
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Textiles,
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telecom equipment and
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specified processed food products.
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Subsidy cost is borne by the government and not by the consumers as in the case of tariffs.
Advantages of PLI subsidies over tariffs:
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Subsidy borne by the government: whereas in tariffs, the “subsidy” cost is borne by consumers and user industries; thus potential exports get disfavoured compared to import-substitution.
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Performance-linked: The firms only get paid when the incremental sales occur.
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Non-discriminative: between production for import substitution versus exports.
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The fiscal cost can be capped: It was Rs 40,000 crore over five years for mobiles and specified electronic components, and about Rs 145,000 crore for the ten new sub-sectors.
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Subsidies are for limited periods: for each beneficiary enterprise (for e.g. five years for mobile handset).
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Tailor-made and administered by the concerned ministry: Thus it can target specific industry / product.
Problems associated with PLI schemes:
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Fiscal cost is not trivial: Capping becomes difficult when the number of qualifying firms and incremental production is substantial in a particular sub-sector.
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Bias towards some sub-sectors: Sector-specific tariffs generates favouritism.
A particular sub-sector can be the beneficiary of both relatively transparent PLI subsidies and more opaque Customs duty benefits.
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Inadequate Tracking Mechanisms: Accuracy with which incremental production and sales can be gauged is unknown
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Degeneration into subsidy-permit raj: If each PLI scheme is run by different ministries, it is easy to envisage a growing and hydra-headed bureaucracy impacting the quality of implementation.
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No major positive impacts on manufacturing sector: related to long-term productivity and competitiveness.
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Against Free Trade Agreements (FTAs): It will make it harder for India to enter regional FTAs such as the Regional Comprehensive Economic Partnership (RCEP).
Performance of the Scheme till now:
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The PLI Scheme has received the maximum number of applications for sectors such as food, mobile, electronic components manufacturing, IT hardware as well as telecom equipment manufacturing.
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On the other hand, sectors such as medical devices, textiles, automobile component manufacturing are struggling to find participants for the PLI scheme.
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The reason for low interest in these sectors is that most companies either do not meet the qualification norms for the PLI scheme or feel that the return on investment is low compared to the incentives announced.
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Example: Investors in the steel sector are not very keen on applying under the scheme as they feel that the period of 5 years is too less to set up new units and start production from them or even expand old units.
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In the case of PLI for automobile and automobile component manufacturing, most Indian companies do not meet the qualification norms and have avoided even applying for the scheme.
Conclusion: Government should ensure maximum feasible transparency, automaticity, uniformity and accountability in the design and implementation of the PLI schemes.