Optimise India’s PLI scheme

The Narendra Modi-led National Democratic Alliance (NDA) government, in its second term, initiated the production-linked incentive (PLI) programme and approved a total of 14 PLI schemes with an outlay of Rs. 1.97 trillion.

The PLI schemes were advertised as India’s masterstroke to make India a manufacturing nation. To be implemented over five-six years, the schemes were expected to bring in trillions of investment and engender billions of exports.

More than half of the lifetime of most of the PLI schemes was over when that government completed its term. Yet, it could disburse incentives of less than Rs 10,000 crore — which is less than 5% of the PLI outlay. A few schemes did not even take off.

What is the future of the PLI schemes? Should the government expand, reduce, or rationalise these schemes?

A thinly spread messy package

Digital and environmental manufacturing — electronics, electric vehicles (EVs), solar cells/modules, and batteries — is the future of industrialisation and the path to GDP growth. There is a PLI on each of these priorities.

The PLI for Large Scale Electronics Manufacturing (PLI-LSEM), the first notified PLI for attracting large investments in mobile phone manufacturing, and PLI for IT Hardware (PLI-ITH) targeted at the production of computer devices, aimed at raising India’s electronics manufacturing to $300 billion a year.

The PLI for Automobiles and Auto Components (PLI-A&AC) envisaged incentivising the automobile industry to manufacture advanced automotive technology products, including EVs and hydrogen fuel-cell vehicles. The PLI on batteries targeted establishing a 50 Gigawatthour (GWh) manufacturing capacity for advanced chemistry cell (ACC) batteries. The PLI on High Efficiency Solar Modules (PLI-HESM) targeted building manufacturing Gigawatts scale capacities for high-efficiency solar PV modules.

Between them, these five PLIs had an outlay of Rs 1.4 trillion, and prima facie well-targeted.

The government, however, initiated nine more PLIs, in traditional/non-technology/ small industries — food processing, textiles, air conditioners, pharmaceuticals, steel, drones, etc. — with insignificant outlays.

Too many thinly spread PLIs lost the strategic bandwidth and made the PLIs a messy affair.

Poorer execution

Of the five strategic PLIs, only the PLI-LSEM (outlay Rs 40,951 crore) could be rolled out satisfactorily, largely thanks to Apple agreeing to establish its new production base in India. For PLI-ITH, reconfigured as PLI-ITH 2.0 (increased outlay Rs 17,000 crore), the government could approve, only on November 18, 27 applications with a promised miserly investment of Rs 3,000 crore.

Of the 115 applications filed under the PLI-A&AC, 20 were approved in February 2022 without any indicated investment commitments. The scheme lost its way in procedural and technical approvals — SOPs for testing and certification applications were released on April 27, 2023 — resulting in the government awarding the first PLI Automative Certificate only in March.

The government had to cancel the allotment of 20 GWh capacity to Hyundai Global Motors Company Limited, out of the total 50 GWh capacity awarded under the PLI on batteries to four companies, as it was found to be impersonating South Korea's Hyundai Motor Co. No replacement was found until Modi 2.0 completed its term.

The government awarded a total of 39.6 GW of fully/partially integrated solar PV module manufacturing capacity under the PLI-HESM, but no information was further provided about the progress in investment and production under the scheme.

A few smaller PLIs (e.g. textiles and steel) could not start. Others made hardly any difference.

Pathetic disbursement

The government could disburse the PLI incentives of only Rs 10.45 crore in 2021-2022. Against the budget provision of Rs 7,480.79 crore for nine PLI schemes in 2022-2023, only Rs 2,916.97 crore could be disbursed.

There was no disbursement acceleration in 2023-2024 as well as the government could make a paltry budget provision of Rs 8,082.84 crore (for 11 PLI schemes). Taking into account the claim made by a senior official that the PLI incentives of Rs 6,800 crore were released during 2023-2024, the government could disburse only Rs 9,727 crore in PLI incentives until 2023-2024.

This was a pathetic 4.92% of Rs 1.97 trillion of the PLI schemes outlay.

Do a surgery

The PLIs cannot solve a lack of general industrial competitiveness of Indian companies caused by a lack of technology innovation and higher cost of inputs. The PLIs can be only effective in attracting global technology leaders by compensating them for their relatively lesser profitability in India, a la Apple.

The lessons are straightforward. Retain, strengthen, and upscale execution of the four strategic PLIs — PLI- LSEM (with an inclusion of a few specific high-technology electronics products), PLI on batteries, PLI- HESM, and PLI- A&AC for electronic vehicles.

Three PLIs on pharmaceuticals and medical equipment should be consolidated into one and focussed only on the production of APIs and high-tech new technology medical equipment.

All other PLIs, including PLI-ITH, should be wound up. Further, the thought of meaningless new PLIs on toys, footwear, leather, etc. should be banished.

In addition, the government must establish a high-powered technology-rich PLI Authority to professionally plan and execute the five PLIs in place of poorly equipped ministries and departments which currently design and implement.

(The writer is former Finance & Economic Affairs Secretary, and author of 'The Ten Trillion Dream' and 'We Also Make Policy')