TOPIC: General Studies 3
- Indian Economy
In News: Prime Minister Narendra Modi said production linked incentive (PLI) scheme, which is aimed at boosting domestic manufacturing and exports, is expected to increase the country’s production by USD 520 billion in the next five years.
- In this year’s Budget, about Rs 2 lakh crore was earmarked for the PLI scheme for the next five years and there is an expectation that the scheme would result in increasing the production by about USD 520 billion in the next five years
- There is also an expectation that the current workforce in the sectors, which will avail the benefits of the PLI scheme, will be doubled and job creation will also increase.
- The government is working to reduce compliance burden, further improve ease of doing business, reducing the compliance burden, creating multi-modal infrastructure to reduce logistics costs, and constructing district-level export hubs..
- An average of 5 per cent of production is given as incentive. This means that PLI schemes will lead to production worth USD 520 billion in India in the next five years.
- Self-regulation, self-attesting, self-certification is being emphasized.
- Difference between the earlier schemes and those of the current government: the earlier industrial incentives used to be open ended input-based subsidies, now they have been made targeted and performance based through a competitive process.
The scheme aims to make India self-reliant in manufacturing goods for local and export markets, positioning it as a global manufacturing hub. It also aims to make domestic manufacturing competitive and efficient, build capacity, and benefit from economies of scale, enhance exports, attract investment and create jobs. The success story of special economic zones (SEZs) only adds credence to the impact that this scheme can also have on the economy. The scheme is on the lines of ‘Made in China 2025’ which aims at enhancing competitive strength of selected sectors.
Why is the production linked scheme needed?
According to experts, the idea of PLI is important as the government cannot continue making investments in these capital intensive sectors as they need longer times for start giving the returns. Instead, what it can do is to invite global companies with adequate capital to set up capacities in India. The kind of ramping up of manufacturing that we need requires across the board initiatives, but the government can’t spread itself too thin. Electronics and pharmaceuticals themselves are large sectors, so, at this point, if the government can focus on labour intensive sectors like garments and leather, it would be really helpful.
How will it incentivize manufacturing ops?
The production-linked incentive scheme gives eligible manufacturing companies a 4-6% incentive on incremental sales over the base year of 2019-20 for a five-year period. It is a kind of subsidy being provided by direct payment from the budget for domestically manufactured goods. The incentive amount varies across sectors and savings generated from PLI of one sector can be utilized to fund other sectors, maximizing returns. The PLI scheme will incentivize large domestic and global players to boost production, build a competitive ecosystem and lead to more inclusive growth.
For Large Scale Electronics Manufacturing
- The scheme proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including electronic components and semiconductor packaging.
- Under the scheme, electronics manufacturing companies will get an incentive of 4 to 6% on incremental sales (over base year) of goods manufactured in India for a period of next 5 years.
- The scheme shall only be applicable for target segments – mobile phones and specified electronic components.
- With the help of the scheme, domestic value addition for mobile phones is expected to rise to 35-40% by 2025 from 20-25%.
- It shall also generate 8 lakh jobs more, both direct and indirect.
For IT Hardware
- The scheme proposes PLI to boost domestic manufacturing and attract large investments in the value chain of IT Hardware.
- The Scheme shall extend an incentive of 4% to 2% on net incremental sales (over base year 2019-20) of goods manufactured in India and covered under the target segment, for 4 years.
- It will benefit 5 major global players and 10 domestic champions in the field of IT Hardware manufacturing including Laptops, Tablets, All-in-One PCs, and Servers.
- IT hardware is estimated to achieve Rs 3 lakh crore worth production in four years and domestic value addition is expected to rise from current 5-10 per cent to 20-25 per cent in 5 years. Similarly telecom equipment manufacturing will witness an increase of about Rs 2.5 lakh crore in five years.
For Telecom Sector
- The core component of this scheme is to offset the huge import of telecom equipment worth more than Rs. 50 thousand crores and reinforce it with “Made in India” products both for domestic markets and exports.
- Financial Year 2019-20 shall be treated as the Base Year for computation of cumulative incremental sales of manufactured goods net of taxes.
- The Scheme will be operational from 1st April 2021.
- This scheme also addresses local manufacturing in MSME category because Government desires MSMEs to play an important role in the telecom sector and come out as national champions.
- This scheme will lead to incremental production of around ₹2.4 Lakh Crores with exports of around ₹2 Lakh Crores over 5 years. It is expected that scheme will bring investment of more than ₹3,000 crore and generate huge direct and indirect employment and taxes both.
- The Scheme is expected to bring in investment of Rs.15,000 crore in the pharmaceutical sector, which will lead to Rs 3 lakh crore in pharma sale and export increase of worth Rs 2 lakh crore.
- It will be part of the umbrella scheme for the Development of the Pharmaceutical Industry.
- Objective: (1) To enhance India’s manufacturing capabilities by increasing investment; (2) Product diversification to include high-value goods.
- Target Groups: The manufacturers who are registered in India will be grouped based on their Global Manufacturing Revenue (GMR) to ensure wider applicability of the scheme
- Quantum of Incentive: 15,000 crores.
- Category of Goods covered:
- Category 1: Biopharmaceuticals; Complex generic drugs; Patented drugs or drugs nearing patent expiry; Cell-based or gene therapy drugs; Orphan drugs; Other drugs as approved.
- Category 2: Active Pharmaceutical Ingredients, Key Starting Materials, Drug Intermediates.
- Category 3: Drugs not covered under Category 1 and 2.
Connecting the Dots:
- Key components of production linked incentive (PLI) scheme
- Discuss the need for production linked incentive (PLI) scheme in India.