Day 25 – Q. 4. “India’s Production-Linked Incentive (PLI) scheme is an attempt to transform the manufacturing ecosystem and reduce import dependence.” Discuss the rationale behind the PLI scheme and critically analyze its impact on industrial growth, innovation, and job creation. (250 words, 15 marks)

Q. 4. “India’s Production-Linked Incentive (PLI) scheme is an attempt to transform the manufacturing ecosystem and reduce import dependence.” Discuss the rationale behind the PLI scheme and critically analyze its impact on industrial growth, innovation, and job creation. (250 words, 15 marks)

Introduction 

Launched in 2020, the PLI scheme aims to make India a global manufacturing hub by reducing  import dependence—especially in electronics, APIs, and renewables where over 70–90% components are imported—while boosting exports, jobs, and innovation. 

Features of the PLI Scheme 

1. Financial Incentives: Offers financial rewards to domestic and foreign manufacturers based  on incremental sales over a base year. 
2. Sectoral Coverage: Initially launched for 3 sectors—electronics, electrical components, and  medical devices—now extended to 14 sectors including drones, EVs, pharma, and solar. 3. Import Substitution: Targets domestic capability in key sectors like APIs and electronics to  reduce over-reliance on imports. 
3. Performance Metrics: In sectors like ACC batteries and drones, incentives are based on sales,  performance, and local value addition over five years. 
4. Focus on R&D: Encourages companies to invest in R&D to maintain global competitiveness  and create intellectual property in India. 

Rationale Behind the PLI Scheme 

1. Reviving Manufacturing’s GDP Share: With manufacturing stagnant at ~16% of GDP, PLI aims  to push this toward 25% through targeted interventions. 
2. Global Value Chain Integration: Seeks to position India as a China+1 destination by attracting  global supply chains and enhancing export competitiveness. 
3. Strategic Sectoral Independence: Reduces vulnerability in essential sectors like pharma,  solar, and electronics by encouraging local production. 

Impact of the PLI Scheme 

1. Boost to Electronics Manufacturing: Mobile exports have doubled to ₹90,000 crore by FY24;  India is now among the top 5 global smartphone exporters. 
2. Employment Generation: Estimated creation of over 60 lakh direct and indirect jobs,  especially in emerging and labor intensive sectors. 
3. Capital Investment Surge: Approved firms have committed ₹3.5 lakh+ crore in investments,  bolstering industrial infrastructure and supply chains. 
4. Innovation Ecosystem Growth: R&D and design-led manufacturing in EVs, pharma, and  renewable sectors have gained traction. 
5. Recent Budget Initiatives: Budget 2023 allocated ₹19,500 crore for solar PLI; Budget 2024 extended PLI to green hydrogen and semiconductors, promoting next-gen industrial capacity. 

Challenges in Implementation 

1. Assembly vs. Value Addition: Incentives often reward final assembly rather than deep  domestic manufacturing; most high-value components still imported. 
2. WTO Constraints on Local Sourcing: Global trade rules restrict linking incentives to local  content, impeding full value chain development. 
3. Vague Disbursal Criteria: Lack of transparent, uniform criteria across ministries leads to  opaqueness and implementation inconsistency. 
4. Lack of Centralized Monitoring: Absence of a unified database hinders tracking of outputs  like job creation or incremental exports. 
5. Limited MSME Inclusion: High qualification thresholds exclude MSMEs, reducing the  scheme’s penetration in grassroots manufacturing. 

Way Forward 

1. Enable MSME Participation: Design low-barrier PLIs tailored to MSMEs and industrial clusters  for broader inclusion. 
2. Deepen Domestic Supply Chains: Focus on upstream ecosystem development— components, raw materials, and tooling capacities. 
3. Link Incentives to Innovation: Introduce a Research-Linked Incentive (RLI) model to  encourage IP creation and product design. 
4. Implement Committee Recommendations: As per EAC-PM, align PLIs with skill development  and state industrial strategies for comprehensive impact. 
   

Conclusion

To fulfil the objectives of the National Manufacturing Policy and realize the vision of  Atmanirbhar Bharat, the PLI scheme must evolve from an assembly-driven approach into a long term strategy fostering innovation, self-reliance, and sustainable industrial development.