© The Indian Express Pvt Ltd
Tags:
Journalism of Courage
A new industrial policy, which has been in the works for over two years and a draft of which was circulated for consultation in December last year, has now been pushed to the backburner with the government firmly placing its bets for now on its flagship production-linked incentive (PLI) scheme to drive up manufacturing and catalyse private investments.
The industrial policy, expected to be released this year, would have been the third such framework in the history of independent India, replacing the historic policy of 1991 that came in the backdrop of the balance of payment crisis, ushering in the liberalisation of the economy.
Economists said that while the PLI is incentivising and compensating for the disadvantages that exist in the economy for invigorating manufacturing activity, it may not be adequate to attract companies looking for an alternative to China amid the emerging geopolitical realities and the continuing challenges of high logistics costs, infrastructural bottlenecks and the lack of funds for MSMEs.
“The industrial policy is on the backburner. Discussions have happened on it and it may be released eventually. But it is not coming out anytime soon… We are looking at significant improvement in our manufacturing base with the combination of free trade agreements (FTA) and the flagship PLI scheme. The share of manufacturing in our GDP is very low at 15 per cent is atypical for our economy. It creates difficulty to generate enough employment for our people. We are working on it,” a government official said, requesting anonymity.
The Commerce and Industry Ministry had circulated the draft policy, ‘Industrial Policy 2022—Make in India for the World’, among other ministries in December 2022 for consultation. The policy proposed bold moves such as the creation of a specialised development finance institution (DFI), suggesting the use of India’s forex reserves to provide low-cost finance to companies.
The draft industrial policy also proposed setting up a technology fund that would spur pioneering companies in advanced technology. To resolve the problem faced by MSMEs to access funds, the policy proposed ways to help small businesses better access corporate bond markets.
“We have had a rich history of industrial policy but we have a rich history of industrial policy failure too. The PLI is the industrial policy. If there was a new policy, PLI would have been the dominant part of it as it is encouraging selective sectors to grow. Given the developments around the world, if we need a bigger footprint in a new sector, PLI can be extended to that sector. The responsiveness of the scheme depends on how we are tracking the policy,” said former chief statistician Pronab Sen.
“However, PLI is a partial solution. It is subsidising the sector so that the disadvantages can be compensated. In order to bank upon the China+1 policy, India has to be made an attractive destination for investors. Merely PLI cannot do what India requires to be an alternative destination for China,” Sen said.
The NDA government has announced PLI schemes for 14 sectors with an outlay of incentives worth over Rs 1.90 lakh crore. According to Crisil, the PLI scheme will account for 13-15 per cent of the average annual investment spending in key industrial sectors over the next three to four years.
The National Manufacturing Policy announced by the Union government in 2011 had set an objective of increasing the share of manufacturing in GDP to 25 per cent and creating 100 million jobs by 2022. The NDA government had reiterated the target of 25 per cent, even though manufacturing’s share hovers around 17 per cent of GDP currently.
