Why some PLI schemes are in the slow lane; what govt is doing about it

The scale up in the employment outcomes from these schemes, according to at least two government officials The Indian Express spoke with, can be fully leveraged once the supply chain is established and the benefits of the schemes percolates down to smaller suppliers. These benefits, they said, are beginning to show in sectors such as mobile manufacturing and food processing. They also point to the need to calibrate employment outcomes only after a scheme gathers a certain critical mass.

The potential is big. A note by rating agency Crisil from February 2024 said the scheme could drive industrial capital expenditure of Rs 3-3.5 lakh crore over its duration and constitute 8-10 per cent of total capex in key industrial sectors over the next three to four years.

The industry has, however, complained of some niggling issues in the scheme for various sectors — there range from stringent eligibility norms, access to Chinese machinery and technicians, and import tariffs in some cases.

The initial challenge

The PLI schemes for many sectors are a big task by all means, as a domestic manufacturing industry has to be developed from scratch, since India has traditionally not had a footprint there. This could pose an initial challenge to employment generation, as companies in some sectors take time to set up manufacturing operations. The PLI scheme in sectors like solar modules and ACC allow for a commissioning period of one-and-a-half to three years.

But some schemes have seen early initial traction. For instance, mobile phone manufacturing. Before the PLI scheme, India was a net importer of phones for domestic consumption. After the scheme, as companies like Apple ramped up assembly in the country, virtually all phones sold in the country are made in, with in India. In fact, India exported smartphones worth around $15 billion in 2023-24.

In several PLI schemes, the initial beneficiaries of incentives are likely going to be bigger companies. In mobile phone manufacturing, the biggest beneficiary so far has been Apple. However, the government’s bet is initial support to these enterprises will trickle down to the overall supply chain, and spur the ancillary industry. This will allow input makers (who may not directly benefit from PLI incentives) to set up shop in India to service companies that receive the incentives. This could further boost employment.

For example, according to Apple’s suppliers’ list for 2023, at least 14 of its suppliers were from India, a number which was virtually zero before Apple started assembling iPhones in India.

The idea with PLI schemes – the support for which ranges from three to seven years – is also to get a certain critical mass in a sector, so that when incentives are withdrawn, the sector remains competitive on an export parity basis. Critics, however, argue that the scheme is akin to subsidisation and may not result in competitiveness, especially once the incentives are over.

Review of the PLI scheme

The government is in active discussion with stakeholders as it reviews the progress of the PLI schemes in the 14 sectors, especially those like textiles, advanced chemistry battery cell, solar modules, and automobiles, where progress has been slow. The IT hardware PLI scheme was recently upgraded with an increased outlay, with discussions around renewing other schemes, such as that for drones, learnt to be also under consideration. The government could also tinker with eligibility criteria in schemes such as textiles.