India's Winning Move with PLI Initiatives

Considering its goal of becoming ‘Atmanirbhar’, India is working towards economic independence in several areas. This includes improving trade balance by increasing domestic manufacturing, encouraging research and innovation, and boosting global competitiveness while maintaining social development and environmental sustainability. The government is also taking steps to strengthen national security by lowering reliance on imports in key industries such as energy and defence. In this blog, we discuss the Production Linked Incentives (PLIs) offered to various sectors by the Government of India as well as the associated benefits of the scheme.

Introduction

The Government of India introduced the PLI scheme in 2020, a series of targeted programmes to support domestic manufacturing in significant industries, with the objective of achieving economic independence. These initiatives represent a strategic shift towards proactive industrial policy, with the aim of promoting investment, fostering innovation, and assisting India in realising its ambitious economic development goals.

PLI programmes have been implemented in India in several industries, including textiles, electronics manufacturing, pharmaceuticals, and automobiles. Eligible manufacturers can receive financial incentives from these schemes in accordance with their incremental sales of specific products during a predetermined base year. Cash subsidies, tax breaks and other benefits are among the incentives offered under PLI schemes, which aim to encourage businesses to boost sales and production in specific industries.

Unlocking growth: Tracing the evolution of PLI schemes

The Indian government's ongoing efforts to increase manufacturing and improve competitiveness are reflected in the substantial changes made to PLI schemes since their inception. A brief history of the programme, highlighting the major developments in each year, is shown below:

Major strategic sectors empowered by PLI initiatives

India has implemented PLI programmes in several industries, including the production of electronics, medicines, vehicles, textiles and more. These programmes provide qualifying manufacturers with financial incentives based on the additional sales of predetermined goods during a predetermined base year. The PLI schemes offer a range of incentives, such as tax breaks, cash subsidies and other benefits, to entice businesses to expand their production and sales within specific sectors. Mentioned below are some of key sectors and the approved outlay in the respective sectors:

Large-Scale electronics manufacturing

Fully 10 mobile manufacturing beneficiaries benefitted under the large-scale electronic manufacturing sector. The PLI programme, with an outlay of US$ 4.65 billion (Rs. 38,601 crores), is carried out by the Ministry of Electronics and Information Technology (MEITY). MEITY is working towards making India the hub to produce electronics, including mobile phones, specific electronic parts, and discrete semiconductors such as transistors, diodes, and thyristors. Between 2017-18 and 2022-23, the country's mobile phone trade underwent a notable transformation. Initially, imports of US$ 3.6 billion far exceeded exports of US$ 334 million, resulting in a trade deficit of US$ 3.3 billion. However, by 2022-23, imports dropped to US$ 1.6 billion, while exports soared to nearly US$ 11 billion, yielding a positive net export of US$ 9.8 billion. The PLI programme for large-scale electronics has proven to be the most effective, creating 28,636 jobs and growing smartphone exports by 139% in the last three years. This turnaround signifies an improvement in the mobile phone trade balance, driven by increased exports and reduced imports.

Automobiles and auto components

With a US$ 3.5 billion outlay (~Rs. 20,750 crores), the PLI programme for the automotive industry offers financial incentives of up to 18% to encourage investments in the automotive manufacturing value chain and increase domestic production of high-tech automotive products. Under this scheme, 115 companies in total submitted their applications. Of these, 85 applicants have been approved under the PLI scheme; 18 were approved under the Champion OEM Incentive scheme and 67 under the Component Champion Incentive scheme. The plan has been successful in drawing planned investments totalling US$ 8.15 billion (Rs. 67,690 crores) over a five-year period, noticeably above the target estimate of US$ 5.12 billion (Rs. 42,500 crores). In addition to business groups from India, those from the Republic of Korea, the United States, Japan, France, Italy, the United Kingdom, and the Netherlands are among the approved applicants for the Champion OEM Incentive scheme.

Renewable energy and solar PV

With a total outlay of US$ 2.89 billion (Rs. 24,000 crores) to achieve Gigawatt (GW) scale manufacturing capacity for high efficiency solar PV modules, the Ministry of New and Renewable Energy implemented the PLI Scheme for National Programme on High Efficiency Solar PV Modules. By creating an ecosystem for the production of highly efficient solar PV modules in India, the programme seeks to lessen the country's reliance on imports of renewable energy. The PLI scheme was implemented in two tranches, with the first tranche focusing on generating manufacturing capacity of GW scale in high efficiency solar PV modules with an outlay of US$ 541.8 million (Rs. 4,500 crores). The second tranche, launched in 2022, is expected to build 65 GW of annual manufacturing capacity with an outlay of US$ 2.35 billion (Rs. 19,500 crores). The programme aims to create 30,000 direct and 120,000 indirect jobs, replace imports worth Rs. 17,500 crores annually and drive research for more efficient solar PV modules, aligning with India's renewable energy goals.

Advanced Chemistry Cell (ACC) battery

The PLI Scheme, which aims to establish manufacturing facilities for ACCs and battery storage in India, with a combined manufacturing capacity of 50-Gigawatt Hour (GWh) over a five-year period, has received approval from the Indian government. With an outlay of US$ 2.18 billion (Rs. 18,100 crores), the programme intends to encourage major domestic and foreign companies to establish a competitive ACC battery setup in the nation to increase India's manufacturing capabilities and exports. The programme specifically targets the ACC production in India.

Pharmaceuticals

The Indian government has implemented various initiatives aimed at promoting domestic production of pharmaceuticals, particularly bulk drugs, to lessen reliance on imports. There are two outlays made in this sector, with bulk drugs having an outlay of US$ 835.64 million (Rs. 6,940 crores) and pharmaceutical manufacturing having an outlay worth US$ 1.81 billion (Rs. 15,000 crores).

Apart from the sectors discussed above, the government has also launched PLI schemes for sectors such as medical devices, telecom, textiles, electronics, bulk drugs, specialty steel, white goods, and drone tech. A brief overview of the approved PLI outlay in all of these sectors is depicted below:

Source: Ministry of Commerce and Industry reports

Unveiling success: Recent breakthroughs and key highlights

• As part of a recent development, the Government has significantly ramped up the funding for PLI schemes in the interim budget for FY25, compared to the revised estimate of FY24, with an increase of almost 81% across industries. With over eight PLI schemes, this significant increase totals US$ 1,830 million (Rs. 15,198 crores).
• By November 2023, the PLI schemes attracted investments exceeding US$ 12.4 billion (Rs. 1.03 lakh crores), resulting in a production/sales value of US$ 103.6 billion (Rs. 8.61 lakh crores) and over 678,000 job opportunities. Notably, exports surpassed US$ 38.5 billion (~Rs. 3.20 lakh crores).
• About 746 applications across 14 sectors indicate a projected investment of over US$ 36.1 billion (Rs. 3 lakh crores). Moreover, 66 MSMEs in various industries benefit from PLI schemes, showcasing government efforts to boost economic growth and sectoral development.
• The Indian government's distribution of ~US$ 531.1 million (~Rs. 4,415 crores) in incentives across eight key sectors highlights its commitment to fostering industrial growth and innovation through effective initiatives such as the PLI schemes.

Overcoming hurdles: Identifying potential challenges

The PLI schemes pose several challenges, including heightened competition leading to price wars, compliance burdens for reporting and documentation, sectoral imbalances in benefits, potential diversion of investments from existing projects, delays in implementation due to bureaucratic processes, perceived strict eligibility criteria and funding constraints impacting effectiveness. Addressing these challenges is crucial for maximising the schemes' benefits and encouraging sustainable economic growth.

Fuelling growth: The advantages of PLI schemes

With a focus on key industries that are essential for stimulating growth, promoting technological innovation, and boosting global competitiveness, the PLI schemes represent a calculated effort to support India's economic environment. These initiatives diminish India's dependency on imports and strengthen its position in the international market by encouraging export-oriented production and fostering home manufacturing through the adoption of cutting-edge technologies.

Furthermore, the programmes greatly aid in the creation of jobs and economic empowerment by nurturing the development of a strong industrial infrastructure and opening doors for employment in labour-intensive industries.

In addition, the PLI programmes advance India as a leading centre for trade, innovation, and investment by attracting foreign capital, easing technology transfer, and incorporating the country into international supply chains. This confirms India's position as a major economic force capable of achieving sustained growth and prosperity.

Conclusion

The PLI schemes have emerged as a transformative force in driving economic growth, fostering technological advancement, and enhancing global competitiveness across key industries. These schemes have strategically targeted sectors vital for stimulating growth and innovation, leading to a significant reduction in India's dependency on imports while simultaneously bolstering its position in the international market through export-oriented production. By incentivising domestic manufacturing and encouraging the adoption of state-of-the-art technologies, the PLI schemes have not only propelled India towards self-reliance but have also paved the way for increased global competitiveness.

The prospects for PLI programmes in India are favourable. The country is well-placed to solidify its status as a major economic force with a sustained emphasis on important industries and the continuous execution of these initiatives. It is anticipated that the PLI schemes would continue to boost competitiveness, encourage innovation, and drive growth, considerably aiding in India's progress towards long-term economic prosperity. The PLI programmes are expected to play a crucial role in determining India's economic course and enhancing its position as a world leader in industry and innovation as long as the government is dedicated to advancing and growing these efforts.