Assignment Task

Introduction

The Government of India announced the Production Linked Incentive (PLI) Scheme in March 2020 to scale up domestic manufacturing capability, enhance import substitution, and generate employment.

The government has so far announced PLI schemes for 14 sectors, including automobiles and auto components, electronics and IT hardware, telecom, pharmaceuticals, solar modules, metals and mining, textiles and apparel, white goods, drones, and advanced chemistry cell batteries.

Motivation

The scheme aims to provide companies with incentives for incremental sales from products manufactured in domestic units. Additionally, it encourages local companies to set up or expand existing manufacturing units and invites foreign companies to establish operations in India. The scheme targets labor-intensive sectors to create new jobs for India`s growing workforce.

Objective

The primary objective of the PLI scheme is to make domestic manufacturing globally competitive and to create global champions in manufacturing. It aims to make India more compliant with World Trade Organization (WTO) commitments and ensure the scheme is non-discriminatory and neutral with respect to domestic sales and exports. By supporting labor-intensive sectors, the scheme seeks to increase employment in India, reduce import bills, and boost domestic production.

Problem Statement

No Common Set of Parameters:

There is no standardized set of parameters to measure the value addition by companies receiving incentives under the PLI scheme. Different ministries monitor the value addition of their respective PLI schemes, making it difficult to compare schemes. Additionally, various deliverables such as job creation, export increases, and quality improvements lack a centralized database for assessment.

Target for Companies for Incentives Too Steep:

Departments and ministries interacting with companies in their sectors face specific issues, such as steep targets for companies to qualify for incentives.

Domestic Companies Relied on One or Two Supply Chains:

Until the last fiscal year, only 3-4 companies managed to achieve the incremental sales targets to qualify for the PLI scheme from the fourteen approved companies. Unlike global companies, most domestic companies rely on one or two supply chains, which have been severely disrupted. As a result, these companies may not qualify for the incentive due to no fault of their own.

The incentives under this scheme are calculated based on incremental sales, ranging from as low as 1% for electronics and technology products to as high as 20% for manufacturing critical key starting drugs and certain drug intermediaries. In some sectors, such as advanced chemistry cell batteries, textile products, and the drone industry, the incentive will be calculated based on sales, performance, and local value addition over a period of five years.