Policy Update
Ishan Singh
Background
On July 24, 2024, the budget for 2024 was presented, bringing production-linked incentives back into focus. Budget 2024 has been seen as a subdued means of achieving our long-term objective of VIKSIT BHARAT by 2047.
PLI was first launched in April 2020, for the large-scale electronics manufacturing sectors which include mobile and allied component manufacturing, electrical component manufacturing and medical devices. Later, it was extended to 14 sectors.
The scheme was introduced on the lines of Aatmnnirbhar Bharat. Under the PLI scheme, foreign and domestic companies can receive financial incentives for manufacturing in India, up to five years of production, based on a percentage of their total revenue.
Pharmaceuticals, drugs, speciality steel, telecom & networking products, electronic products, white goods (ACs and LEDs), food products, textile products, solar PV modules, advanced chemistry cell (ACC) batteries, Mobile manufacturing, medical device manufacturing, and drone manufacturing are the 14 sectors. The initial allocation for the PLI scheme was ₹1.97 lakh crore. Up until May 2024, investments totalling over ₹1.28 lakh crore were documented. This resulted in sales and production of ₹10.8 lakh crore and the creation of over 8.5 lakh direct and indirect jobs. Exports increased by ₹4 trillion with notable contributions from industries like the large-scale production of electronics,
telecom & networking products, food processing, and pharmaceuticals.
Updates under Budget 2024
The Indian government has made a bold move to energize the producing sectors by ramping up the Production Linked Incentive (PLI) program. These include:
- Increase in Allocation
From ₹2,002 crore in FY23 to ₹8,007.3 crore in FY24, the total PLI incentive has experienced a significant increase. The allocation is expected to increase to ₹14,167.1 crore for FY25. This sizeable increase demonstrates the government’s dedication to expanding domestic manufacturing capabilities and job creation. - Expansion in sectors
The PLI program has been extended by the 2024 Budget to cover more labour-intensive industries and MSMEs. A credit guarantee scheme has been launched to provide term loans to MSMEs for buying equipment without collateral or third-party guarantee. Important industries like toys, leather, footwear, and textiles are now included in the program to create more jobs. In line with a larger industrial strategy, there is also a push for chemicals, green energy, and auto parts. Creation of DPI applications for credit, e-commerce, health, education, law and justice, logistics, MSME, urban governance, and services delivery. - Investments and taxes
The private sector’s involvement in infrastructure projects has lagged behind expectations, despite the significant government investment. The government intends to address this by introducing market-based financing frameworks and viability gap funding (VGF) to increase the appeal of infrastructure projects to private investors. The objective of this approach is to close the investment gap and guarantee on-time project completions. Angel tax has been abolished to boost start-ups. Less complicated tax laws for international shipping firms that conduct domestic cruises to boost cruise travel in India. The corporate tax rate on foreign companies was reduced from 40 to 35 per cent. - Sector-Specific Boosts
Under the PLI schemes, targeted incentives have been given to certain sectors. For instance, increased government support and incentives are expected to drive significant growth in the electronics and textiles sectors. The budget also emphasized how crucial it is to create “plug-and-play” industrial parks to draw in investments and simplify industrial processes. E-Commerce Export Hubs to be set up under public-private-partnership (PPP) mode for MSMEs and traditional artisans to sell their products in international markets.
The government approved the PLI Scheme for textile industry, which will provide ₹10,683 crores over five years for fabrics and clothing made of man-made fibres and technical textiles. It is anticipated to draw more than ₹19,000 crore in capital and generate 2.5 million employment.
Impact
PLI boost can significantly impact various sectors such as:
- Electronics and IT Hardware
Strong support is still being given to the PLI scheme for electronics, which has already seen considerable success. This includes financial incentives for component manufacturing and the establishment of semiconductor fabrication facilities, both of which are essential for boosting self-reliance and lowering reliance on imports. This revision highlights the significance of the drone certification scheme as a key element of the Production-Linked Incentive (PLI) program, emphasizing the positive impact on the drone industry. - Automobiles and Auto Components
The updated PLI schemes are very beneficial to the automotive industry, especially for electric vehicles (EVs). It is anticipated that incentives for producing EV batteries and parts will quicken India’s transition to sustainable transportation. It attracted a proposed investment of ₹67,690 Crore, against which ₹14,043 Crore has been invested till end-March 2024. - Textiles and Apparel
The textile industry, which is essential for exports and jobs, is getting more attention. The budget aims to establish India as a global centre for textile manufacturing by offering incentives for the production of technical and high-value textiles. - Pharmaceuticals and Medical Devices
The PLI scheme for pharmaceuticals and medical devices has been expanded to cover more products, aiming to reduce import dependence and enhance India’s position as a global pharmaceutical manufacturing hub. The programs have strengthened the resilience of our supply chain and stabilized the import of drugs in large quantities. The program strengthened fermentation-based manufacturing capabilities by producing antibiotics like Clavulanic Acid and Penicillin G. - Steel Industry
The greenfield project is anticipated to generate superior steel, bolstering the socioeconomic advancement of the area and establishing India as a major force in the world steel industry. The PLI Scheme for speciality steel, approved in 2021, has attracted investment of ₹15,519 Crore till May 24. - Food Production
To enhance supply chain management from farm gates to retail locations, the government has launched a number of initiatives. The Production Linked Incentive Scheme for the Food Processing Industry (PLISFPI) facilitates international branding and marketing, as well as the development of global food manufacturing champions. It is anticipated to increase farmer income, improve farm produce prices, and generate jobs off the farm. Currently, the PLI Scheme covers 173 applications. The scheme’s beneficiaries have contributed ₹7.69 trillion in investments.
Challenges
The efficacy and overall success of the Production-Linked Incentive (PLI) scheme may be affected by several impending challenges. The program may experience implementation delays in spite of its ambitious goals, which could prevent incentives from being deployed on time and lessen their potential impact on the manufacturing sector. It may also be possible to restrict the size or reach of the incentives offered if budgetary allotments are insufficient to cover all targeted sectors.
Finally, it is imperative to have strong monitoring and evaluation systems. The program may not accomplish its intended goals if adequate oversight isn’t in place to evaluate its effects and deal with new problems. It will be essential to take proactive measures to address these issues if we want to make sure that the PLI scheme achieves its goals and successfully supports the expansion of Indian manufacturing.
Way Forward
The 2024 Budget’s revisions to the PLI programs aim to improve India’s manufacturing capacity, generate employment, and expand its export market. Through the implementation of strategic incentives and the resolution of critical issues, the government hopes to establish India as a global centre for manufacturing and promote sustainable economic growth.
References
- Press Information Bureau. (2024). HIGHLIGHTS OF UNION BUDGET.
- Rao, N. (2024). Union Budget 2024: Key highlights of PLI scheme, green energy, auto, fertilizers, and textiles. India Today.
- Business Today. (2024). Budget 2024: Watch out for textile, auto, and green energy sectors as the PLI scheme may get a boost. Business Today.
- Drishti IAS. (2024, July 20). Production-linked incentive scheme. Drishti IAS.
- Ministry of Finance. (2024). Economic Survey 2023-24. Government of India.
About the Contributor – Ishan Singh, a research intern at IMPRI pursuing his bachelor’s degree in B.A. (Hons.) Political Science from Kirori Mal College, University of Delhi.
Acknowledgement – The author would like to thank Dr Arjun Kumar, Anulya and Ishani Mitra who helped me throughout this article and reviewing the same.
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