Product Linked incentive scheme (PLI) -UPSC [prelims and mains comprehensive]

The Ministry of Commerce and Industry has submitted a report on the Status of India’s Production-Linked Incentive Schemes. The Product Linked incentive scheme is a cornerstone of the Government’s drive toward Atmanirbhar Bharat. The Finance Minister announced an allocation of INR 1.97 lakh crores for PLI Schemes in 13 critical sectors in the Union Budget 2021.

So far, nine of the thirteen PLI schemes have been notified, and another four are in the process of being notified. Consider the pros and drawbacks of PLI systems.

Concerning Product Linked incentive scheme (PLI) Programs

The PLI Scheme was introduced as part of the National Policy on Electronics 2019 to provide electronic companies with incentives ranging from 4-6 percent. Especially for manufacturers of electrical components such as mobile phones, diodes, and transistors.

  • The scheme’s primary objective was to attract international investors to establish industrial facilities in India. Similarly, the PLI program encourages local producers to grow their operations.
  • The Scheme will reward businesses for incremental sales of products manufactured in home units.
  • The system is implemented by the appropriate ministries/departments.

The Need for a Product Linked incentive scheme Program

The government expanded the PLI Scheme to address a variety of manufacturing sector demands. For instance,

  • The PLI Scheme provides sufficient support to start-up industries.
  • These are relatively young industries, yet they are thriving at the moment. Additionally, these are projected to grow increasingly significant in the future. Solar energy industries, food processing industries, and so on.
  • Additionally, despite its dominance in the services sector, India makes a negligible contribution to the global supply chain. The Product Linked incentive scheme may assist India in developing an export base.
  • For instance, the Parliamentary research estimates that the minimum production in India as a result of PLI schemes will exceed US$ 500 billion in five years.
  • At the moment, there is an increasing demand for supply chain diversification. Especially to avoid China’s hegemony. By expanding output, the PLI Scheme can help reduce Chinese demand.
  • Attract worldwide investment to India following the outbreak of Covid-19. India’s economy is consumer-driven. The PLI scheme increases foreign investment in India by giving incentives.

The Benefits of PLI Plans

The Scheme confers numerous benefits on India’s manufacturing industry.

  • To begin, the PLI Scheme expands India’s current capacity. For instance,
  • India’s textile industry is one of the world’s largest.
  • India is the world’s second-largest steel manufacturer.
  • By implementing the PLI Scheme in various industries, these sectors will be further expanded.
  • Second, India is predicted to have a digital economy worth USD 1 trillion by 2025. Smart City Mission and Digital India both demand significant investment.
  • Thirdly, the government is incapable of investing sustainably in capital-intensive sectors. Because their gestation period is longer.
  • However, the PLI Scheme’s incremental output-based approach is more effective than other grant-based input subsidy programs such as Mega Food Parks. This will result in a decrease in government spending.
  • Fourthly, create employment opportunities: Labor-intensive industries such as textiles and steel exist.
  • Fifthly, the strategy intends to encourage local enterprises.

A. The Scheme will apply to pharmaceuticals.

• Provides benefits to domestic manufacturers

• Is likely to contribute to a broader range of cheap medicines being available to consumers.

• Boost domestic production of high-value products and add value to exports. Between 2022-23 and 2027-28, total incremental sales of Rs.2,94,000 crore and total incremental exports of Rs.1,96,000 crore are estimated.

• The scheme is expected to generate employment opportunities for both skilled and unskilled workers, with an estimated 20,000 direct jobs and 80,000 indirect jobs created as a result of sector growth.

• Encourage innovation in the development of complex and high-tech products, such as emerging therapies and in vitro diagnostic devices, as well as self-sufficiency in critical drugs.

• Increase the Indian population’s access to and affordability of medical products, including orphan drugs. Additionally, the Scheme is expected to attract Rs.15,000 crore in investment in the pharmaceutical sector.

B. For information technology hardware, the scheme proposes a production-linked incentive to stimulate domestic manufacturing and attract significant investment in the information technology hardware value chain. Laptops, Tablets, All-in-One PCs, and Servers are all included in the proposed Scheme’s Target Segments.

• The Scheme would provide qualifying enterprises with a four-year incentive of 4% to 2% / 1% on net incremental sales (over the base year, i.e. 2019-20) of items manufactured in India and falling within the target segment.

• The initiative will aid in the growth of the country’s electronics ecosystem. India will be well-positioned as a global hub for Electronics System Design and Manufacturing (ESDM) as a result of its integration into global value chains, thereby establishing itself as a destination for IT Hardware exports.

• Over a four-year period, the scheme has the potential to generate over 1,80,000 jobs (direct and indirect).

• The Scheme will stimulate domestic value addition for IT hardware, which is expected to reach 20%–25% by 2025.

C. For the Telecommunications Sector

The Cabinet approved the Production Linked Incentive (PLI) Scheme for Telecom and Networking Products in light of the tremendous incentive provided by the Government of India in several industries. This certification follows the extremely optimistic success of the Production Linked Incentive Scheme for mobile and component manufacturing, which was announced in April 2020 at the height of the Covid epidemic.

• The primary objective of this scheme is to offset the massive import of telecom equipment worth more than Rs. 50,000 crores and to supplement it with “Made in India” items for both domestic and international markets.

• For the purpose of computing cumulative incremental sales of manufactured products net of taxes, the fiscal year 2019-20 shall be used as the Base Year.

• The Scheme will begin operations on April 1, 2021.

• This scheme also addresses indigenous manufacturing in the MSME category, as the government wishes for MSMEs to play a significant role in the telecom sector and emerge as national champions.

• Over the next five years, this scheme will result in incremental production of around 2.4 lakh crores and exports of approximately 2 lakh crores. The initiative is estimated to attract over 3,000 crore in investment and produce significant direct and indirect jobs and tax revenue.

D. For Manufacturing Electronics on a Large Scale

• The concept proposes a financial incentive to stimulate domestic manufacturing and to attract significant investment in the electronics value chain, which includes electronic components and semiconductor packaging.

• Under the scheme, electronics manufacturers will receive a 4–6% incentive on incremental sales (over the base year) of goods manufactured in India during the next five years.

• The scheme shall be applicable solely to the specified electronic components and mobile phones.

• The initiative is projected to boost domestic value addition for mobile phones to 35-40 percent by 2025, up from 20-25 percent currently.

• It would also produce an additional 8 lakh jobs, both direct and indirect.

Difficulties related with Production Linked Incentive Scheme

  • The scheme imposes a financial ceiling on incentive payments. This results in an overachieving organization not reaping the rewards of its accomplishments.
  • In India, the bulk of the sectors targeted by the PLI Scheme have a higher effective cost of production than competitors.

Along with the PLI Schemes, certain reforms are required to transform India into a global manufacturing hub. These include the following:

Co-location of supply chains:

  • The government must encourage foreign enterprises covered by the PLI policy to co-locate (the consolidation of multiple organizations in a single site) with their established industrial ecosystems.
  • This will result in a decrease in government expenditure on investing and developing investor-friendly ecosystems. This will facilitate communication between assemblers and component makers. As a result, the effective cost of manufacturing is reduced.
  • Further, the government must likewise focus on the service business also. As other countries, such as China, focus on the long term development of both the manufacturing and service sectors concurrently.
  • India must also address other critical manufacturing sector concerns through efforts such as

o Cost reduction– India should also consider lowering its factor costs for power and logistics.

  • Encouraging states to remain competitive and refrain from trade-restricting measures such as job reserve for indigenous people.
  • Additionally, structural reforms such as land reforms, etc.
  • Additionally, India’s human capital needs to be strengthened to satisfy the demands of emerging sectors.
  • Profiting from Anti-Chinese Sentiment: Global players such as the United States of America and Australia want to diversify their supply networks while also leveling accusations against China. India should seize this excellent chance to draw remittances from China.

Conclusion

India’s PLI plan has attracted 22 leading corporations in the electronics manufacturing area, including Apple and Samsung. Apart from that, it is anticipated that the PLI scheme will secure over $150 billion in manufacturing capacity and $100 billion in exports over the following five years.

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