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The Government of India is set to evaluate the reasons behind the slow disbursement of funds for different sectors under the Production Linked Investment (PLI) scheme. Rajesh Kumar Singh, Secretary in the Department of Promotion of Industry and Internal Trade (DPIIT),

highlighted this issue during a discussion in New Delhi, as reported by the Economic Times on June 14. Singh acknowledged that while they are hopeful of utilizing ₹1.97 lakh crore for the scheme, some course correction may be necessary at the individual scheme level.

Singh’s statement holds significance as the government had announced the PLI scheme for 14 sectors, including telecommunications, white goods, textiles, and pharma-ceuticals, with a total outlay of ₹1.97 lakh crore.

However, only ₹2,900 crore has been disbursed out of the ₹3,400 crore claims received as of March 2023. Another report indicates that only two or three sectors are expected to meet their first-year targets under the scheme. Launched in March 2020, the PLI scheme received funds for the first time in the Budget for 2021-22.

The PLI scheme holds importance in India as it aims to boost domestic manufacturing and reduce the country’s import bill. The scheme provides incentives to both foreign and domestic investors for incremental sales of goods produced within India. Targeting labor-intensive sectors, the scheme seeks to increase employment opportunities in the economy. It offers incentives of 4% to 6% on incremental sales over a five-year period, focusing on sectors that are capital-intensive. As the government may not have the capacity to invest a large sum in these sectors within a short period, it has invited the private sector, both foreign and domestic, to establish manufacturing units. The success of the PLI scheme depends on overall output, and producers involved receive benefits such as affordable land acquisition, tax rebates, and import concessions.

Critics, including former Chief Economic Advisor and RBI Governor Raghuram Rajan, have pointed out weaknesses in the PLI scheme. Rajan highlighted that the export of high-quality mobile telephones under the scheme only adds marginal value due to India’s reliance on imported parts for assembly rather than domestic production. He emphasized the need for higher value addition to achieve economic self-sufficiency. The government, however, has refuted Rajan’s allegations, stating that he selectively chose data and misrepresented the matter.

Economists, including Arun Kumar, a former professor of economics at JNU, have raised concerns about the PLI scheme’s weaknesses. They argue that India should focus on reducing regional inequality, improving basic education, healthcare facilities, law and order, and infrastructure to attract foreign investment. Additionally, the structural issues of low demand, inadequate research and development (R&D), and the inflationary effects of subsidies need to be addressed. Kumar suggests that the PLI scheme, being a supply-side incentive, requires sufficient demand in the economy. To boost demand, inequality must be reduced, and emphasis should be placed on the production of goods for mass consumption.

In conclusion, while some course correction may be necessary for the PLI scheme’s success, long-term policies and measures are required to strengthen India’s industrial base and compete with global producers. Addressing issues of demand, inequality, and R&D will be crucial in achieving the desired outcomes of the scheme.