Five questions India needs to answer about its PLI scheme

India is trying to become a manufacturing powerhouse in a clutch of old and new sectors. Its policy instrument, the production-linked incentive (PLI) scheme, stands on a mix of old and new pillars—high import tariffs to coax companies to stop importing and source in India instead; a focus on creating a few champions in each sector where India wants global competitive advantage; an interim disability cost paid out by the government to these firms to offset the inefficiencies of manufacturing in India; and maximal localisation in each value chain to reduce dependence on other countries.

Two years into its launch, how is the scheme doing? The government is bullish. On Independence Day this year, Prime Minister Narendra Modi said India is becoming a manufacturing hub. According to The Economic Times, the scheme has generated investment commitments of Rs2.34 lakh crore (US$ 29.35 billion) across 14 sectors. Critics are less sanguine. India has tried in the past to boost domestic production by erecting import barriers. The outcome wasn’t pretty. Indian firms lobbied the government for prolonged subsidies and import barriers, and sold expensive products priced just below imports. Overall efficiency fell. India seems to be slipping down the same slope again.

As we saw with the polysilicon and battery PLIs, some aspects of the scheme weaken the country’s chances of dominating these sectors. In the third—and concluding—part of this series, CarbonCopy raises five questions about the PLI scheme. India’s inroads into global manufacturing chains, not to mention the future direction of these sectors in India, sizeably depend on how the country addresses each of these issues. 

These questions are:
1. Is India choosing sectoral champions well?
2. Is PLI support significant?
3. Can one firm dominate a value chain?
4. Can import substitution yield export competitiveness?
5. Could India have used this money better?

Other questions — like the lack of emphasis on R&D while rabbiting on endlessly about creating the technological leaders of tomorrow — are woven into these questions.
These are all deeply consequential questions. Given how much rides on them — the future structure of India Inc, if this will deepen oligarchy, the country’s future import bills; its prospects as an exporter, jobs, one could go on — such policies have to see more discussion than they have.
Also, here is Part One: https://carboncopy.info/how-far-will-indias-landmark-manufacturing-scheme-propel-it-in-the-global-energy-race/
And Part Two: https://carboncopy.info/what-indias-solar-and-battery-plis-tell-us-about-how-the-scheme-is-working/
Do read.

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