How PLI can be a game-changer for Indian manufacturing and exports

2021 will be remembered as the year full of challenges for Indian businesses, Micro, Small and Medium enterprises (MSMEs), and for the Indian economy. The year will also be known for launching some important schemes and for rolling out key reforms for making some sectors competitive and to improve ease of doing business. One such scheme is the Production-Linked Incentive (PLI) rolled out by the government for various sectors with the intent to boost production, manufacturing and export.

On Wednesday, Finance Minister Nirmala Sitharaman while speaking at M V Kamath Centenary Memorial Lecture said, “The PLI, I think has been a game-changer in drawing industries coming out of certain geographical territories to countries like India and being a part of the domestic and also the export market.”

Sitharaman dubbed PLI schemes as a game-changer that is bringing investment in India, boosting manufacturing and exports. There is not an iota of doubt that PLI’s are an innovative idea that can reduce India’s trade deficit at the same time can boost manufacturing and exports.

Ajay Sahai, Director and CEO of, Federation of Indian Export Organisations believes that going forward, the impact of PLIs will also reflect in rising exports of the country.

“For the next year, I think we should build on the mere fact that this year in 2021-22 will be adding around $110 to $120 billion because now we have PLIs which have been rolled out to a few more sectors after electronics to APIs and pharmaceutical and food processing to technical textile and manmade fibre. We expect from the next year onwards the additional production will be added to the export base of the country,” Sahai said.

The PLI is an innovative scheme that provides incentives in terms of cash to various companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods. PLI scheme offers incentives on incremental sales for products manufactured in India. The incentive could vary between 4-6 per cent of turnover for most categories and can go up to 10 per cent for some products.
 
“PLI scheme is expected to give a much-needed booster dose to flailing capex cycle in the medium term. The scheme has provided for an outlay of Rs ~2 lakh crore by incentivizing 4-7 per cent of incremental revenues over the scheme period. This could potentially trigger Rs 2.5-3.0 lakh crore of capex spread across 14 sub-schemes and can generate Rs 35-40 lakh crore of incremental revenues,” Isha Choudhary, Director, CRISIL Research said.

According to Choudhary, the last two fiscal years of 2021 and 2022 have witnessed the actualization of the scheme led by Mobile phones, pharmaceuticals, IT hardware, etc. with more than 250 firms getting approvals under the scheme. “However, meaningful capex is likely to be driven over fiscals 2023-2025 as fine print across more sectors gets finalized,” she added.

According to government estimates, in terms of production, the outcome from the PLI scheme launched by the government can be over $504 billion and will add around 1 crore jobs in the next 5 years. Last year, in 2020, a Credit Suisse report stated that the scheme will add 1.7 per cent to Indian GDP by financial year FY27 and highlighted that bulk of the additional $144 billion sales across 13 sectors will be exported, thus shrinking the country’s trade deficit by $50 billion. 

According to Care Rating, the biggest challenge in this scheme is job creation. The potential is immense as laid out in the plans. But the organized sector that is largely covered here would provide the bulk of the thrust in most sectors in fulfilment of the targets. The PLI plan does not talk of the employment targets in terms of direct and indirect job creation. It may be assumed that a substantial part which is more than 50-60% would be indirect. Also, in some sectors, the SMEs would be expected to take some initiative where the investment and turnover targets are not very large.

In 2022, as the policy reforms and PLIs are likely to continue, at the same time the benefits of PLI schemes launched in 2020 and 2021 would be visible in the various aspects of the economy.