India letting US$23b manufacturing incentive programme lapse

Key Concepts:

• Production Linked Incentive (PLI) Scheme: A government program designed to incentivize domestic manufacturing by providing cash payouts based on increased production.
• Manufacturing Share of the Economy: The percentage of India's GDP contributed by the manufacturing sector.
• Subsidies: Financial assistance provided by the government to support specific industries or companies.
• Target Output: The production levels that companies participating in the PLI scheme were expected to achieve.

PLI Scheme Setback

India is allowing its $23 billion USD Production Linked Incentive (PLI) scheme to lapse, representing a setback to Prime Minister Narendra Modi's efforts to bolster domestic manufacturing. This decision comes four years after the scheme's launch, intended to attract companies away from China.

Scheme Details and Participation

The PLI scheme will not be expanded, nor will production deadlines be extended. Approximately 750 companies, including Foxconn and Reliance Industries, participated in the program. The initial goal was to increase the manufacturing sector's contribution to the economy to 25% by the current year.

Performance Shortfalls

Companies struggled to meet the set targets, and the government was slow in disbursing subsidies. As of October of the previous year, companies had only achieved 37% of the target output. Payouts accounted for less than 8% of the allocated funds. The share of manufacturing in the economy has decreased by nearly one percentage point to 14.3%.

Sector-Specific Performance

• Success Stories: Pharmaceuticals and mobile phones experienced significant growth, receiving 94% of all subsidies issued between April and October of the previous year. India has become a major hub for smartphone production, with Apple expanding its presence.
• Underperforming Sectors: Steel, textiles, and solar panel manufacturing failed to meet their targets, facing challenges from cheaper competition from China.

Government Response and Future Plans

Despite the scheme's shortcomings, officials state that India is not abandoning its industrial ambitions. New alternatives are being considered.

Expert Warnings

Observers caution that missing this opportunity could negatively impact India's industrial future.

Conclusion

The lapse of the PLI scheme highlights the challenges in achieving ambitious manufacturing goals. While some sectors thrived, others struggled due to various factors, including competition and slow subsidy disbursement. The government is exploring alternative strategies, but the outcome remains uncertain.