Review: Understanding the Progress Under Production Linked Investment (PLI) Scheme

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The PLI Scheme was approved by Union Cabinet on 11 November 2020, with an aim to increase domestic production of various commodities in 14 sectors by way of providing incentives to attract investments and to increase India’s manufacturing capabilities and exports. There is no compiled public data to review the progress other than data shared by the government in certain parliament responses.

In today’s interconnected & competitive global markets which are increasingly disrupted by headwinds such as pandemics & wars, one of the core objectives that nations seek to achieve is to make their respective nations self-reliant with sufficient domestic production of various commodities along with making the goods compete in the global markets. To achieve this, nations also devise different strategies by way of policy decisions, schemes, etc. to attract sector-specific investments aimed at achieving a time-bound increase in domestic production of various commodities, and profitability of investors, along with economic growth.

In India, under the flagship of the Atmanirbhar Bharat Initiative, the Production Linked Investment (PLI) Scheme was approved by the Union Cabinet on 11 November 2020, with an aim to increase domestic production of various commodities in 14 sectors by way of providing incentives to attract investments and to increase India’s manufacturing capabilities and exports.

Recently, several issues relating to OLA Electric Limited, one of the qualified beneficiaries of the ‘PLI Scheme for Automobile and Auto Components’, were highlighted in the media, bringing focus to the PLI Scheme.

In this story, we understand the PLI Scheme, its objectives, progress so far, and the relevant issues.

PLI Scheme and its stated objectives

The PLI scheme was envisaged to address certain issues hampering the progress and growth of 14 sectors to which the scheme is applicable. For example, the Ministry of Electronics and Information Technology (MEITY) highlights that domestic hardware electronics manufacturing suffers a disability of about 8 to 11% by virtue of issues such as lack of adequate infrastructure, domestic supply chain and logistics, high cost of finance, limited design capabilities, and inadequacies in skill development, among others. Similarly, other sectors are confronted with their own specific issues hindering their growth. Therefore, the Scheme envisaged the following common objectives for all sectors:

Within these objectives, the respective ministries of the PLI applicable sectors are tasked to set their own objectives and targets. For example, the Ministry of New and Renewable Energy (MNRE) set out objectives such as building up solar PV manufacturing capacity of high-efficiency modules promoting the setting up of integrated plants for better quality control and competitiveness, among others.

PLI Schemes for 14 key sectors have been announced with an outlay of Rs. 1.97 lakh crores in the 2021-22 budget. These 14 sectors include;

  1. Mobile Manufacturing and Specified Electronic Components
  2. Critical Key Starting Materials/Drug Intermediaries & Active Pharmaceutical Ingredients
  3. Manufacturing of Medical Devices
  4. Automobiles and Auto Components
  5. Pharmaceuticals Drugs
  6. Specialty Steel
  7. Telecom & Networking Products
  8. Electronic/Technology Products
  9. White Goods (ACs and LEDs)
  10. Food Products
  11. Textile Products: MMF segment and technical textiles
  12. High-efficiency solar PV modules
  13. Advanced Chemistry Cell (ACC) Battery, and
  14. Drones and Drone Components.

The methodology and means by which the Government of India (GoI) has sought to meet these objectives is to provide financial incentives to eligible investors (companies) with targeted production of sector-specific commodities. Similar schemes are also implemented in countries like the United States, China, Japan, and others.

What about eligibility Criteria, and other rules and regulations applicable for Companies Applying for PLI?

As noted earlier, the PLI scheme was approved by the Union Cabinet with a budgetary allocation of Rs. 1.97 lakh crores. Each respective sector-specific Ministry is tasked with formulating its own rules and regulations to decide on specific aspects such as the incentives which shall be given, the eligibility criteria for companies such as the total investment required, financial capacity of the company, etc. For instance, the MEITY stipulated that a company to be eligible under the scheme for manufacturing of Mobile phones should have consolidated global manufacturing revenue of more than Rs. 10,000 crores in the base year 2019-20. In cases where the companies are of domestic origin, the applicable limit is Rs. 100 crores. In addition, MEITY also laid down other rules and regulations such as the following.

Based on these applicable norms, the respective ministries issue incentives under PLI to the selected companies.

Uniform Growth in PLI-benefitted Sectors is not noted

There is no compiled public data available with the sector-wise total amount of financial incentives given, investments made, actual production and employment achieved under the PLI scheme. As per a July 2024 response in the Lok Sabha, an actual investment of Rs. 1.23 lakh crore has been realized till March 2024 across 14 sectors under the PLI scheme resulting in incremental production or sale of over Rs. 10.31 lakh crores and employment generation of around 8 lakhs. Further, incentive amount of Rs. 9,721 crores have been claimed under the PLI scheme for 9 sectors, namely Large-Scale Electronics Manufacturing (LSEM), IT Hardware, Bulk Drugs, Medical Devices, Pharmaceuticals, Telecom & Networking Products, Food Processing, White Goods and Drones & Drone Components.

Further, another Lok Sabha reply dated 07 February 2024 states that as per Industry estimates, mobile phone production in India has increased by 18.5 times from Rs. 18,900 crores in 2014-15 to Rs. 3,50,00 crores by 2022-23. Further, during the same period, mobile phone exports have increased by 57.5 times from Rs. 1,566 crores to Rs. 90,000 crores. Similarly, vide its replies in Parliament, the government has consistently stated that the PLI Scheme has been a success with a notable increase in production, exports, and employment.

However, in the absence of compiled data for all the PLI applicable sectors, it is difficult to review the scheme’s progress vis-à-vis its stated objectives. In addition, the recent 11 February Business Standard article reported that the inter-ministerial review report noted significantly slow growth in key PLI scheme sectors such as Textiles, Information Technology Hardware, and Specialty Steel during the financial year 2023-24. As per this report, during the same year (up to December 2023), the government was hoping for about Rs. 49 thousand crores in investment among all 14 sectors, whereas the actual investment was only Rs. 30 thousand crores, falling short by about 39%. Except in the Telecom sector, all other 13 sectors have fallen short of the anticipated investments. Further, it noted that even as the investments exceeded estimates of the government in the financial year 2022-23, the progress has not been uniform across the sectors. For instance, during the same year, while the anticipated investment for the medical and bulk drugs was met, the actual production/sales were not met as per the target. For automobiles and auto components, while the targeted production/sales were achieved, the targeted investments were not achieved. Therefore, though the progress among the 14 sectors of PLI cannot be denied, as per the government’s admission, the progress has not been uniform across the sectors.

OLA Electric Bike customer grievances highlight issues to be considered beyond production targets

Incentives to Industries are not a new phenomenon in India. For instance, the numerous types of tax exemptions are given to Corporates. For example, in a 7 February 2023 reply in Rajya Sabha, the government admitted that due to the reduction in Corporate taxes from 30% to 22%, a revenue loss of about Rs. 1.2 and Rs. 1 lakh crores in the years 2019-20 and 2020-21, respectively, were suffered. In addition, other exemptions and benefits given to the industries in Special Economic Zones (SEZs) have been long debated topics as to their real purpose, achievement of the stated benefits, and other such issues. The PLI Scheme is another such incentive scheme with specific production targets in key sectors.

Multiple models of Ola Electric are approved under the ‘PLI Scheme for Automobile and Auto Components’. Various media stories reported (read here and here) issues such as the Front Fork Arm of bikes of many customers being broken with its design suited for European roads, improper functioning of software application which is mandatory for the running of bikes, and other issues. Further, customers have expressed grievances about frequent repairs of one sort or the other, with waiting periods for repairs running from several days to months together. Ironically, these issues are reported within one year of purchasing the bikes. It is also reported that the current stock of OLA bikes awaiting repairs is 5-10 times more than the repairing capacity of their service centres. Unfortunately, some of the customers are also reportedly having to bear the financial burden of these repairs, which are caused by faults in the design of the vehicles and other such issues.

While the PLI scheme includes objectives such as improvement and self-sufficiency in technology, as the issue with Ola Electric Bikes highlights, there has to be some form of monitoring & disincentivizing for quality & customer service issues. Ultimately, the companies are accountable to consumers who pay for the products and are entitled to receive quality products for the price they pay.