Mains Practice Questions

Introduction

The Production Linked Incentive (PLI) scheme, aimed to revitalize the domestic manufacturing sector and enhance India's global competitiveness.

• By offering financial incentives to manufacturers in various sectors, the PLI aimed to attract investments, create jobs, and promote technology adoption.

Body

Performance Evaluation of India’s Manufacturing Sector under PLI:

• Increased Investment: The PLI scheme has attracted significant investments across various sectors.
  • In the mobile manufacturing sector, the scheme has attracted investments from major global players like Apple and Samsung.
  • Apple's contract manufacturers like Foxconn have committed to investments worth billions of dollars in India.
• Job Creation: The scheme has led to the creation of numerous direct and indirect jobs.
  • The PLI scheme for the textile sector is expected to create over 7.5 lakh direct jobs in the next five years.
• Export Promotion: The scheme has boosted exports in several sectors.
  • India's electronics exports are growing rapidly, now the country's fifth largest export commodity, expanding at a 23% annual rate.
• Diversification of Manufacturing Base: The PLI scheme has helped in diversifying India's manufacturing capabilities.
  • In June 2024, the Index of Industrial Production (IIP) indicated a year-on-year growth of 4.2%, with the manufacturing sector specifically growing by 2.6%.
• Technological Advancement: The scheme has promoted the adoption of cutting-edge technologies in manufacturing.
  • In the automotive sector, the PLI scheme has incentivized the production of electric and hydrogen fuel cell vehicles, pushing manufacturers to invest in advanced technologies.

Challenges to be Addressed:

• Infrastructure Bottlenecks: Inadequate infrastructure remains a significant hurdle for manufacturing growth.
  • The lack of reliable power supply and poor logistics infrastructure (logistics costs are currently at 13-14 percent of the GDP) increases production costs and delays.
• Skill Gap: There is a mismatch between the skills required by the industry and those possessed by the workforce with potential skill deficit of 30-32 million people by the end of fiscal 2025
  • In the electronics manufacturing sector, there is a shortage of skilled workers for advanced manufacturing processes, potentially hindering the full realization of PLI benefits.
• Regulatory Hurdles: Complex regulations and bureaucratic processes can deter investments and slow down manufacturing growth.
  • The multiple approvals required for setting up a manufacturing unit, involving various departments, can lead to delays and increased costs.
• Raw Material Availability: Dependence on imported raw materials for certain sectors can impact manufacturing competitiveness.
  • The semiconductor industry, crucial for electronics manufacturing, faces challenges due to the lack of domestic chip manufacturing capabilities (India imported USD 5.38 billion worth of semiconductor devices)
• Global Competition: Indian manufacturers face stiff competition from other manufacturing hubs, particularly in Southeast Asia.
  • Countries like Vietnam and Thailand offer competitive advantages in terms of labor costs and established supply chains in sectors like electronics and textiles.
• Technology Adoption: Many small and medium enterprises (SMEs) struggle to adopt new technologies due to financial constraints.
  • In the auto components sector, many SMEs find it challenging to invest in Industry 4.0 technologies, potentially making them less competitive compared to larger firms.

Recommendations to Boost Manufacturing Growth

• Invest in infrastructure development, particularly in industrial corridors and logistics.
• Enhance skill development programs aligned with industry needs building upon the Ireland Model.
• Streamline regulatory processes through single-window clearance systems.
• Promote domestic production of critical raw materials and components, with notification of critical minerals for India as a step in the right direction.

Conclusion

Production Linked Incentive scheme has shown promising results in boosting India's manufacturing sector. However, addressing the challenges related to infrastructure, raw materials, skill development, regulations, and global trade is crucial for sustaining and accelerating manufacturing growth in the country.