India’s Manufacturing Transformation: The Role of the PLI Scheme
Context:
India’s journey to becoming a global manufacturing powerhouse is gaining momentum, thanks to strategic policy initiatives like the Production-Linked Incentive (PLI) scheme. This initiative has had a profound impact on production, exports, and employment across sectors such as electronics, pharmaceuticals, automobiles, textiles, and more.
Performance of the Manufacturing Sector:
- Robust Growth in 2022-23: The Annual Survey of Industries (ASI) 2022-23 highlighted a strong performance in manufacturing, with output growing by 21.5%. Gross Value Added (GVA) increased by 7.3%, despite challenges such as rising input costs.
Major Sectors Driving Output Other notable sectors include chemicals and motor vehicles, which also showed robust performance
Industry Contributions
Key Sectors Driving Growth: Industries under the PLI scheme, including basic metals, chemicals, food products, and motor vehicles, were pivotal in driving this growth.
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- These sectors collectively contributed 58% of the total manufacturing output and registered a growth of 24.5%.
- Regional Imbalance in Manufacturing: A few states—Maharashtra, Gujarat, Tamil Nadu, Karnataka, and Uttar Pradesh—dominate the sector, contributing over 54% to GVA and 55% of employment.
Addressing Challenges of Manufacturing Sector :
- Rising Input Costs: A 24.4% increase in input prices during 2022-23 limited GVA growth to 7.3%. Simplifying import tariffs into a three-tier structure (0–2.5% for raw materials, 2.5–5% for intermediates, and 5–7.5% for finished goods) can lower production costs and improve competitiveness.
- Balancing Regional Growth: Encouraging manufacturing in underrepresented regions will ensure equitable development and unlock the sector’s full potential. States must focus on reforms related to land, labour, power, and infrastructure to attract investments.
Opportunities for Expansion of the Manufacturing Sector:
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- Expanding the Scope of PLI
To broaden its impact, the PLI scheme can target labour-intensive sectors such as apparel, leather, and furniture. Including sunrise industries like aerospace and space technology will also boost growth in emerging areas. - Encouraging Green Manufacturing
Fostering research and development (R&D) and adopting advanced technologies can help make manufacturing sustainable and globally competitive. - Reducing Import Dependency
Investing in capital goods manufacturing and simplifying import tariffs will help lower costs, strengthen supply chains, and reduce reliance on imports.
- Expanding the Scope of PLI
- Support for MSMEs: Micro, Small, and Medium Enterprises (MSMEs) contribute 45% to manufacturing GDP and employ 60 million people. Lowering PLI thresholds and simplifying processes can help MSMEs scale and integrate into value chains.
- Boosting Women’s Participation: Increasing female workforce participation can enhance manufacturing output by 9%, according to the World Bank. Building supportive infrastructure, such as dormitories and childcare facilities near factories, can encourage more women to join the workforce.
Future Outlook
- Vision for 2047: Manufacturing is crucial for India’s goal of becoming a developed economy by 2047. The sector’s share in GVA is projected to rise from 17% to over 25% by 2030-31 and to 27% by 2047-48 with sustained policy support.
Key Reforms for Growth: Structural reforms in land, labour, and power markets, along with investments in infrastructure, are essential for driving balanced and inclusive growth.
