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PLI Review 5 Years On: Assessing Progress and the Road Ahead
Context : PLI Review
The Production-Linked Incentive (PLI) scheme, launched in April 2020, has been instrumental in driving India’s manufacturing growth across 14 sectors. As the government deliberates on PLI 2.0, the focus is shifting towards domestic value addition and export-oriented growth to enhance competitiveness and build a robust manufacturing ecosystem.
Achievements of PLI Phase 1
- The scheme has attracted original equipment manufacturers (OEMs) and contract manufacturers, enabling large-scale production.
- Limited but notable value addition has been observed in PCB assembly, surface mounting, product testing, and packaging.
- It has provided a directional shift towards manufacturing but has yet to achieve deep localisation.
Need for Localisation in Electronics Manufacturing
- A progressive deepening of manufacturing is essential for India to capture more value in the supply chain.
- Increased localisation would enhance competitiveness against Chinese and Vietnamese manufacturers.
- A stronger domestic ecosystem would also help mitigate geopolitical risks in global supply chains.
Challenges in Expanding the Manufacturing Base
- The percentage of value addition in key sectors remains in single digits, even in relatively successful areas.
- India’s small domestic market size makes it less attractive for large-scale supply chain relocations.
- To drive down costs and attract investments, higher production volumes and export market access are critical.
Proposal for Linking PLI Incentives to Exports
- Exports would introduce competition, improve efficiency, and provide scale to domestic manufacturing.
- Large export-oriented production would help Indian firms negotiate better rates with semiconductor and proprietary technology vendors.
- The strategy aims to enhance economies of scale and strengthen India’s position in global markets.
The Role of Foreign OEMs in Scaling Up Manufacturing
- Indian firms currently lack economies of scale and face high cost barriers.
- Large foreign OEMs can integrate India’s component manufacturing into their global value chains.
- These OEMs can negotiate competitive rates from suppliers, ensuring India benefits from advanced technology and cost advantages.
- Over time, the local component ecosystem will strengthen, supporting domestic firms in moving up the value chain.
Global Case Studies Supporting This Strategy
- Japan and South Korea leveraged foreign OEMs to build their own competitive manufacturing bases.
- China’s EV sector benefited from Tesla’s entry, helping Chinese companies like BYD, Xpeng, and Nio emerge as global players.
- India could replicate this success by strategically using foreign OEMs to bolster its domestic manufacturing.
Mixed Job Creation Outcomes Under PLI
- Sectors like mobile phones, food processing, and pharma have performed well in job creation.
- Auto, IT hardware, and specialty steel are moderately successful.
- Textiles and advanced chemical cells have struggled to meet job creation targets.
The Path Forward for PLI 2.0
- The next phase of PLI should focus on higher value addition, exports, and ecosystem development.
- Strengthening domestic manufacturing capabilities while integrating with global supply chains is crucial.
- Foreign OEM participation, coupled with export-driven growth, can position India as a major global manufacturing hub.
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The Source’s Authority and Ownership of the Article is Claimed By THE STUDY IAS BY MANIKANT SINGH
