The Indian government is revamping the Production Linked Incentives (PLI) scheme to provide robust support to Micro, Small, and Medium Enterprises (MSMEs). This comprehensive overhaul includes relaxing fund release norms, adding new sectors to the scheme, and extending benefits to MSMEs in labor-intensive industries. These changes aim to accelerate growth and investment in the sector.
Importantly, the total budget for the scheme remains unchanged, ensuring that the financial support for these initiatives remains consistent, according to official sources. This strategic move highlights the government’s commitment to fostering a conducive environment for MSMEs to thrive.
Quarterly Fund Disbursements and New Sectors
The government has started accepting applications for incentive releases on a quarterly basis instead of annually. “In many departments we have started accepting quarterly applications. We are telling others to follow the line,” a senior official said. This move aims to expedite the payout of incentives, encouraging more firms to apply.
New sectors soon to be covered under the PLI scheme include toys, furniture, and apparel. These sectors have high job-creation potential and are driven by MSMEs. The inclusion of these sectors is expected to be approved in the coming days. Additionally, the government may expand the PLI scheme for man-made fiber (MMF) and technical textiles to cover certain cotton-based apparel, benefiting MSMEs in this sector.
Challenges and Opportunities in Implementation
The PLI scheme, launched over three years ago, covers 14 sectors but has disbursed only around 5% of the funds earmarked. The total outlay for the PLI scheme is Rs 1.97 trillion, of which only Rs 9,700 crore has been disbursed as of March 2024. In FY24, Rs 6,800 crore of incentives were given across various sectors.
Global Trade Research Initiative, a trade policy think tank, points out that firms must meet multiple criteria like investments, production, localization, sales, and input types to qualify for incentives. This complexity has led many firms to miss out on incentives, necessitating a review of the criteria.
Impact and Future Projections
The quarterly disbursements are expected to speed up the payout of incentives, with claims anticipated to increase this year. This increase is attributed to the start or expansion of production in manufacturing units that have qualified for PLI. As of December 2023, PLI companies had invested around Rs 1.07 trillion, generating incremental sales of over Rs 9 trillion and creating 0.7 million jobs.
The PLI scheme was first launched in March 2020 for three products:
- Raw material for the pharma industry
- Medical devices
- Large-scale electronics manufacturing
In November 2020, 10 more sectors were included, and in September 2021, PLI for drones was added. More sectors, including toys and leather and footwear, have sought inclusion in the scheme.
Despite the government’s efforts to reduce toy imports, exports have not seen significant growth. India’s toy imports dropped to $64.9 million in FY24 from $304.1 million in 2018-19, while exports increased modestly to $152.34 million from $129.6 million in FY20.
Sector-Specific Insights and Challenges
In the existing textiles PLI, 64 selected applicants have invested Rs 3,317 crore, or 17% of their proposed investment of Rs 19,798 crore. This reflects a slow start. Investments were expected during 2022-23 and 2023-24. The incentive was to be provided from the allocated Rs 10,683 crore over five years to companies achieving the threshold investment and turnover.
The furniture industry in India is also dominated by MSMEs. To scale up production and exports, the Centre may extend the PLI scheme to certain wooden furniture.
Despite the investments, the trend in some sectors is below expectations. High-efficiency solar PV modules, automobiles, ACC batteries, and textiles lag behind in investments. The government is reviewing and possibly reopening or replacing some schemes to address these issues.
Also read: MSME Department Boosts Industrial Growth in Neemuch
Conclusion: Building a Competitive Ecosystem
The government’s revamp of the PLI scheme aims to create a more conducive environment for MSMEs. By relaxing norms, adding new sectors, and extending benefits to labor-intensive industries, the government hopes to accelerate growth and investment.
The changes in the PLI scheme demonstrate a commitment to supporting MSMEs and fostering a robust manufacturing ecosystem in India. As the government continues to refine the scheme, the focus remains on driving economic growth, job creation, and increased exports.
The success of these initiatives will depend on effective implementation, continuous review, and addressing sector-specific challenges. By doing so, India can enhance its global competitiveness and achieve its ambitious economic goals.