The country’s push for ‘Make in India’ has come in the forms of Production Linked Incentive (PLI) schemes and then Design Linked Incentive (DLI) schemes. But are they working? The National Account Statistics shows, the manufacturing value added was 17.3% of the GVA in FY15, which has moved up slightly to 17.7% in FY23. Growth in manufacturing value added was 1.3% in FY23 when the GVA grew at 7%. In the past nine fiscals since FY15, manufacturing value added grew at average of 6% as against the GVA’s 5.6%.
At this rate of contribution and growth in value added, manufacturing is not driving economic growth substantially. Besides, manufacturing’s job share is going down – from 12.1% in 2017-18 to 11.6% in 2021-22 (PLFS data). As against the promise to create 60 lakh new jobs in five years through the PLIs (Budget speech of 2022), there is no data to show how many jobs have indeed been created.
The PLIs and DLI schemes were brought in place of ‘Make in India’, introduced in September 2014, which could not boost manufacturing in six fiscals of FY15-FY20.
The PLI was first approved by the Union Cabinet on March 21, 2020 – three days ahead of the pandemic national lockdown (announcement on the night of March 24, 2020). In 2022, Finance Minister Nirmala Sitharaman said the industry demanded it. Initially given to three sectors, the PLIs expanded to 14 sectors and will soon cover three new sectors – toys, leather and new age e-bikes – to take the total to 17 sectors. The allocations have also gone up from the initial ₹1.97 lakh crore to ₹2.06 lakh crore with the addition of ₹9,765 crore for the PLI 2.0 for IT hardware (raised to ₹17,000 crore from ₹7,325 crore) announced in May 2023.
Parallelly, the DLI was announced for semiconductor sector in December 2021, under the “Semicon India Programme” with an allocation of ₹76,000 crore, to develop semiconductors and display manufacturing ecosystem. Under this scheme, Centre subsidises 50% of project cost.
With the addition of DLI, every part of the supply chain for semiconductor and electronics sectors are now assisted with subsidies, including electronic components, sub-assemblies, and finished goods.
But there is no post facto study to measure their impact or efficacy.
Causal relationship between PLIs and growth
Three years down the line, the PLIs have run into problems as many feared.
The recent review of PLIs by Ministry of Commerce and Industry shows (i) there were no takers for PLIs in six of 14 sectors – steel, textile, battery, white goods, solar panels and automotive and (ii) in the rest eight sectors – large-scale electronics manufacturing, IT hardware, bulk drugs, medical devices, pharmaceuticals, telecom and networking products, food processing and drones and drone components – only ₹2,900 crore was disbursed by the end of FY23, out of ₹1.97 lakh crore of allocations. This works out to just 1.5% of the fund earmarked.
Post the review, the Ministry of Commerce and Industry said (iii) PLIs generated “actual” investment of ₹62,500 crore, resulting in “incremental production/sales” over ₹6.75 lakh crore; created 3.25 lakh new jobs and “boosted” exports by ₹2.56 lakh crore.
The statement also says that (iv) the sectors for which PLI schemes exist saw an “increase in FDI” inflows from FY22 to FY23 – in drugs and pharmaceuticals (46%), food processing industries (26%) and medical appliances (91%) and that (v) the PLI schemes “transformed” India’s exports basket from traditional commodities to high value-added products such as electronics and telecommunication goods, processed food products etc.
The “first-ever disbursement” under the PLI came only in September 2022 – as approved by the “Empowered Committee” under the NITI Aayog.
Value added or mere assembling of smart phones?
While the ministry says (iv) the PLIs “led to increased value addition in the electronics sector and in smartphone manufacturing, 23% and 20% respectively”, there is no study or data analysis supporting it.
Former RBI Governor Raghuram Rajan coauthored a paper (along with Rahul Chauhan and Rohit Lamba), “Has India really become a mobile phone manufacturing giant?” published on May 30, 2023, which claims there is no value addition but mere assembling of smart phones in India.
Rajan claims he analysed trade data for mobiles phones and noticed three distinct trade trends: (a) after the high tariff (20%) barriers were imposed in 2018, imports of mobile phones fell and exports started taking off, turning positive five months after that. They checked import of mobile phone components – semiconductors, PCBAs, displays, cameras and batteries – and found (b) a sudden spurt in imports of these components after the tariff barrier. They also found (c) commensurate rise in net imports when exports of mobile phones took off.
They noted that the “combined net exports” (exports minus imports) of mobile phones and components “fell” from under $12.7 billion in FY17 to $21.3 billion in FY23 and commented: “In other words, it is entirely possible that we have become more dependent on imports during the PLI scheme.”
As for value additions, they wrote that from the trade data available “we cannot even tell…whether India is paying out more in subsidies and tax waivers to mobile manufacturers who bring the assembly to India than the value they add in India – since the value added from the assembly is such a small fraction of the value of a mobile phone”.
They claimed “net exports” was “still hugely negative” and “has not increased substantially since 2018”.
Their advice: “The government, which should have better data on value added, should undertake a detailed assessment on how many PLI jobs have been created, the cost to the country per job, and why the PLI scheme does not appear to have worked so far before extending to new sectors.”
An analysis of India’s trade data shows exports of electronic goods have gone up in recent years but imports grew far more, raising trade deficit on such goods from -$30.6 billion in FY15 to -$53.7 billion in FY23.
After an earlier round of review of PLIs, the NITI Aayog, which is tasked with appraisal of public-funded projects and schemes, was supposed to provide real time progress and monitor the PLIs. In its annual report of 2021-22, the Aayog declared that it was “developing a PLI dashboard to monitor all PLI schemes”. Since the PLIs are given on increased investment, production, exports and employment generation, this dashboard was to track changes in these areas. The dashboard is still to go live though.
Vedanta-Foxconn setback
As for the DLI for semiconductor, it has turned out to be a setback. It was announced on December 15, 2021 with an allocation of ₹76,000 crore with the promise of 50% subsidy to anyone setting up “semiconductor fabs and display fabs in India”. The Gujarat government signed a deal for setting up such a facility with the Vedanta-Foxconn on September 13, 2022 with an investment of ₹1.54 lakh crore with a promise to create 100,000 jobs.
Had this deal gone through, at 50% subsidy on capital expenditure, the Centre’s entire allocation of Rs 76,000 crore would have been exhausted by this single deal. But nine months later, on May 31, 2023, the Ministry of Electronics and IT (MeiTY) issued a statement declaring that fresh bids are being sought “under the modified Semicon India Programme” for “semiconductor fabs and display fabs”.
The reason was evident on the same day, May 31, 2023, from multiple news reports. The Vedanta-Foxconn project was grounded because it was struggling to find a technology partner and a manufacturing-grade technology license to make 28 nanometer (28 nm) chips on which the project hinges. The joint venture doesn’t have the required technology.
New bids are now open till “December 2024” and given that the Vedanta-Foxconn project had a two-year timeframe India would have to wait for another three-and-half years (from June 2023) before the promised 28nm chips and 100,000 jobs are realised.
Why should the bids be open till December 2024 (one-and-half years later) is another question. Presumably, the Vedanta-Foxconn experience shows that none with the required 28nm chips technology has yet agreed to set up shop in India.
Recall the heartbreak Vedanta-Foxconn caused to Maharashtra when, in September 2022, the deal was signed with Gujarat – just ahead of the Gujarat elections in December 2022 – and after a prolonged negotiation with the Udhav Thackeray government in Maharashtra. By then, the Thackeray government had been replaced with the Shinde-Fadnavis government (sworn in on June 30, 2022). The new government tried to assuage the new opposition stating the Prime Minister had assured a similar or bigger project for Maharashtra.
While seeking the new bids for semiconductor and display fabs, MoS for MeiTY Rajeev Chandrasekhar said the “modified” bid was “sweetened”, without specifying with what or how. It would be wrong to assume that the subsidy has been increased; it remains unchanged from December 2021.
On December 7, 2022, IT minister Rajeev Chandrasekhar informed the Lok Sabha in writing that the “incentives offered to Vedanta-Foxconn” included 40% of “capital subsidy” by the Government of India, among a host of other incentives by the Gujarat government (subsidised land, power tariff, electricity duty, water supply, stamp duty and registration fee etc.).
Assuming that a semiconductor project materialises by December 2026, it should ideally be a true ‘Make in India’, not ‘Assembled in India’?
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