The soul of India’s PLI schemes

In 2013, the British-Indian economist Meghnad Desai was kind enough to give me lunch at the House of Lords. Over Dover sole, we argued on the future of the Indian economy. Haven’t we missed the bus on manufacturing, I asked Desai, a kindly mentor to my economic thinking over the years. We should have done more to push manufacturing. Instead, we became enamoured with jugaad which turned out to be less about frugal innovation than about merely makeshift, I said.

But Desai was firm that India’s opportunity was not lost yet. It still had more than a decade, demographically speaking, to make a giant push in manufacturing. It would have to be propelled by a combination of investment in infrastructure and intelligent policymaking.

This year’s Budget (2021-22) outlined the ambition of India’s production-linked incentive schemes or what has come to be known as PLI schemes—₹1.97 lakh crore (around $27 billion) aimed at boosting domestic manufacturing across 13 sectors. The assessment is that “minimum production in India as a result of PLI schemes is expected to be over $500 billion in five years”, as an April 7, 2021, press release from the government notes. The sectors selected include electronics manufacturing, pharmaceuticals (medical devices, drug intermediates, and active pharmaceutical ingredients or APIs), white goods, food processing, automobiles and auto components, textiles, solar PV modules, and others. Buoyed by the early successes of three such schemes in 2020, 10 more were introduced in recent months.

The PLI schemes, it has been said, are at the forefront of promoting Aatmanirbhar Bharat or self-reliant India. If you study some of the early wins of these schemes, whether it is in propelling higher mobile phone manufacturing, or in driving deeper pharmaceuticals manufacturing, a few elements are immediately noticeable.

There is a focus on sectors that are essential to protect India’s sovereignty. The choices of the sectors speak directly not only to job creation and profitability, which no doubt is critical, but also analyses what are the sectors that are essential to make India more resilient and less dependent on external supplies.

Digitisation in India at a mass level, with the lowest broadband rates in the world, is leading to the mass transition of the informal businesses to formal ones. This process has the potential to open up millions of manufacturing and services jobs as companies acquire scale since formalisation brings with it the benefits of being able to raise better (and more) quality capital at more competitive rates.

The PLI schemes are designed to trigger an impulse for scale both for Indian companies and companies from outside who wish to manufacture in India at very competitive costs. They are designed to have a domino effect creating pools of ancillary firms and services, and a wealth of jobs.

The PLI schemes, then, are the aatma, the Hindi word for soul, of a new way of looking at Indian manufacturing: To think again that India can be a place from where mass goods for its own vast population, and indeed for the world, can be created in millions of units.

These companies also gaze at an uncertain future created by the pandemic and further climate change-related complications where supply chains must be tighter, more resilient, and as close to home as possible. If disruptions like the Covid-19 pandemic are likely to appear in frequent waves around the world, as many scientists predict, then it is imperative for countries especially as large and diverse as India to build capacities. Historically no country has grown with deep manufacturing capabilities of its own—from Britain to America to China.

This is what the PLI schemes do: as they rekindle manufacturing capacity, they are also aimed at sort of shock-proofing important areas of national sovereignty. Their efficacy works not merely to provide jobs and national revenue, but also a new lens through which the India of the future can be seen—not just as a place that provides services, but also goods that are needed by the world.

In various states, the PLI schemes and the manufacturing capabilities that they generate would create ecosystems with sufficient spill-over effect onto other industries (automobile and auto parts manufacturing units are one such pertinent example).

It will, of course, take a few years to completely evaluate the impact of the PLI schemes but today it might be useful to suggest that they have restarted something vital. And the success of these schemes in the years to come would show whether Meghnad Desai was right about the future of manufacturing in India.

Views are personal. The author is a historian and a columnist. He is a multiple award-winning author of nine books.