1. Budget 2024: Expansion of PLI scheme to new sectors likely; here’s what to expect

Budget 2024: Expansion of PLI scheme to new sectors likely; here’s what to expect

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3 min read • Updated: January 21, 2024, 1:00 PM

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Summary

The government may expand the horizon of the Production Linked Incentive (PLI) scheme to new sectors to incentivise job creation

 Budget 2023-24 documents
The Budget 2023-24 documents brought in the Parliament under security on Feb. 01, 2023

The government is expected to widen the scope of the PLI scheme to new sectors like garments, jewellery and handicrafts in the Interim Budget, according to a report by Deloitte. "The Production Linked Incentive (PLI) scheme has been instrumental in attracting investments to bolster domestic manufacturing competencies across diverse sectors. The forthcoming initiatives (could be in capital machinery, electricals, white goods, chemicals, etc.) — whether under the PLI umbrella or an alternative framework — should focus on overall ecosystem development through progressive localisation and effective implementation based on sector potential and local supply chain maturity," the Deloitte report read.

The industry experts are hopeful of a positive outcome on the PLI scheme in the Interim Budget on 1 February. Let’s take a look at the initiative of the government aimed to boost manufacturing and job creation.

What is PLI Scheme?

The PLI scheme was introduced by the government in 2021 with an outlay of ₹ 1.97 lakh crore. The scheme was open to 14 sectors, including telecommunication, pharmaceuticals, medical devices, automobiles and auto components, solar PV modules, advanced chemistry cell batteries and white goods. The companies and startups in the sectors like specialty steel, electronic products, food products, textile products, and drones and drone components are also eligible for the scheme.

As the name suggests, Product Linked Incentive (PLI) schemes offer companies incentives for incremental sales from products manufactured in domestic units. The scheme was introduced with the idea of boosting domestic production and reducing dependence on imports in certain sectors. The idea was to attract larger anchor investors who could mobilise funding for such projects. The PLI scheme aims to incentivise and invite global large corporations to set up manufacturing units in India. The scheme was formulated as it is not always feasible for the government to make sustained investments in capital-intensive sectors.

PLI scheme impact

PLI Schemes witnessed over ₹1.03 lakh crore of investment till November 2023, leading to production/sales of ₹8.61 lakh crore and employment generation (direct and indirect) of over ₹6.78 lakhs.

Presently 176, Micro, Small and Medium Enterprises (MSMEs) are among the PLI beneficiaries in the approved sectors. Several MSMEs are serving as investment partners/contract manufacturers for large Corporations.

The government has disbursed over ₹4,400 crore under PLI Schemes for 8 sectors. These sectors encompass large-scale electronics manufacturing (LSEM), food processing and drones, pharmaceuticals, IT hardware, bulk drugs, medical devices, telecom and networking products and drone components.

The PLI scheme has resulted in a significant drop in imports of raw materials in the pharma sector. Medical devices including CT Scan, Rotational Cobalt Machines, C-Arm, MRIs, Cath Labs, Ultrasonography, Dialysis Machines and stents are being manufactured in the country. PLI scheme for the telecommunication sector has resulted in import substitution of 60% in FY 2023-24. The scheme has massively benefited the drone industry with a CAGR of 90.74%.

The investment generated through the PLI scheme has helped in the localisation of electronic components like batteries, chargers, camera modules, passive components and certain mechanics. While PLI beneficiaries account for only 20% market share in the sector, they have contributed to 82% of mobile phone exports during FY 2022-23. Foreign Direct Investment (FDI) has surged by over 250% since the inception of the PLI scheme for Large-Scale Electronics Manufacturing. Mobile phone production jumped more than 125% and exports increased four times since FY 2020-21.

PLI Scheme for food processing has resulted in increased sourcing of raw materials. Sales of organic products have seen a surge. Millet procurement has jumped from 668 MT (FY 20-21) to 3,703 MT (FY 22-23) following the introduction of the scheme.