#budget #financeminister #budget2024 #plischeme
All eyes are on Finance Minister, Nirmala Sitharaman as she gears up to present her 7th union budget on 23rd July. There are several expectations from the upcoming budget ranging from tax rationalisation to employment creation. To make India’s pivot from an agri and services-oriented economy to a manufacturing one, the government’s Production-Linked Incentive, or PLI scheme will be in focus.
Launched in March 2020, PLI has been a strategic initiative aimed to enhance the country's manufacturing capabilities, attract foreign investments, boost export capacity, and create jobs in key sectors. Overall, through this scheme, India aspires to emerge as a global manufacturing hub, leading to a reduction in import dependency and taming India’s trade deficit while creating formal jobs in the economy.
The key tenets of PLI are that the scheme offers financial incentives to global and domestic companies based on the volume of production. To quality, a company must achieve a pre-approved minimum threshold of goods. The scheme is tailored to specific sectors such as electronics, pharma, auto components, textiles, etc. The incentives are typically spread over a period of 5-7 years. This ensures that the companies have sustained growth by making substantial investments in initial years.
When the PLI scheme was initially launched in 2020, only three sectors were targeted - electronics component manufacturing, medical devices manufacturing, and mobile and allied component manufacturing. However, a year later, in November 2020, the scheme was extended to 14 sectors ranging from food products to solar PV modules and automobiles to textile products. And in 2021, drone and drone components were also added.
Some believe that this Budget could see a tweak in the PLI scheme to cover more sectors. Let’s look at some numbers. In FY18, the value of mobile phone imports in India stood at 3.6 billion dollars, while exports from India were at a mere 334 million dollars. However, by FY23, imports more than halved to 1.6 billion dollars and exports surged over 30 times to 11 billion dollars with many manufacturers over-achieving their PLI targets.
By contrast, the textile sector saw exports decline 12% from 16.2 billion dollars in 2018 to 14.3 billion dollars in 2023.
Overall, the scheme was launched with an incentive outlay of 1.97 lakh crore rupees. And till November 2023, it witnessed an investment of over 1.03 lakh crore rupees - which led to sales of 8.61 lakh crore rupees and employment generation, both direct and indirect, of over 6.78 lakh individuals.
In pure business terms, the ROI on the government’s scheme is positive. But will Budget 2024 bring in new sectors like railways, shipping, and toys under PLI and kick out the less performing ones? And will the PLI scheme see an increase in its outlay over the almost 2 lakh crore rupees is something that manufacturers across India and the world are keenly awaiting.
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