The Success of India's Production-Linked Incentive (PLI) Scheme: Driving Economic Growth and Foreign Investment

India's ambitious Production-Linked Incentive (PLI) scheme, launched in March 2020, has emerged as a game-changer in the country's manufacturing landscape. With an outlay of ?1.97 lakh crore (approximately $26 billion) across 14 key sectors, the PLI scheme aims to position India as a global manufacturing hub and create national champions.

The success of the PLI scheme is evident in the significant increase in production, employment generation, economic growth, and exports. As of January 2024, 746 applications have been approved in 14 sectors, with an expected investment of ?3 lakh crore. Notably, 176 MSMEs are among the PLI beneficiaries, showcasing the scheme's inclusive approach.

Attracting Foreign Direct Investment (FDI)

One of the key achievements of the PLI scheme is its ability to attract foreign direct investment (FDI) in the manufacturing sector. In FY 2021-22, there was a significant increase of 76% in FDI in the manufacturing sector, reaching $21.34 billion compared to the previous year's $12.09 billion. This surge in FDI can be attributed to the incentives and enabling environment created by the PLI scheme.

Boosting Exports and Reducing Imports

The PLI scheme has transformed India's exports basket from traditional commodities to high value-added products such as electronics, telecommunication goods, and processed food products. As a result, India's trade deficit in the mobile phone sector has been reduced from $3.3 billion in FY 2017-18 to a positive net exports of $9.8 billion in FY 2022-23. Mobile phone exports from India reached $29.1 billion in FY 2023-24, up from $23.6 billion in FY 2022-23.

Increasing Value Addition and Localization

The PLI scheme has led to a significant increase in value addition in the electronics sector and smartphone manufacturing, from negligible levels in 2014-15 to 23% and 20% respectively. This achievement is remarkable when compared to countries like Vietnam, which achieved 18% value addition over 15 years, and China, which achieved 49% value addition over 25 years.

Transforming the Telecom and Networking Products Sector

The PLI scheme for the telecom and networking products sector has been particularly successful. It has led to a 60% import substitution in the telecom sector, making India almost self-reliant in critical components such as antennas, GPON (Gigabit Passive Optical Network), and CPE (Customer Premises Equipment).

Empowering MSMEs and Startups

The PLI scheme has also played a crucial role in empowering MSMEs and startups. In the drones sector, which consists entirely of MSME startups, the scheme has led to a 7-fold jump in turnover. Additionally, 176 MSMEs are among the PLI beneficiaries across sectors such as bulk drugs, medical devices, pharmaceuticals, telecom, white goods, food processing, textiles, and drones.

Challenges and the Way Forward

While the PLI scheme has been successful in attracting investments and boosting manufacturing, there are still challenges to be addressed. These include ensuring the sustainability of the scheme, promoting R&D and innovation, and addressing the issue of import dependence in certain sectors.

To build on the success of the PLI scheme, the government should focus on creating a conducive ecosystem for manufacturing, investing in infrastructure, and promoting skill development. By addressing these challenges and building on the momentum created by the PLI scheme, India can truly become a global manufacturing powerhouse and achieve its vision of becoming an "Aatmanirbhar" (self-reliant) nation.

Established in 2014, 4i Advisory is a globally connected and locally-rooted financial services company in India. Led by world-class, multidisciplinary team of seasoned experts, we specialize in taxation (domestic and international), mergers & acquisitions (M&A), compliance, succession planning, restructuring and audit, among others.

Please let me know your comments and feedback in the comments section below. Also, I request you to please Follow and Subscribe for more news and insights from an Auditor's Desk