PLI Scheme and Aatmanirbharta

Over the last 30 years, successive Central governments have strived hard to raise the share of manufacturing in India’s GDP to 25 per cent. It currently stands at 17 per cent, which is a slight improvement since 2014 when it had been stagnating at 13-15 per cent.

The case of China –

• China has been able to increase the share of its manufacturing sector in its GDP from 17 per cent in 1992 to 28 per cent in 2021.
• Consequently, China has emerged as the world’s largest manufacturing economy. Its share in global manufacturing has increased from mere 4 per cent in 1992 to an overwhelming 30 per cent in 2021, significantly higher than Germany, which for long was the biggest manufacturing economy.

An opportunity for India –

• This is a propitious time, both externally and domestically, for India to achieve this objective. In an attempt to reduce country risk, global companies are now trying to diversify away from China.
• With the sharp rise in domestic wages in recent years, Chinese companies are under pressure to relocate capacities overseas. They are vacating low technology sectors as they seek to raise productivity levels in line with rising wages.
• At the same time, the quality of governance and of the investment environment has markedly improved in India. This is principally a result of States competing with one another to attract investments and a concerted effort by both the Centre and States to cut red tape and regulatory burden.

The PLI Scheme –

• If India wants to achieve its desired goal of manufacturing contributing about 25 per cent of its GDP, policy attention should focus on raising the share of Indian manufacturing in carefully selected sectors in world markets. 
• This approach is for the first time since Independence being tried in India through the implementation of the Production Linked Incentive (PLI) scheme. This has been announced for 13 manufacturing sectors, which are either sunrise sectors or in which import dependence is very high.
• To succeed, the PLI scheme requires careful and continuous monitoring and active coordination between the Centre and State governments. Care has to be taken to ensure that a PLI scheme does not slip into becoming a set of tariff and non-tariff protection as this will defeat its primary objective of creating globally competitive manufacturing capacities. Tariff and/or non-tariff protection for each sector must therefore come with a clearly defined sunset clause.
• The PLI scheme will also depend rather critically upon ensuring that domestic capacities created under the scheme embody frontline technologies to remain globally competitive. 

Focus on MSMEs –

• The other end of the manufacturing spectrum is occupied by medium, small and micro enterprises (MSMEs).
• These account for more than 80 per cent of manufacturing employment, contribute about 35 per cent of exports and account for nearly 25 per cent of the sector’s output.
• But MSME units suffer from inadequate access to technology, commercial credit and regional and/or global production networks.
• India’s manufacturing sector will not attain global competitiveness unless this marked dualism between the formal and informal segments within the manufacturing sector is not eliminated.
• The expanding coverage of GST will help in reducing the dualism. But sector-specific measures are needed.

Conclusion –

Globally competitive manufacturing and resultant exports will lead the way for India to achieve true Atmanirbharta. Such an achievement will also enhance our national security in multiple ways.

Source – The Hindu Business Line

QUESTION – As the manufacturing sector seeks to diversify itself from its over-reliance on China, it opens up a box of opportunities for India. Discuss how India can present itself as a formidable alternative? What is the government doing in this regard?