When exports decline, can PLI be of any help?
3 min read 22 Mar 2023, 11:58 PM ISTRussia’s invasion of Ukraine over a year ago raised many risks that have pushed the world to the brink of a recession
PremiumRussia’s invasion of Ukraine over a year ago raised many risks that have pushed the world to the brink of a recession. India’s overall outlook may be positive, but its labour-intensive industries could face the heat of any such slowdown. As it stands, the policy push to boost manufacturing and job creation has been lacklustre so far.
As global growth began slowing last year, India’s exports growth—a silver lining during the pandemic-hit years—began decelerating sharply. But exports in labour-intensive sectors slowed even more. In 2021-22, when overall exports grew 45%, the growth in labour-intensive industries was 36%. In the current year, overall exports have managed to grow close to 10%, but the latter’s growth fell to just 4%.
While this trend is not new, the current context poses a new set of challenges as these sectors were just coming off a string of other struggles from demonetization to lockdowns, economists said. According to a report by Crisil, labour-intensive industries could end up bearing a greater brunt of the global deceleration due to high export dependence on the US and EU. Textiles, gems and jewellery, leather items, and footwear, among others, are some key industries with over 25% exposure to these two regions.
Domestic manufacturing data also points to weakness in these industries when compared with overall industrial production. The result could be not just dampened exports, but also a worsening of India’s jobs crisis.
PLI, a Game changer?
For much of 2022, the production-linked incentive (PLI) scheme was touted as a game changer that could solve some of these problems by boosting domestic manufacturing, promoting exports and creating employment. Not only was the scheme given a miss in the Budget this year, its implementation story reveals a different picture.
The scheme offers certain sunrise and strategic sectors incentives based on sales from products made in India. Last year, finance minister Nirmala itharaman had announced a massive outlay of ₹1.97 trillion for 13 key sectors for the coming five years. While the government has been upbeat about roping in giants such as Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron under the scheme, the success story is incomplete. Speaking at a webinar in November 2022, chief economic adviser V. Anantha Nageswaran had noted that the scheme’s implementation had been observed in only two or three areas so far and it needed to pick up steam in other areas as well, hopefully in the next two years.
Data up to September 2022 from the Department for Promotion of Industry and Internal Trade showed that while PLI investments have picked up, resulting in 15% of the expected amount, job creation has been far behind, at just 3% of expected. The gap between the investment and jobs is particularly high in pharmaceutical drug and mobile-specified electronic components, two segments that have been a success story of PLI so far. Two segments—ACC battery, and automobile and auto components—which are expected to create over 60% of the total jobs under the scheme, hadn’t received any investment until then.
Budget Cuts
It may be too early to judge the PLI scheme’s performance as it was launched just two years ago. However, a lack of impetus in this year’s Budget, especially at a time when investments, exports and jobs are likely to suffer due to the global growth slowdown, raises questions on whether the scheme can still achieve its intended objectives.
Since the scheme is linked to incremental increase in production itself, the lack of production due to a decline in overseas and domestic demand could make companies ineligible for the scheme, experts said. The government made significant cuts in allocation for several PLI sectors for 2023-24, suggesting an anticipation of slowdown. Moreover, the revised estimates for 2022-23 were also lower for many sectors.
“The government expected much more investment and production under the scheme in last year’s estimated budgeted allocation. They have made projected allocation more pragmatic this year," said Ajay Sahai, director general of the Federation of Indian Export Organizations. He said that the scheme has helped boost mobile phone exports and certain electronic goods and will pull in large companies in other sectors as well, in turn creating opportunities for many ancillary medium and small industries. “The local content conditions will encourage indigenization," Sahai added.
N.R. Bhanumurthy, vice chancellor of Dr B.R. Ambedkar School of Economics University, Bengaluru, feels the scheme was announced to provide a breather to the production sectors so that the employment situation does not get affected.
But with the jobs situation likely to get hit by slower domestic manufacturing and exports of labour-intensive items, the PLI scheme does not offer much on this front even as investments have been picking up.
