Home >News >India >Manufacturing gets the Centre’s incentive nudge
The govt on Wednesday approved production-linked incentives worth  ₹2 trillion to help local firms scale
The govt on Wednesday approved production-linked incentives worth 2 trillion to help local firms scale

Manufacturing gets the Centre’s incentive nudge

Despite several measures taken by the Centre to boost manufacturing, it is the services sector that has contributed most to growth. To further its push, the government on Wednesday approved production-linked incentives worth 2 trillion to help local firms scale. Mint explores.

Despite several measures taken by the Centre to boost manufacturing, it is the services sector that has contributed most to growth. To further its push, the government on Wednesday approved production-linked incentives worth 2 trillion to help local firms scale. Mint explores.

Why has manufacturing space remained muted?

India’s growth story has been peculiar as the bulk of our recent growth has come primarily from the services sector. Typically, economies transition from agriculture to manufacturing to services, but India missed the middle stage. There are several reasons behind this: Policies adopted during the licence raj era, labour and land laws, high cost of capital, surging tax rates and complicated regulations. A relatively low rate of productivity and lack of adequate supply of electricity at competitive rates have also kept growth in India’s manufacturing sector depressed over the years.

What has govt done to fix underlying issues?

Successive governments have attempted to promote activity in the manufacturing sector to increase non-farm jobs in the economy. This was necessary to reduce the dependence on agriculture as the prime source of employment. Subsidies and special economic zones were also conceived to promote rapid industrialization. However, none of the steps undertaken seem to have borne fruit. Lately, the government also took steps towards straightening out structural issues by implementing labour codes as it undertakes productivity-enhancing factor market reforms.

Sectoral Lag
View Full Image
Sectoral Lag

What are the key features of the Centre’s PLI scheme?

The PLI scheme is designed to boost manufacturing by providing incentives of 4-6% on incremental sales to companies in specific sectors. Initially restricted to firms making phones, electronic components, it has now been extended to 10 more sectors. The new sectors include electronics and technology items, chemistry cell batteries, automobiles and auto components.

How will the scheme boost manufacturing?

The scheme offers manufacturers cash as a proportion of their incremental sales in any given year, providing an incentive for companies to increase production. This helps companies lower their costs and encourages them to expand operations and create more non-farm jobs. The cash injection also helps companies stay competitive on a global level. The move is consistent with the overall push by the government to expand production across critical sectors as part of a campaign to increase self-reliance.

Will  this  help  the  sector take off in India?

Labour reforms, lower corporate tax rates for new manufacturing companies and the proposed electricity code will complement the PLI scheme. The overall policy regime is far more encouraging than before and makes India a viable alternative to China for companies that intend to follow a China + 1 policy. Overall, we should expect some pick-up in manufacturing activity in India and its increased share in GDP over the coming years.

Karan Bhasin is a Delhi-based policy researcher.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Close
×
My Reads Redeem a Gift Card Logout