Home / Opinion / Views /  Opinion: PLI scheme - achieving the goal

The production-linked incentive (PLI) scheme announced recently by the government under the Atmanirbhar Bharat Abhiyan is an important initiative towards achieving the ambitious goal of a $5-trillion economy. Ten sectors chosen for the scheme are pharmaceuticals, automobiles and auto components, telecom and networking products, advanced chemistry cell battery, textile, food products, solar modules, white goods, and specialty steel.

Post the government's decision, the respective ministries have started making rules to operationalise it. The objective behind selecting these sectors is to attract investment in the areas of core competency, bring cutting-edge technology, ensure efficiencies, create economies of scale, enhance exports, and make India an integral part of the global supply chain, besides creating jobs.

India’s manufacturing share in the GDP, of late, had been shrinking as compared to our ASEAN neighbours. India’s exports have not had much to show, if we leave aside services exports, caused by high diversification and low specialisation. Therefore, the strategy needed if India aspires to be a major exporter, is to specialise in areas of comparative advantage and achieve significant quantity expansion. Some sectors seem to be cutting-edge technology, but others could utilise India’s potential to emerge as a major assembly hub for a range of products. In any case, many products are not produced from start to finish within a given country. This is a new reality of the global value chain. The specialisation comes in a particular task, in a particular fragment of production process. Labour-abundant India could provide a certain positive strategy towards that.

That is not all. Sectors such as pharmaceuticals, food processing, textiles and electronics could attract significant investments — global as well as local. However, our ambition has to be set higher. Take the example of our pharmaceutical sector, which is estimated to be at $40 billion, formulation at US $32 billion and the API segment at $8 billion. Generics constitute about 70% of the sector. While the industry fulfils 20% of the global demand for generics by volume, in value terms it is only 10%. Further, the base seems to be quite thin. Around 25 companies contribute about 85% of the sector output. Thus, we need a transformative strategy to leverage on the comparative advantage that we have in this sector. A strategic policy of establish a “One Pharma" consolidated platform for sourcing, contracting, quality control/ certification and getting regulatory approvals, to help utilise the present distributed capacities of over 3,000 mid-sized pharma facilities in the country. The idea is to accelerate the generics journey, increasing the output from US $30 billion to US $75 billion by 2025 or so.

The second example, also selected for the PLI scheme, is the Textile and Apparel (T&A) industry. It contributed about 2.3% to the GDP in FY 2019, and 12.2% to the manufacturing GDP. The industry generates second largest employment after agriculture; direct and indirect employment to more than 10 crore people. The sector accounts for 12% of the country’s exports (US $39 billion in FY 2019) and 4.5% of global textile and apparel exports. Indian yarn industry is the most competitive part of the textile value chain. With Vietnam and Indonesia increasing their exports to China, there is a decline in India’s exports to China by about 37% over the period FY 2014-19. This is largely due to both Vietnam and Indonesia having duty free access to China while Indian yarn carries 3.5% duty.

Difficulty of another kind is there for another segment of the textiles sector, i.e., for ready-made garments (RMG). This segment is estimated at $140 billion (FY 2018-19). The sector has nearly 90% units in the SME category. India no doubt enjoys a higher price recovery by approximately 10-15% compared to those from competing countries such as Bangladesh, Vietnam and Indonesia. These countries manufacture designs of global brands resulting in lower participation by India in the global RMG market of $450 billion. Therefore, attracting top 10 global apparel brands, which have sales of about $130 billion (2019), could ensure the right policy measure for both the domestic as well as export markets. The PLI scheme for textiles could thus support an Anchor Investment Mission for leveraging the global market.

Technical textiles, specifically identified for the PLI scheme, definitely needs scaling up of demand and domestic production. It has bearings on other sectors too, such as its usage in building and construction (for safety and strength purposes), agriculture (for crop protection), road construction (for durability), etc. Augmenting the proposed National Technical Textiles Mission with interventions for facilitating joint research and development should very much be part of the scheme. Global standards applicable to such products would also require to being notified/adopted.

With the above examples, what has been highlighted is the need for appropriate PLI scheme rules focused on industry needs. The ambition has to be high, but not divorced of the advantages that we already have, while fulfilling the basic objective of enhancing manufacturing capabilities and boosting exports.

(Sanjay Kumar is partner, Deloitte India. Views are personal and do not reflect Mint's.)

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