The government should not introduce new production-linked incentive (PLI) schemes for sectors such as leather shoes and handicrafts, which comprise mostly small firms, since the scheme focuses on scale production, which will benefit large firms.
This may shift business away from small enterprises, creating stress in the small sector. Small firms do not require assistance from schemes like PLI, but need support such as access to technology and low-cost finance through separate schemes, according to Ajay Srivastava, the founder of think tank Global Trade Research Initiative (GTRI).
While the government’s ambitious PLI scheme that aims to make India a manufacturing powerhouse entered its third year in FY24, with schemes for as many as 14 sectors, and an overall allocation of Rs 1.97 trillion. Over the last few months, there has been clamour for rolling out schemes for items such as toys, furniture, leather, among others.
The think tank further said that the government should not introduce PLI for products with many manufacturers, large or small. For instance, PLI for industries such as food processing or automobiles, where many domestic manufacturers make similar products, introduces ‘competitive distortion’ by giving money to a few firms.
“PLI money at 4-6 per cent of incremental sales could increase profit margins by 30-40%, giving a considerable price advantage over others. Non-PLI recipients suffer for no fault. The PLI should avoid incentivising such sectors. It should focus only on cutting-edge product groups where India has no manufacturing capabilities,” it said.
The think tank further said that there must be support towards deep manufacturing PLI for the electronics sector since exports and imports in FY2023 were $22.7 billion and $72.5 billion, respectively, resulting in widening of trade deficit from $41.3 billion in FY2020 to $50.8 billion in FY2023. Electronics component imports also jumped from $16.3 billion in FY2020 to $25 billion in FY2023.
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While the government has been focusing on supporting this sector for a decade To cut imports and promote local production,. Now is the time to look deeply at past decades' sector performance, there is now a need to analyse the trade data for the final product and related components together for a product.
We must ensure that a firm adds genuine value rather than benefiting from the high tariff walls and labour arbitrage, Srivastava said.