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INDIAN MANUFACTURING INDUSTRY The incentive outcome for Indian manufacturing sector

Dec 7, 2020

The manufacturing industry in the country had been facing recession as it is prior to the pandemic; the onset of the pandemic just acted as a catalyst to the growing recession. While now the industry has been making a move out of the recession, a helping-hand from the government was needed. The opinion editorial analyses how the ₹1.46 lakh crores PLI scheme will help manufacturing grow out of recession and make India an attractive for foreign investments, too.

The Indian manufacturing sector has been slowly reviving from the shutdowns & uncertainties experienced during the pandemic. The revival has been especially difficult considering the industry was already experiencing a period of slowdown even prior to the pandemic. IHS Markit, in October 2020, recorded the manufacturing index at an all-time high of 56.8 from 27.40 in April 2020. This growth can be attributed to the relaxation of COVID-19 restrictions, better market conditions, improved demand and the need to fulfil backlogged orders.

Though the manufacturing industry is working its way out of the industry recession, a helping hand from the government was much needed. The industry has been looking forward to government support to grow within the country and make manufacturing competitive & globally attractive. On November 11, 2020, the Union Cabinet approved Production Linked Incentives (PLI) scheme worth ₹1.46 lakh crores to give an impetus to 10 key sectors of Indian manufacturing. The incentive, which is more of a subsidy for the sector, is a direct payment for the increased good production in the sector. Though there aren’t clear guidelines on the per cent of incentives for each sector, the amount for each sector would differ from sector to sector based on the shortfalls & shortcomings faced by the respective industries. Templates for PLIs for new sectors, like ACC batteries, electronic & tech products, automotive, textile, telecom, etc, would be similar to the existing mobile phones, specified electric components, APIs and medical devices PLI schemes.

Despite the late implementation, the policy will certainly throw India under an attractive light for foreign industries to set up their base in India. It will garner our manufacturing strengths and at the same time enable Indian manufacturing to link itself with the global value chains. With the Make in India and Aatmanirbhar Bharat Abhiyan in place, the PLI scheme will be an addendum to India’s competitiveness and create economies of scale. Though the manufacturing PMI was at an all-time high, employment rates were quite low for the industry. The incentive would entail an increase in employment to meet rising production rates. It would also motivate companies to invest further in autonomous manufacturing systems to meet the rising production demand.

India, even with a low-lying current GDP, still has an aim to attain the trillion-dollar economy. It sure would be difficult with the current slowdown. The Indian manufacturing sector contributes 16-17% to the GDP, which decreased further due to the pandemic. The incentive can certainly help the country to regain its stature in the global trade if the government & industries both work in tandem and learn from the shortfalls of the previously implemented PLI schemes & overcome its shortcomings.

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