In a welcome development, it appears that some aspects of the production-linked incentive (PLI) scheme are up for review. All is apparently not well with the scheme — out of an outlay of ₹1.97 lakh crore for five years since 2020, spread over 14 sectors, about ₹18,000 crore has been disbursed so far, which includes ₹9,360 crore this fiscal. The Budget has allocated nearly ₹19,500 crore for FY26. But in relation to the expected incentive offtake, this would barely amount to 20 per cent by next year, and less than 10 per cent now. Of this offtake so far, smartphones account for 56 per cent, pharma 29 per cent and food processing 10 per cent. Clearly, the rest of the sectors have not taken off.
So it is just as well, as reported recently by this newspaper, that the Centre is not keen on a PLI scheme for leather and toys. A course correction involves focusing on fewer sectors, and addressing the specific pain points of each. It should by and large be clear that sectors that are dominated by small and medium units are better suited to generalised, horizontal incentives. PLI could distort the playing field, without achieving better outcomes in terms of output and jobs. In such sectors, finance and marketing reforms as mooted by the Budget with respect to MSMEs is the way forward. It is important that PLIs focus on emerging technology areas where a national presence is essential for strategic reasons as well — such as semi-conductors and advanced cell batteries. The creation of an ‘anchor firm’ can help create an ecosystem over time — provided the right policies, tariffs and regulations are in place. The Budget has announced a National Manufacturing Mission, with a focus on ease of doing business for MSMEs. This reflects some policy clarity, where PLIs and the Mission can proceed on parallel tracks with distinct objectives.
The Budget allocations for PLI incentives for FY26 are largely directed towards large scale electronics and IT hardware (₹9,000 crore, against ₹5,777 crore this fiscal), pharmaceuticals (₹2,445 crore; marginally up from this year), telecom products (₹1,965 crore; nil this year), automobiles (₹2,818 crore, up nearly 10 times over the current fiscal) and food processing (₹1,200 crore; up from ₹700 crore). It is somewhat surprising that the Centre expects a big jump in automobiles and telecom sector output from PLI applicants. Be that as it may, it is important to tweak the scheme to address industry specifics. A PLI incentive period of five years may seem inadequate for capital intensive sectors with long gestation periods. Levels of indigenisation have been a general area of concern, given that it is one of the scheme’s major goals.
At a broader level, the PLI scheme needs to be reconciled with the pursuit of free trade pacts and lowering of tariffs. Above all, it should not be forgotten that investors need consistency of policy. In an ambience of trade skirmishes, this could become a casualty.