Why in News?
The Indian government is considering Production Linked Incentive (PLI) scheme to extend for the chemicals and petrochemicals industry as it pushes to become a manufacturing hub.

PLI SCHEME   
·         The PLI scheme was conceived to scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation.

Objectives:  
·         The Government introduced this scheme to reduce India’s dependence on China and other foreign countries.
·         It supports the labour-intensive sectors and aims to increase the employment ratio in India.
·         This scheme works to reduce down the import bills and boost up domestic production.
·         However, PLI Yojana invites foreign companies to set up their units in India and encourages domestic enterprises to expand their production units.
 
Budgetary Allocations: 
·         The government has set aside Rs 1.97 lakh crore under the PLI schemes for various sectors and an additional allocation of Rs 19,500 crore was made towards PLI for solar PV modules in Budget 2022-23.
·         The Union Budget 2023-24 has put aside US$ 988 million (Rs. 8,083 crores) for the production-linked incentive schemes (PLI), where the bulk of the money is going for large-scale electronics manufacturing, which includes mobile devices, pharma, auto and auto components, and food processing.
·         Eight of the 14 PLIs covered in these segments account for 99% of the money the Budget earmarked for the schemes across government ministries and departments.
·         The allocation is a three-fold jump from the revised Budget estimates for these schemes in FY23 which is fixed at US$ 319 million (Rs. 2,616 crores).

Incentives Under the Scheme:  
·         The incentives, calculated on the basis of incremental sales, range from as low as 1% for the electronics and technology products to as high as 20% for the manufacturing of critical key starting drugs and certain drug intermediaries.
·         In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive to be given will be calculated on the basis of sales, performance and local value addition done over the period of five years.

Sectors for which PLI Scheme has been announced:  
·         It was launched in March 2020, and this scheme initially targeted three industries:
o   Mobile and allied Component Manufacturing
o   Electrical Component Manufacturing and
o   Medical Devices
So far, the government has announced PLI schemes for 14 sectors including automobile and auto components, electronics and IT hardware, telecom, pharmaceuticals, solar modules, metals and mining, textiles and apparel, white goods, drones, and advanced chemistry cell batteries.

Success Story of PLI Scheme:  
Increase in FDI:
76% increase in FDI in the Manufacturing sector in FY 2021-22 compared to the previous year; Drugs and Pharmaceuticals (+46%), Food Processing Industries (+26%) and Medical Appliances (+91%).
Value addition:
20% value addition achieved in mobile manufacturing within a period of 3 years
India’s exports basket:
PLI Schemes have transformed India’s export basket from traditional commodities to high-value-added products. Exports boosted by Rs 2.56 Lakh Crore till FY 2022-23
Investment:
733 applications approved to date in 14 sectors with an expected investment of Rs. 3.65 Lakh Crore. Rs. 62,500 Crore investment realized till March 2023, resulting in employment generation of around 3,25,000
Indian farmers and MSMEs in the food processing sector:
PLI Scheme for Food Processing positively had a positive impact on the income of Indian farmers and MSMEs
Import substitution:
Import substitution of 60% achieved in the Telecom sector, making India self-reliant in Antennae, GPON, and CPE
Ex: 
·         Drones sector turnover has seen a 7 times jump due to the PLI Scheme
·         Significant reduction in imports of raw materials in the Pharma sector, transfer of technology in the manufacturing of Medical Devices
 
 Challenges associated with the scheme: 
While the PLI scheme has been lauded for its potential to boost India’s domestic manufacturing sector, there are several concerns that critics have raised:  
Selective sector focus: Critics argue that the PLI scheme’s focus on selected sectors may lead to a distortion in the allocation of resources. The scheme could create an uneven playing field where some sectors enjoy more benefits than others.  
Dependence on subsidies: There’s a concern that the PLI scheme may create industries that are dependent on government subsidies for their survival. This could potentially lead to long-term problems, as these industries may not be competitive without ongoing government support.  
Implementation challenges: Implementing the PLI scheme effectively across diverse sectors could be challenging. The administration needs to ensure that the benefits reach the intended recipients, which requires a robust infrastructure and a high level of administrative efficiency.  
Fiscal burden: The scheme involves substantial financial outlays by the government. Critics argue that this could increase the fiscal burden on the government, especially in a post-pandemic economy where resources are stretched thin.  
Regional Trade Agreements (RTA): Critics argue that by focusing on domestic manufacturing, the Indian government may be missing out on opportunities presented by regional trade agreements. They contend that participation in RTAs could expose India to larger markets and international supply chains.  
Attracting quality investments: While the scheme is designed to attract investments, there are concerns about whether it will attract high-quality investments that can lead to technology transfers and improvements in productivity.  
Environmental concerns: As industries scale up their manufacturing capabilities under the PLI scheme, there will be an increased need for sustainability and environmental conservation measures. Balancing growth with environmental responsibility could pose a challenge.  

What should be done to improve manufacturing?
Invest in infrastructure: Efficient logistics and infrastructure are vital for a robust manufacturing sector. This involves improving transportation networks (road, rail, air, and sea), streamlining port processes, improving power supply, and building efficient industrial clusters.    
Improve “Ease of Doing Business”: Reducing bureaucratic red tape, simplifying regulations, and providing a clear and stable policy environment can make it easier for businesses to operate, invest, and expand their manufacturing capabilities.  
Boost skills and innovation: Encourage and invest in technical and vocational education and training to build a skilled workforce. In addition, promoting research and development can foster innovation, which can drive productivity growth in the manufacturing sector.  
Promote digital transformation: Leveraging Industry 4.0 technologies such as AI, IoT, and automation can improve efficiency, reduce costs, and boost the competitiveness of the manufacturing sector.  
Enhance access to capital: Making it easier for manufacturers to access affordable capital can spur investment in new technologies and capacity expansion.  
Review trade policies: Evaluate existing free trade agreements (FTAs) to ensure they benefit the domestic manufacturing sector. Also, consider engaging in FTAs that provide Indian manufacturers with access to global markets.  
Sustainable manufacturing practices: Adopt and promote sustainable and green manufacturing practices. This not only helps in environment conservation but also opens up new markets for sustainable products. 
 
Policymakers should not excessively depend on the PLI scheme. It is not a way out of the inadequacies in the manufacturing sector. Modern manufacturing depends on complex supply chains and giving fiscal incentives to one set of producers may not work. So, the government will have to work on improving the overall industrial environment
 
Mains Question:
  Q: Discuss the Scope and Challenges of PLI Scheme in making India the Factory of the World?