Dependence on PLI is feared to be a major risk at the policy level

Multinational companies are willing to invest then why the need to increase financial incentives...

In another attempt to boost electronics manufacturing in the country, the Union Cabinet has approved the Production Linked Incentive (PLI) scheme for information technology (IT) hardware. A budget provision of Rs 17,000 crore has been made for this scheme. For the earlier version of the scheme, the government had allocated Rs. 7,325 crore had been provided. The objective of the scheme is to encourage the production of laptops, tablets, personal computers and advanced computing devices. The duration of this scheme has also been increased from four years to six years. In the earlier version of the scheme, an average incentive of 2 per cent was given. Which has now been increased to 5 percent.

Additional incentives will be given to companies using local ingredients. Altogether, the incentive from all these provisions can amount to 8-9 percent of sales. With some changes in the plan, the government will invest Rs. Expecting an investment of 2430 crores. The government also expects the revised scheme to create 75,000 direct jobs and increase production value to Rs. 3.55 lakh crore will do.

The intention of the government is quite clear that it wants to promote electronics manufacturing. This step will not only reduce India's dependence on imports but also create new employment opportunities in the country. There is no mistaking the objective of the scheme as India has to create massive jobs for the rapidly growing labor market.

But the direction the government has chosen is confusing. According to the government, the production of electronic goods in the country has grown at a CAGR of 17 percent in the last eight years. It is estimated that the annual production value of these items has crossed 10.5 billion dollars (Rs. 9 lakh crore).

Considering these things, it seems appropriate to ask the question that when this sector is developing at a good pace and many multinational companies are ready to invest, then why is the government increasing financial incentives?

A report published a few days ago mentioned that the electronics production target by 2025-26 will be missed by a large margin. The export target will be around 53 to 50 percent. In particular, actual production in IT hardware is estimated to reach only $6 billion against a target of Rs billion. These facts only partially explain the reason for the revision of the plan.

At the time of the launch of the PLI scheme, some economists justified concerns about increasing fiscal support to attract investment. But actual financial support has so far been limited. Poor performance of companies in various sectors is partly responsible for this.

Reliance on PLI has now become the biggest risk at the policy level. The increase in allocations is indicating something similar. This can distract from what is needed to build a large and diverse manufacturing hub in the country. Many factors influence investment decisions and financial incentives are one of them.