The central government is considering linking incentives to metrics beyond incremental sales such as domestic value addition and incremental exports, with the first phase of the Production-Linked Incentive (PLI) scheme gaining traction. According to sources cited by Indian Express, who are aware of discussions at the inter-ministerial level, the Centre is exploring ways to refine its approach by incorporating new performance metrics even as no final decision has been taken yet.
The PLI scheme, since its launch in April 2020, has covered 14 sectors and has helped India achieve scale in manufacturing by attracting OEMs (original equipment manufacturers) as well as contract manufacturers in designated sectors.
With the first phase of the PLI scheme seen to have enabled a directional pivot in favour of manufacturing, the current debate is on using the gains of the first phase as an inflection point for PLI 2.0. In the inter-ministrial discussions, the report added, it was noted that percentage value addition across key sectors is still in single digits. This is the case even in sectors where the PLI scheme is seen as a relative success.
With electronics manufacturing being critical to creating a dynamic domestic manufacturing ecosystem, Indian Express report said, a renewed case is being made for its localisation. According to the source based report, a progressive deepening and broadening of the manufacturing base will allow for greater value capture by the domestic producer. This will help potentially improve competitiveness of local manufacturers compared with their Chinese competitors. It would also increase their bargaining power in a world of globalised supply chains and heightened geopolitical risks.
It is worth noting here that any meaningful realignments to the globalised supply chains by way of relocation of components and sub-component manufacturers can only be incentivised by large-volume manufacturing since it drives down costs through economies of scale. Further, it is also seen as necessary to be able to negotiate competitive rates with semiconductor chip manufacturers and technology licensing from proprietary vendors
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