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ARTICLE AD BOX
Summary
The government should review its PLI scheme. This industrial policy’s record has been patchy at best. Broadly, India must let the market shape outcomes—except in sectors where this would go against the country’s strategic interests.
The West Asia crisis has prompted India’s government to pursue a swathe of measures to help the economy weather its fallout. On the country’s consumption of imports, a key focus of this exercise, these efforts straddle the spectrum from austerity to efficiency, given the burden of import bills inflamed by the war’s oil shock and its knock-on cost surge.
Prime Minister Narendra Modi has also led a behavioural nudge, asking for belts to be tightened. Export relief moves, a stabilization fund meant as a fiscal buffer and a credit backstop for small businesses are also part of this defensive response.
All this, however, may not do much to alleviate macro adversity in the broader context of a weakening currency amid waning investment interest. The policy spotlight thus must fall on initiatives that motivate firms to build factories that are not just efficient, but also resilient in the face of a global trade order all but taken apart by a US tariff blitz.
To be sure, efforts have been afoot. To catalyse manufacturing growth, the Centre recently announced a scheme to develop 100 ‘plug-and-play’ industrial parks across India.
Moves to make it easier to do business and fast-track infrastructure projects for competitive logistics complement India’s flagship industrial policy, the Production-Linked Incentive (PLI) scheme—which aims to ramp up output and create jobs in select sectors that market forces were not yielding on their own.
The results thus far, however, have been mixed. Smartphones can be hailed as an export success, but a broad look reveals a disappointing record. Plants have come up, but patchily, with less than half the expected investments maturing.
In several cases, the government has had to claw back payments for failures to meet PLI conditions, as seen in the scheme to make batteries that hold far more electricity than conventional ones. Overall, the scheme has done little to increase the factory sector’s share of GDP.
Today’s global turmoil makes this a good moment to review this policy. For this, a three-box checklist would help.
First, any redesign must be functionally leak-proof to prevent wasteful PLI flows.
Second, it must be in sync with a nuanced policy framework of self-sufficiency. Some PLI projects involving foreign collaboration do not entail technology transfer; if they are largely assembly line operations, as with mobile handsets, then value addition and skill absorption remain slim.
The catapult we need requires far broader engagement, especially if digital autonomy is a key national goal in a world of tech denial. Public money should hence largely go where today’s crutch can be tomorrow’s scaffold for a homegrown mega-success.
Third, all support must serve ends that are in harmony with India’s strategic needs. India’s chip subsidy seems outsized (all taken into account), but it meets this bar. Not only are silicon chips part of a geopolitical game, we must minimize the risk of exposure to foreign bugs or control devices.
The ability of industrial policy to whir up local manufacturing has long been a debate, but few can doubt that the odds of international success are shaped by global competitiveness and export-market openings.
As China suffers overcapacity and a price slump, for example, European car-makers are investing more there to ship China-made vehicles to their home markets. It’s the market at work. India too should rely chiefly on cost-optimizing market motives to direct production, even as it sharpens its industrial policy.
English (US) ·