Dear Hiring Manager,

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Simran Anand
 1

Facilitating India's Renewable Energy Transition

Executive Summary
In recent times, there has been a global understanding regarding the finite capacity of fossil
fuels, including their harmful effects on the environment, such as global warming. To address
this, countries are shifting towards renewable sources of energy such as solar, wind, hydro,
etc. India, being the 2nd most populated country in the world, has doubled its energy demand
since 2000 and is now the 3rd largest energy consumer in the world after China and the
United States.1 However, 80% of India’s primary energy demand is still met by coal, oil, and
biomass.2 To meet the country’s nationally determined goals, the government of India is
focusing on boosting renewable energy capacity, primarily solar and wind. As of September
2022, 40% of installed electricity capacity is derived from non-fossil fuel sources, of which
solar and wind constitute 56%.3

India has a solar energy potential of 748 GW, and to utilize it, the government has launched
the National Solar Mission and Solar Parks Scheme.4 The cumulative efforts have resulted in
an installed capacity of 59.34 GW of solar power. In the wind energy sector, it is estimated
that its potential is more than 200 GW but only 40 GW of installed capacity has been
achieved.5 Analyzing the manufacturing ecosystem, it is observed that until 2011, India was
one of the largest exporters of best-in-class solar modules. However, due to low-cost imports
from China, and a lack of high-grade solar cells domestic production remains limited. In the
wind sector as well, important minerals needed for wind turbine manufacturing remain
unexplored. This policy brief includes a comparative analysis of China and Brazil to identify
key policies and initiatives that can be incorporated in India.

Major challenges in the solar sector, apart from low domestic manufacturing, are poor land
acquisition, inadequate financial incentives, and insufficient storage capacity. In the wind
sector, lack of coordination among stakeholders, underutilization of offshore wind potential,
and inadequate repowering are major constraints to achieving its potential. To address these
challenges, policy recommendations for each sector have been outlined. In the solar sector,
the PLI scheme needs to be supported through international and domestic MoUs to facilitate
collaborations to support technology transfer. In the wind energy sector, communication and
coordination can be facilitated by having autonomous bodies and third-party review
mechanisms. Technology and infrastructure upgrades can also play a major role in boosting
both sectors. Hence, in recognizing India’s energy needs, resolute dedication toward
renewable energy transition could be facilitated by adopting a holistic approach as discussed
further in the policy brief.

1
India Energy Outlook 2021, IEA, Pg. 20 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
2
India Energy Outlook 2021, IEA, Pg. 23 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
3
MNRE, PIB, 2021 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1785808
4
Solar Energy, MNRE https://mnre.gov.in/solar/current-status/
5
Wind Energy, MNRE https://mnre.gov.in/wind/current-status/
 2

Overview of India’s Energy Sources

● A Profile of Non-Renewable Energy in India
As of 2020, India’s energy demand has doubled since 2000 however, 80% of India’s
primary energy demand is still met by coal, oil and biomass.6 In terms of power
generation capacity mix, 64% is generated through thermal plants (coal, lignite &
gas).7 India’s dependence on imports of coal and oil has seen a rapid rise in the past
two decades with 25% of coal and 75% of oil consumed being imported.8
● A Profile of Renewable Energy in India
Only 3% of India’s primary energy demand is being catered to by renewable energy
sources.9 In terms of installed electricity capacity, 40% comes from non-fossil fuel
sources. Solar and wind energy contribute to a total of 56% of the total installed
capacity of renewable energy (157.32 GW) as of Sep 2022.10

Fig. 1 Total primary energy demand in India11 Fig. 2 Renewable energy mix in
India12

Government's Vision and Mission

India submitted its Nationally Determined Contribution (NDC)13 to the UNFCCC in
2015, based on the Paris Climate Agreement. Having achieved some of the NDCs
well ahead of target, India has recently updated its NDC further at the COP26.14
Panchamrit Pledges:15

6
India Energy Outlook 2021, IEA, Pg. 24 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
7
Accelerating India’s clean energy transition 2022, FICCI, Pg. 18
https://ficci.in/spdocument/23641/Accelerating_Indias_clean_energy.pdf
8
India Energy Outlook 2021, IEA, Pg. 20 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
9
India Energy Outlook 2021, IEA, Pg. 24 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
10
Renewable Energy in India, PIB, MNRE, 2022,
https://pib.gov.in/FeaturesDeatils.aspx?NoteId=151141&ModuleId=2
11
India Energy Outlook 2021, IEA, Pg. 24 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
12
MNRE, PIB, 2021 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1785808
13
Nationally determined contributions (NDCs) embody efforts by each country to reduce national emissions and
adapt to the impacts of climate change under the Paris Agreement.
https://unfccc.int/ndc-information/nationally-determined-contributions-ndcs.
14
Prime Minister ‘Panchamrit’ announced at COP 26, PIB, 2022
https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1847812
15
National Statement by Prime Minister Shri Narendra Modi at COP26 Summit in Glasgow, PBI, 2021
https://pib.gov.in/PressReleseDetail.aspx?PRID=1768712
 3

○ 50% of cumulative installed electric power capacity with non-fossil fuel

sources by 2030 (2015 NDC: 40% of capacity by 2030. Achieved in 2022)
○ Reduce emissions intensity to GDP by 45% by 2030 from 2005 levels (base
year)
(2015 NDC: Reduction by 33-35% by 2030. 24% reduction achieved in
2016)
○ Reach 500GW of non-fossil energy capacity by 2030
○ Reduce total projected carbon emissions by 1 billion tonnes from 2021 to 2030
○ Achieving net-zero status by 2070
The Government of India has recently published India's Long Term Low Carbon
Development Strategies (LTLEDS) at the COP27, focusing on low carbon
development in the following sectors: electricity, transport system, sustainable
urbanization, industrial system and also on the economic and financial aspects of
low-carbon development.16

Sub-sectoral Analysis
● Solar Energy in India
India receives about 5,000 trillion kWh of solar energy each year, if resources are
utilized efficiently India has a solar potential of 748 GW.17 So far, India produces
59.34 GW of solar energy.18 The Indian government has announced a total solar
power capacity of 300 GW by 2030 making it the world’s largest expansion plan in
renewable energy.19 In recognising the immense potential of this sector, the
government has taken the following initiatives to address various bottlenecks from
financing to skill development. These are as follows -
● National Solar Mission: To establish 100 GW of solar energy by 2022 and
create favourable conditions for solar manufacturing capacity for indigenous
production.
● Indian Renewable Energy Development Agency (IREDA): It is a non-banking
financial institution that provides term loans for energy efficiency projects and
the setting up of solar manufacturing units.
● National Institute of Solar Energy: An autonomous institution mandated for
R&D, solar component testing and certification, and the development of solar
products.
● Solar Parks Scheme: To set up at least 25 solar parks, each with a capacity of
500 MW and above across the country.
● Suryamitra Program: To prepare a qualified workforce by enhancing skills in
the growing solar energy sector

16
India’s Long-Term Low-Carbon Development Strategy, MoEFCC, 2022
https://unfccc.int/sites/default/files/resource/India_LTLEDS.pdf
17
Solar Energy, MNRE https://mnre.gov.in/solar/current-status/
18
Power Sector at a Glance ALL INDIA, Ministry of Power powermin.gov.in/en/content/
19
India to achieve 50% clean energy share, The Economic Times, 2021
https://economictimes.indiatimes.com/industry/renewables/india-to-achieve-50-clean-energy-share-before-2030
 4

● International Solar Alliance: Founded by India and France it is an

intergovernmental organization for increased deployment of cost-effective
solar energy technologies across various sunshine countries by partnering with
multilateral development banks, private organizations etc.

● Wind Energy in India

As of May 2022, the total installed capacity of wind power was 41 GW, i.e., about
20% of the commercially exploitable potential.20 If this potential is fully tapped the
wind energy in India is estimated to be more than 200 GW.21 Despite having a strong
domestic hold on producing wind energy and its related components, India has still
not seen significant progress in the wind energy sector. With several solar-based
power schemes and policies, a wider gap between electricity generated from wind and
solar energy has been created. The Union Budget 2022-23 provided a budgetary
allocation of ₹3365 crores for the solar power sector, whereas for the wind sector
₹1050 crore was allocated showcasing a marginal reduction.22 The on-shore capability
of the wind sector stands at 300 GW at 100 m hub height which is the distance of the
rotator from the ground.23 The off-shore capability is yet to be utilized, despite India
having a natural 7600 km coastline. Despite the various limitations in implementing
off-shore projects such as huge costs, its energy capability of 140 GW by 2050 if
utilized in lead states like Gujarat and Tamil Nadu cannot be neglected and requires
adequate attention to leveraging its potential.24

In understanding where our efforts fall short, the sector is taken into analysis to
suggest ways to help the government and industry to work together in securing
strategic stocks of wind commodities and critical materials. In this way, both actual
and provisional scenarios for wind energy in India have been discussed. The analysis
also emphasizes that even though the condition of the wind system is sufficient, it
does require additional attention for better growth.

India’s Manufacturing Ecosystem

● Manufacturing Issues Related to Solar Energy in India
Until 2011, India was one of the largest exporters of best-in-class solar modules with
domestic manufacturers including Tata Power Solar Systems Ltd, Moser Baer, and
Bharat Heavy Electricals Ltd. This performance has severely dropped as of November
2021, with India’s manufacturing capacity of solar cells and solar modules being 4.3

20
Evaluation of Wind Energy in India, PRS, 2022
https://prsindia.org/policy/report-summaries/evaluation-of-wind-energy-in-india
21
Evaluation of Wind Energy in India, PRS, 2022
https://prsindia.org/policy/report-summaries/evaluation-of-wind-energy-in-india
22
Expensiture Profile, 2022-2023, Ministry of Finance https://www.indiabudget.gov.in/doc/eb/vol1.pdf
23
National Institute of Wind Energy (NIWE), https://niwe.res.in/department_owd.php
24
National Institute of Wind Energy (NIWE), https://niwe.res.in/department_owd.php
 5

GW and 18 GW, respectively.25 The Indian solar industry relies heavily on imports of
important components such as solar cells, modules and solar inverters. In 2019-20, the
industry ended up spending $2.55 billion on imports of solar wafers, cells, modules
and inverters.26
Raw materials for solar cells include wafers, silver and aluminium paste which is
being procured from outside due to a lack of an in-house ecosystem. A shortage of
raw materials, a power price hike in China and a surge in international freight charges
have inflated module prices by more than 25%.27 A shortage of minerals like
polysilicon and other commodities also makes solar cells expensive. Other
components include a constant supply of electricity, transportation cost, water
requirements etc. The demand for indigenously made solar cells is generally low
because module suppliers demand cells of higher grade (in terms of wattage,
efficiency, etc) but they are more expensive due to the narrow cell production scale.
Technology constraints have limited solar production to only large industries.
Even though the government has been trying to ramp up domestic manufacturing
through various steps, including imposing Basic Customs Duty in 2022, however,
these provisions have not been enough. While operating expenses are significant in
photovoltaic manufacturing, they have not been addressed under any significant PLI
scheme. This highlights a need for a sustainable, vertically integrated domestic solar
manufacturing ecosystem.

● Manufacturing Issues Related to Wind Energy in India

The supply chain issue plays a significant role in the stagnation of the development of
the wind energy sector in India. Current potential risk factors that may be the cause of
the crisis in the supply chain are:
● Mineral Extraction for Wind Turbine Production: In India, important minerals
needed for wind turbine manufacturing such as nickel, cobalt and other REEs
remain unexplored. Due to mining being carried out on only 0.25% of the 17%
of land area having mineral reserves, it leads to delays in procuring
components for manufacturing.28
● Demand and Supply Uncertainty due to Shifting Government Focus: Due to
the disconnect between agencies and governments in clarifying project targets
and procurement schedules, as well as composition and conditions for new
tenders, incoordination becomes a bottleneck to enhance steadfast production.
● Supply Chain Disruption During Covid: Amid the lockdown, the
manufacturing of wind power components had been suspended. Efforts to

25
Photovoltaic Manufacturing Outlook in India, IEEFA, 2022
http://www.indiaenvironmentportal.org.in/files.pdf
26
Binit Das, There is a demand-supply mismatch in solar manufacturing. Is India making the right choice?,
Down to Earth, 2021
https://www.downtoearth.org.in/blog/energy/there-is-a-demand-supply-mismatch-in-solar-manufacturing
27
Rakesh Ranjan, Growth of Domestic Solar Manufacturing Hindered by Global Supply Chain Disruptions,
Mercom India, 2021 https://mercomindia.com/growth-domestic-solar-manufacturing-hindered/
28
In new India, leveraging the country’s great mineral potential, Hindustan Times, 2021
https://www.hindustantimes.com/opinion/in-new-india-leveraging-the-country-s-great-mineral-potentia.html
 6

boost production have not been made, with India's aim to install 140 gigawatts
of wind power capacity over the next decade has seen low progress with 100
GW not yet been installed.29
● Financial Pipelines: Aggressive bidding makes it difficult for renewable
energy developers to deliver at lower prices. The market has also only been
centred around a few substations in Gujarat and Tamil Nadu, which offer wind
resource potential at the lowest land costs. DISCOMs of seven states with
wind resources have been financially distressed, with debts mounting to 75
billion due to the cost of supply exceeding per-unit revenue.30
With a domestic annual production capacity of about 8000 MW to 10000 MW of
domestic wind turbines, if India secures its supply chain for domestic onshore and
offshore wind capacity, it can become a global leader in meeting the rising demand for
wind energy.31 Hence, managing supply chain risks is interconnected to ensure the
success of the wind energy sector.

Global Comparative Analysis

● China - An Incremental Model
As both India and China rely heavily on coal to meet their energy requirements, the
transition to renewable energy has been a recurring theme in their policies to look for
long-term solutions to energy production. In reaching such goals, China’s efforts are
commendable when one looks at its solar energy sector and well-established supply
chain of solar manufacturing. In 2019, China accounted for 97.4% of silicon PV
wafers, 78.7% of cells and 71.3% of modules produced globally.32 China is also a
leading nation in wind power installed capacity which has proliferated, from 300 MW
in 2000 to 188,232 MW last year and today accounts for 35% of the world's total
wind power capacity.33 Although a leading factor of this growth is China’s rich
endowments in rare earth minerals, its motto of self-sufficiency since 1949 also
helped it achieve an infrastructure mechanism for energy transition and conservation.
China is also the largest investor in clean energy which increased from investing 83
billion USD in 2018 to more than 260 billion USD in 2021.34
Compared to China, India’s renewable energy sector is still at a nascent stage. From
2018-2022, its budgetary allocation has more or less remained stagnant. India’s
growth has lagged behind with fewer research and development avenues in renewable
energy, and lower capital participation and investments. To correct this performance,
there lies a window of cooperation for India and China through collaboration on

29
India’s wind energy sector struggles despite SECI’s oversubscribed bids, Down to Earth, 2022,
https://www.downtoearth.org.in/blog/renewable-energy/india-s-wind-energy-sector-struggles
30
India Wind Outlook Towards 2022, GWEC, 2022, http://www.eqmagpro.com/wp-content/uploads/
31
Technology Development and Manufacturing Base for Wind Power, MNRE,
https://mnre.gov.in/wind/manufacturers-and-quality-control
32
Solar PV, IEA, 2022, https://www.iea.org/reports/solar-pv
33
Wind energy development and policy in India: A review, Energy Strategy Reviews, 2019,
https://www.sciencedirect.com/science/article/pii/S2211467X19300379
34
Dominic Chiu, ‘The East Is Green: China’s Global Leadership in Renewable Energy’, CSIS
https://www.csis.org/east-green-chinas-global-leadership-renewable-energy
 7

management strategies, knowledge-sharing, joint R&D projects, and increased trade

opportunities.

Fig. 3 India-China Renewable Energy Budget Allocation35

● Brazil - Multifaceted Bilateral Relations

India and Brazil both have increasingly ambitious expansion targets for solar and
wind power which will need substantial policy changes and filling up supply gaps for
which both countries can collaborate. Brazil has become the largest wind power
market in South America, as well as a fledgling solar PV sector. As India looks at
lowering import dependence for its energy requirement, Brazil becomes the
destination for India's largest upstream investment in South America. Since both
countries are developing economies with abundant resources, sharing a close and
multifaceted relationship will help in a beneficial partnership across the energy sector.
Cooperation in biofuels, oil and gas also gains significance as the energy crisis due to
the Russia-Ukraine conflict makes oil prices highly volatile.
Brazil’s overall effectiveness of the renewable energy policy framework is also set to
derive broader expectations regarding Brazil’s decarbonisation prospects as Luiz
Inácio Lula da Silva becomes the new president in 2023 after the incumbent President
Bolsonaro. Therefore, it is necessary for India to tap a say during the changes in the
administration and show its leadership in the renewable sector.

Challenges to India’s Transition to Clean Energy

● Solar-specific challenges
1. Lack of Domestic Manufacturing of Solar Components: India has an
underdeveloped domestic solar PV cell and module manufacturing sector as a
result of inadequate infrastructure, skilled labour shortage, and high
production costs.
2. Issues with Land Acquisition: Insufficient space for the installation of large
ground-mount solar systems is another significant solar energy challenge,
requiring an elaborate earmarking process for solar energy projects.
3. Inadequate Financial Incentives: The capital intensiveness and high-interest
rates charged by financial institutions limit the scope of private partnerships.
35
Union Budget 2022, https://weather.com/en-IN/india/news/news/2022-02-01-budget-2022
 8

However, various government programmes including the Green Masala

Bonds36 and the National Clean Energy and Environment Fund, have helped to
mitigate this problem to a certain extent.
4. Inefficient Storage Capability: The intermittent nature of solar energy
necessitates an efficient energy storage system to ensure uninhibited access to
clean energy. India will need 27 GW of grid-connected battery storage systems
by 2030 to meet its goals.37
5. Unavailability of solar database and lack of public acceptance: Due to the
non-availability of solar rooftop data, and a lack of awareness among the
public has impeded the transition of private adoption of rooftop solar panels at
the ground level.

● Wind-specific challenges
1. Lack of Coordination: Multiple stakeholders at the central and state level and
regulatory complexity hinder expeditious implementation thus delaying the
timely completion of projects on the ground.
2. Land Acquisition: Attaining environmental and local clearance for wind
power projects is a hassle and time-consuming leading to delays in setting up
infrastructure capacity.
3. Underutilisation of Off-shore Wind Potential: Off-shore wind projects haven’t
been established due to high costs and low financing. Even after identifying
eight zones each in Gujarat and Tamil Nadu as potential zones, no project has
taken off.38
4. Shifting Focus from Wind to Solar Sector: Installed capacity of wind power
has seen an increase of 93.45% but at the same time the installed capacity of
solar power has exponentially increased by 2063.86% during the same
period.39 Because of the cost-effectiveness and low tariffs of the solar sector,
the wind sector has not been able to compete at the same pace.
5. Inadequate Repowering: Out of a total of 41.66 GW installed wind energy
capacity in the country, more than 25 GW of wind turbines need repowering,
as per the estimate made by the National Institute of Wind Energy (NIWE).40
Old wind turbines expiring their liveability leads to inefficient energy
production.

Policy Recommendations
● Solar Energy Sector

36
Green Masala bonds are bonds that are issued outside India in INR currency to support specific
climate-related environmental projects
37
India Energy Outlook 2021, IEA, Pg. 39 https://iea.blob.core.windows.net/India_Energy_Outlook_2021.pdf
38
Standing Committee Report Summary Evaluation of Wind Energy in India, PRS, 2022,
https://prsindia.org/files/policy/policy_committee_reports/Summary_Evaluation.pdf
39
Standing Committee Report Summary Evaluation of Wind Energy in India, PRS, 2022,
https://prsindia.org/files/policy/policy_committee_reports/Summary_Evaluation.pdf
40
Manish Kumar, Mongabay, 2022,
https://india.mongabay.com/2022/after-little-success-in-past-india-revisits-plan
 9

1. Encourage Solar Wafers and Cell Manufacturing: PLI schemes need to be supported
by additional initiatives like the signing of MOUs which will help in technology
transfer and sourcing of critical raw materials.
2. Legal Framework to Aid in Land Acquisition: There needs to be centre-state
coordination to help in the formulation of a robust legal framework encompassing an
effective compensatory mechanism. The same recommendation can be applied to the
challenge in the wind energy sector.
3. Financial Incentivisation: RBI’s Priority Sector Lending norms can have a
sub-category of Renewable Energy Manufacturing Facility whose loans can be
backed by IREDA to facilitate low-interest rate financing options to private players
for solar components.
4. Stimulant for Private Investment: For large-scale grid-connected battery storage
systems, allocation of funds to promote research and development for indigenous
storage technologies can be promoted.
5. Need to Develop a Rooftop Solar Database: A database at the state level and the
national level can help bring more efficiency and transparency. Requiring all rooftop
solar customers to be on time-to-use tariffs can help mitigate the revenue loss suffered
by DISCOMs. Decentralized approach by incorporating various local bodies to
generate public awareness.

● Wind Energy Sector

1. Increase Communication and Coordination: Facilitated by having autonomous bodies
and third-party review mechanisms. Using digital tools to aid in better management
that can help in reliable and quick communication.
2. Aid Action Plan for Off-shore wind energy: Requirement of investments and
technology along with specialised vehicles, skilled manpower, and turbines to take
leverage of the partnerships with foreign countries like Denmark.
3. Solar-wind Hybrid Projects: Provide a framework for the promotion of large
grid-connected wind-solar PV hybrid systems for optimal and efficient utilization of
wind and solar resources, transmission infrastructure and land.
4. Advancement in Technology: In order to boost wind power generation, incentives
should be given to help bring new infrastructure and technologies such as new
turbines. The strategy for achieving this enhanced goal depends on the participation of
NGOs, manufacturers, R&D institutions and entrepreneurs.
 10

Conclusion
Energy security is vital for economic transformation, global prosperity and the well-being of
humankind. Over the years, energy security evolved from being mere a supply chain issue to
a multidimensional one covering diverse aspects like environmental sustainability, social
equality, political stability, and economic development encompassing various stakeholders.
The finiteness of resources and the direct correlation that energy security has with overall
advancement has pushed energy transition at the core of policy debate. To meet this
mammoth challenge, the Indian government has embarked on approaching the energy
transition through an inclusive perspective of formulating its policy structure under the
framework of availability, accessibility, affordability, and acceptability. It aims to attain
energy equity across all sectors and sections at an affordable rate while simultaneously
aspiring for energy diversification as well as decarbonization. The inherent challenges of
sovereignty negation, susceptibility to uncertain global events, and predisposition to being
manipulated by monopolistic cartelization by resource-rich countries hinder our efforts to
attain self-sufficiency in energy security.

The formidable work that India has undertaken in the solar and wind energy sectors
highlighted the unwavering commitment of the country to transitioning to a renewable energy
hub and curbing its heavy dependence on the import of fossil fuels. India’s energy policy
pursuit has made it a normative player in the fast-emerging renewable energy arena. The
ambitious targets of the Panchamrit vision or the setting up of the International Solar Alliance
have helped in enhancing India’s clout globally. A holistic approach towards energy transition
will help in the maximization of the country’s potential and keep it in good stead against
adversarial circumstances.
ATMANIRBHAR BHARAT: EXPLORING THE IMPACT OF PRODUCTION LINKED INCENTIVE
SCHEMES ON MANUFACTURING IN INDIA

Introduction
India has immense potential to drive economic growth and generate employment by creating a robust,
globally competitive manufacturing sector. It enjoys the benefits of an expanding domestic market, a growing middle
class and a young population with long-term employment prospects, thus making it a reliable and attractive
destination for both global and local manufacturers to invest in India. The government has launched several schemes
in the past decade to give impetus to new investment in the manufacturing sector as well as beget more employment
opportunities for the Indian working class. Through this study, we aim to analyse the impact of two Production
Linked Incentive (PLI) schemes on the manufacturing sector and propose recommendations to improve the overall
efficacy of these schemes.

India’s Manufacturing Sector

Over the past decade, the average contribution of the manufacturing sector in India stood at 16.3% of the
nominal Gross Value Added (GVA) and the sector employed 6.24 crore people in 2019-2020.1 However,
manufacturing has dawdled behind the agriculture and service sectors in terms of employment generation and GDP
contribution, respectively, since independence. Further, India’s share in global manufacturing exports stands at 1.4%,
far behind its peers in Asia.2 This can be attributed to the policy of protectionism, poor infrastructure, and failure to
innovate, among other reasons.3
The revival of the manufacturing sector is imperative to boost the economy, become globally competitive
and achieve inclusive growth. The McKinsey Global Institute estimates that in order for India to attain an annual
GDP growth rate of 8-8.5% between 2023 and 2030, the net employment rate must increase by 1.5% per annum and
9 crore non-farm jobs must be created.4 The multiplier effect of employment in the manufacturing sector in creating
more jobs for the service sector has been corroborated in several studies.5 The potential to accelerate the sector's
growth can be seen in the Prime Minister's vision of strengthening the manufacturing sector and increasing its GDP
contribution to 25% through various manufacturing schemes focused on domestic production.6 As part of the
Atmanirbhar Bharat initiative, the government has introduced its flagship PLI scheme in 2020.

Production Linked Incentive Schemes: An Overview

The PLI schemes, launched across 15 sectors (listed in Appendix 1), are an initiative of the government to
incentivise domestic production and aim to improve the cost-competitiveness of domestically manufactured goods.
The schemes fundamentally require large-scale investment and offer specified incentives on incremental turnover.
Specific minimum criteria, targets, and incentives have been fixed for all sectors in which the schemes have been
introduced.
A financial outlay of INR 1.97 lakhs crores was announced for the PLI schemes by the Hon’ble Finance
Minister in the Union Budget 2021-22.7 At least 60 lakh jobs are expected to be created, along with production worth
INR 3 lakh crore in the next 5 years through the schemes.8 Further, 9 out of the 15 sectors, including mobiles,
pharma, food processing, IT hardware, white goods, and specialty steel, show tremendous export potential, with an
estimated annual export potential of INR 2 lakh crores.9

The PLI schemes may be said to have replaced the Merchandise Exports from India Scheme (2015-2020), an
incentive scheme for the export of goods. A detailed comparison of the two schemes has been provided in
Appendix 2.

1
Manufacturing Sector in India: Market Size, FDI, Govt Initiatives, IBEF, 2022, http://bit.ly/3EX74ah
2
Boosting India’s Manufacturing Exports, IBEF, 2022, http://bit.ly/3Ops6ma
3
India can never become a global manufacturing base, Business Today, 2014, https://bit.ly/3FPcJ3N
4
An agenda for India’s economic growth, McKinsey, 2020, http://bit.ly/3ifWzqI
5
Manufacturing, CII, 2022, http://bit.ly/3glwF4a
6
Manufacturing, CII, 2022, http://bit.ly/3glwF4a
7
Status of PLI Schemes, PIB, 2021, http://bit.ly/3XiM1Hk
8
Shreejay Sinha, People Matter, 2022, http://bit.ly/3ghcVyO
9
In 3-4 years, PLI to account for 13-15% capex in key sectors, CRISIL, 2022, https://bit.ly/3gle6x3
2
Focus Sectors for Analysis
Since the PLI schemes are relatively new, it may be too soon to examine whether they have been able to
achieve their intended outcomes but we have attempted to assess if they are on the right track and suggest corrective
actions which can be taken in case of deviations, if any. Our analysis majorly focuses on the following two schemes:

1. Production Linked Incentive scheme for Textiles: This scheme has been chosen given our Member of
Parliament’s focus on PLI schemes for more labour-intensive sectors. Over the years, the textiles and apparel sector
has become the second largest employment-generating sector, after agriculture, creating jobs for both skilled and
unskilled labour.10

2. Production Linked Incentive scheme for Large-Scale Electronics Manufacturing: This scheme was one
of the first PLI schemes introduced and is now past its gestation period. India is one of the world's largest markets for
electronic goods, making it an evident choice to study the impact of PLI schemes.11

Production Linked Incentive Scheme for Textiles

Sector Overview: The textiles and apparel sector accounted for 2% of India’s GDP and 7% of its industrial
output in 2020-2021, employing about 14.5 crore people.12 The employment generated constituted about 30% of total
employment reported in December 2021.13 India is the 6th largest exporter of textiles and apparel in the world,
accounting for a 4% share of the global trade.14 The share of textile and apparel in India’s exports stood at 11.4% in
2020-21.15 However, the sector is fairly fragmented, with few large players dominating the market and high degrees
of concentration in Maharashtra, Gujarat, Tamil Nadu, Uttar Pradesh, Karnataka, Madhya Pradesh, Rajasthan, and
West Bengal.

Scheme Details: The Ministry of Textiles notified the PLI Scheme for Textiles in September 2021 with a
focus on augmenting production, employment, investment and export capabilities of Indian man-made fabric and
apparel, and technical textiles. The scheme targets the high value segment of the textile industry which can leverage
the benefits of economies of scale. The scheme has a gestation period of two years and incentives are provided for
five years, i.e. from FY 2025-26 to FY 2029-30 (if applied for in 2022). The scheme is budgeted at a cost of INR
10,683 crore to the exchequer.16 Details of the scheme pertaining to the two segments have been given in Appendix
3.
Intended Outcome: The total proposed investment to be generated under the scheme is INR 19,798 crore,
with a projected turnover of INR 1,93,900 crore over a 5 year period.17 It is likely to create 7.5 lakh direct
employment opportunities and several more in the allied sectors.18

Status on Progress: The government has approved 64 beneficiaries for the scheme, out of which 50
projects fall under the sub segment for which the minimum investment is INR 100 crore.19 As of 11th October, 2022,
the government has sent letter of approvals to 54 out of 64 approved applicants under the scheme.20 Since the scheme
is yet to reach its gestation period (2024-25), no data commensurate with the scheme’s impact on production,
international trade, or employment could be found through our research.

10
Women in the Informal/Unincorporated Textiles Sector in India, SSNR, 2016, http://bit.ly/3Ax3MsF
11
Electronic Systems Sector in India - Electronic Devices Industry, Invest India, 2022, https://bit.ly/3HBEnCx
12
Textile Industry in India - Garment & Apparels Market in India, Invest India, 2022, http://bit.ly/3TZ2ttn
13
India Employed Persons, 1970 – 2022.” CEIC, https://bit.ly/3YvfluL
14
Annual Report, Ministry of Textiles, 2021-2022, Pg. 1, http://bit.ly/3OrOJGK
15
Annual Report, Ministry of Textiles, 2021-2022, Pg. 1, http://bit.ly/3OrOJGK
16
Gazette Notification, Ministry of Textiles, 2021, Pg. 17, http://bit.ly/3OpoLnh
17
PLI Scheme for Textiles: Full List of Beneficiaries. India Briefing, 2022, http://bit.ly/3GyTs7t
18
Government Approves PLI Scheme with incentives for Textile Sectors, The Textile Association (India), 2021,
https://bit.ly/3gUw4qL
19
PLI Scheme for Textiles: Full List of Beneficiaries. India Briefing, 2022, https://bit.ly/3GyTs7t
20
PLI Scheme for Textiles: Full List of Beneficiaries. India Briefing, 2022, https://bit.ly/3GyTs7t
3
Production Linked Incentive Scheme for Large-Scale Electronics Manufacturing

Sector Overview: The electronics hardware manufacturing sector, particularly the mobile phone
manufacturing industry, is one of the fastest-growing industries in India. In FY 2021, it contributed 3.4% to India's
GDP.21 China, Vietnam, and Hong Kong are India's top 3 international competitors, accounting for 48.4%, 14.8%,
and 12.2% of all mobile phone exports in 2021, respectively, while India’s share stands at a mere 1.8%.22 The sector
suffers a cost disadvantage of 8.5-11% in comparison with competing countries, due to inadequate infrastructure,
domestic supply chain disruptions, and logistical bottlenecks.23

Scheme Details: The PLI Scheme for Large-Scale Electronics Manufacturing, launched in April 2020,
proposed an incentive of 4-6% on incremental sales of mobile phones and specified electronic components as a
means to provide a fillip to domestic manufacturing and attract large-scale investments in the electronics value chain,
including electronic components and semiconductor packaging.24 After the first round announced in 2020, the
government subsequently announced a second round for the scheme in 2021, wherein incentives to the value of 3-5%
on incremental sales of specified goods shall be given to eligible companies upon achieving the targets specified
under the scheme.25 The scheme has an incentive outlay of INR 40,951 crores, spread over five years, and has been
divided into three segments, namely, Mobile Phones (Invoice value INR 15000 or above), Mobile Phones (Domestic
Companies), and Specified Electronic Components, with an incremental investment of INR 1000 crores, INR 200
crores, and INR 100 crores, respectively, over a period of 4 years.26

Intended Outcome: The scheme is expected to create a production value of over INR 10.5 lakh crore in the
outlay period, with INR 9 lakh crore, INR 1.23 lakh crore, and INR 15,700 crore accruing to products in segments 1,
2, and 3, respectively.27 About 60% of production value is anticipated to be exported and the scheme is expected to
attract an investment of INR 11,000 crores.28 Over 2 lakh direct and approximately thrice as many indirect
employment opportunities are expected to be created.29

Status on Progress: Under the scheme, 32 companies have received approval in two rounds, including 10
mobile manufacturing companies, of which 5 are global players.30 M/s Padget Electronics Pvt Ltd, a domestic
company that manufactures mobiles, has received an incentive based on incremental investment and sales figures for
FY 2021–22, becoming one of the first companies to receive disbursement under the PLI schemes.31 The applicants
under the scheme have made a turnover totalling INR 1,67,770 crore for the quarter ending in June 2022, which
includes INR 65,240 crore in exports (registering a 139% growth over the previous three years), and has also led to
the creation of 28,636 jobs.32 Mobile imports in India have reduced by approximately 33% in fiscal 2022, and the
dependency on China has fallen from 64% to 60% in fiscal 2021.33 However, in the absence of data, it cannot be
clearly stated how much of this can be attributed to the PLI scheme.

It should, however, be noted that this section includes reporting of the progress made and is not intended as
a qualitative analysis of the success of the scheme or the lack thereof.

21
Electronics Industry in India: Software Industry Growth & Exports, IBEF, https://bit.ly/3FpUd1O
22
Cellphone Exports by Country 2021, World's Top Exports, 2022, https://bit.ly/3OVOXGl
23
Gazette Notification, MEITY, 2020, Pg. 7, http://bit.ly/3Emr2eh
24
Gazette Notification, MEITY, 2020, Pg. 7, http://bit.ly/3Emr2eh
25
PLI Scheme for Large-Scale Electronics Manufacturing | MEITY, 2022, https://www.meity.gov.in/esdm/pli
26
Gazette Notification, MEITY, 2020, Pg. 8, http://bit.ly/3Emr2eh
27
Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581
28
Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581
29
Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581
30
First-Ever Disbursement Approved by Empowered Committee in PLI Scheme for Large-Scale Electronics Manufacturing,
2022, https://bit.ly/3jfmHCM
31
First-Ever Disbursement Approved by Empowered Committee in PLI Scheme for Large-Scale Electronics Manufacturing,
2022, https://bit.ly/3jfmHCM
32
First-Ever Disbursement Approved by Empowered Committee in PLI Scheme for Large-Scale Electronics Manufacturing,
2022, https://bit.ly/3jfmHCM
33
SectorVector - Signal change, CRISIL, 2022, http://bit.ly/3V3qyAB
4
 Case Study: Odisha
Odisha has expressed a strong interest in the PLI schemes for Large-Scale Electronics on account of the IT
and Electronics sector being one of its six priority areas. Odisha enjoys various competitive advantages in terms of
the low cost of doing business (factor inputs like power, water, labour, land, etc., are available at competitive prices),
proximity to global electronics trading hubs (such as Thailand, Singapore, Indonesia, and China), and the presence of
ports such as Pardip (making it easier to procure components/raw materials and reducing transit times and freight
costs).34 Having ample availability of water resources, a strong and stable political scenario, and an enabling
institutional framework adds to the advantage of investing in the electronics sector in the State.35
However, Odisha has been unable to leverage these factors to attract investors in the State. The poor
maturity of Odisha's value chain and the absence of players across the value chain have proven to be a deterrent to
investors; this poses a critical need to incentivise a larger number of firms working in the sector. Due to the poor
availability of electronics manufacturing companies in the region, along with a lack of adequate training schools in
the field, there is little availability of skilled and experienced human resources in the sector.36 Social indicators (low
per capita income, high unemployment rate, high BPL population, low life expectancy, etc.) are also poor in Odisha
compared to other States, weakening its prospects of attracting talent from other locations.37
71 mobile phone manufacturing/assembling units have been set up in India since 2014, with none in
Odisha.38 There is only one Electronics Manufacturing Cluster (EMC) in Odisha, which has attracted a meagre sum
of INR 264 crores as investment and generated jobs for a mere 300 people, whereas the neighbouring State of
Andhra Pradesh, which ranks 6th in the country in mobile phone manufacturing, has 4 EMCs that have attracted
investments worth INR 6,309 crores and created 9,672 jobs.39 Both States have similar geographical advantages
(long coastlines) and a history of stable governments, with comparable literacy rates (Odisha's is higher by 10%)40,
population sizes, area, and Gross State Value Added by Economic Activity in Manufacturing (Orissa’s is higher by
30%).41
It is possible that the disparity in electronics manufacturing in both states may be due to factors beyond the
policy realm. However, Odisha must recognise electronics manufacturing as a thrust sector, giving it additional
advantages for establishing itself as a preferred destination for investment in the sector in order to be on par with
other mobile manufacturing states in the country, such as Uttar Pradesh and Maharashtra.

Impact of Tariffs and Subsidies on PLI

As per a study conducted by the Indian Cellular and Electronics Association (ICEA), high import tariffs can
negate the impact of the PLI scheme and adversely impact competitiveness and scale.42 The government has
increased tariffs on both electronics and textiles since 2020-21, along with several other sectors, reversing the trend
of liberalisation followed since 1991. The effects of tariffs on the cost of making the product are dependent on the
proportion of imports in the final product and the tariff hike on intermediate goods. The capacity of domestic
producers to fill the gap left by the decline in exports is another crucial consideration. Without sufficient domestic
production capacity, tariffs may increase the prices of the products, render them uncompetitive internationally, and
result in no tangible value to the country. It has the potential to overwhelm a state’s economy by trying to incentivise
both production for export and indigenization of the entire production chain at the same time.

In the case of PLI on mobile phone manufacturing, offering an incentive of 4-6% (averaging at 5.0% or
5.2% of costs), the cost increase due to tariff hikes (5.72% as per ICEA’s calculations), results in 0% net benefits to
the manufacturers. This almost completely negates the intent of PLI schemes.43 The impact of these tariffs may have
been lessened if they had been imposed after domestic production of these goods had begun, i.e., after the gestation

34
Strategic Roadmap for Development of ESDM Sector in Odisha, Government Of Odisha, Pg 87-90, https://bit.ly/3iA6d7T
35
Strategic Roadmap for Development of ESDM Sector in Odisha, Government Of Odisha, Pg 87-90, https://bit.ly/3iA6d7T
36
Strategic Roadmap for Development of ESDM Sector in Odisha, Government Of Odisha, Pg 91-93, https://bit.ly/3iA6d7T
37
Strategic Roadmap for Development of ESDM Sector in Odisha, Government Of Odisha, Pg 91-93, https://bit.ly/3iA6d7T
38
71 Mobile Manufacturing Units In India in Last 7-yrs, Odisha Dials ZERO, OdishaTV, 2021, https://bit.ly/3VykG2I
39
71 Mobile Manufacturing Units In India in Last 7-yrs, Odisha Dials ZERO, OdishaTV, 2021, https://bit.ly/3VykG2I
40
Indian States by Literacy Rate 2022 | Literacy Rate in India, Find Easy, 2021, https://bit.ly/3BJhRnD
41
Table 32: Gross State Value Added By Economic Activity - Manufacturing (Current Prices), 2016, https://bit.ly/3YABzeU
42
Comparative Study of Import Tariffs in Electronics, ICEA, Pg. 40, http://bit.ly/3VqzK24
43
Comparative Study of Import Tariffs in Electronics, ICEA, Pg. 40, http://bit.ly/3VqzK24
5
period. The government might consider the alternative strategy of first incentivizing firms to become global players
by importing cheaper intermediate goods and then using that scale to build domestic production chains.44

International Scenario: PLI Schemes

The study by ICEA also compared the effect of import tariffs on electronics in India with that in China,
Vietnam, Mexico, and Thailand. These countries have encouraged domestic production of electronics using
comparable strategies, and have improved their rankings to be in the top 15 electronic products exporter nations,
while India still lags behind at the 28th position.45 The ICEA highlights that this difference in ranking is because of
India's heavy reliance on tariffs on electronics products.

Lessons from Vietnam: Large-Scale Electronics Manufacturing

The manufacturing industry of Vietnam contributed approximately 25% to Vietnam’s total GDP in 2021,46 as
compared to about 17% for India.47 Given that India is aiming at increasing the size of its manufacturing sector, we
can take a leaf out of Vietnam’s experience. Vietnam has made a significant investment in human and physical
capital through public investments, leveraging its demographic dividend and investing in infrastructure, especially
power and connectivity. It has favoured a policy of trade liberalisation and complemented it with domestic reforms
such as deregulation and reducing the cost of doing business. It has signed several multilateral and bilateral free trade
agreements (FTAs) (such as the EU-Vietnam FTA), reducing tariffs and allowing for more foreign investment in
labour-intensive manufacturing and export-oriented sectors of the economy. The FTAs signed by India (ASEAN,
Japan, and South Korea) have not been negotiated considering a coherent industrial policy, especially in the
electronics sector. It has led to an inverted tariff structure in certain cases, where final products are being imported
duty-free while components are being taxed.48 Combined with other factors, it has disabled India's electronics
manufacturing from integrating with global value chains. Although the measures adopted by Vietnam are not new,
their success necessitates their reiteration in the wake of rising protectionist approaches by the government. The
government must consider the synchronisation of industrial policy and international trade strategy.

Lessons from Cambodia: Textiles

In Cambodia, the textile and garment industry contributes to over 16% of the GDP and 80% of the exports.49 The
sector employs the most number of people in the country. Cambodia, like India, enjoys several competitive
advantages, such as a competitive labour force and strategic geographic placement. Cambodia has offered several
incentives in the form of tax holidays of up to 9 years, 100% foreign equity ownership, and no import duties on
machinery and equipment that have played a prominent role in boosting the sector.50 Investors are also allowed to
repatriate profits freely, and reinvestment of earnings with special depreciation allowances is encouraged. These
incentives, coupled with a constant flow of foreign investment, have made Cambodia a success story in the textile
export industry, and these measures can be suitably modified and implemented in India.

Sustainability of PLI Schemes

Cost to the exchequer: The PLI schemes for Textiles and Large-Scale Electronics manufacturing have a
budget outlay of INR 10,683 crores and INR 40,951 crores, respectively, spread over a five-year period. The PLI
scheme for Textiles is still in its nascent stage, and the incentive payout will only accrue beyond FY25, causing no
real impact on the current fiscal deficit. However, for the PLI scheme for Large-Scale Electronics a financial
disbursement of INR 52 crores has been approved to Noida-based Dixon Technologies by the competent authority.51

44
Five questions India needs to answer about its PLI scheme, Carbon Copy, 2022, https://bit.ly/3iHVS9L
45
Comparative Study of Import Tariffs in Electronics, ICEA, Pg. 12, http://bit.ly/3VqzK24
46
The Growth of the Manufacturing Sector in Vietnam, YCP Solidiance, 2022 https://bit.ly/3utVKO8
47
India GDP sector-wise 2021, Statistics Times, 2021, https://bit.ly/3VZvjeV
48
The Impact of FTAs on India's Electronics Manufacturing, Research Gate, 2020, https://bit.ly/3WJLE7V
49
Cambodia's Garment Manufacturing Industry, ASEAN Briefing, 2018, https://bit.ly/3Y5pcYm
50
Cambodia's Garment Manufacturing Industry, ASEAN Briefing, 2018, https://bit.ly/3Y5pcYm
51
Govt makes first disbursement under PLI scheme, Delhi firm to get Rs 52 crs., Business Standard, 2022, http://bit.ly/3i8aJu4
6
 Impact on India’s Fiscal Status: The budget for all the PLI schemes together is set at INR 3.46 lakh
crores, spread out over five years, which is approximately 1.5% of the Union Budget outlay or 0.2% of the GDP.52
The affordability of the scheme will depend upon whether firms are able to achieve the milestones set in the scheme.
The scheme may be expected to pay for itself through the additional taxes generated if maximum projected targets
are achieved. However, the scheme will have a negative impact on the fiscal status in case the intended beneficiaries
are unable to achieve the turnover criteria in any of the years of the schemes’ duration.

Financial Sustainability: The premise of the PLI scheme is to incentivise incremental turnover over the
base year. The government has set a ceiling on the value of incremental turnover and offered a lower incentive for
succeeding years. These are measures to limit the incentive payout as the government cannot continuously
incentivize production.

Arguments in favour of, and against PLI Schemes

Due to the recency of the PLI schemes and scarce availability of data, a post-facto analysis of the scheme’s
impact on production, trade, and employment is infeasible. Therefore, we have attempted to analyse the underlying
attributes of the scheme.

Arguments in Favour
● Given the magnitude of the intended outcome of the scheme as regards the creation of jobs and growth of the
target sectors and their impact on the Indian economy, higher government expenditure may be well justified. In
addition, some fiscal space has already been created for the scheme as a share of funds for the PLI scheme is
expected to be redirected from the erstwhile Merchandise Exports from India Scheme.
● Further, the scheme’s benefits will also accrue in forward and backward linked industries. It has the potential
to boost production for all the players across the value chain, including ancillary units, and thereby has the
potential to increase employment.

Arguments Against
● A study by ICEA points out that the PLI scheme can overcome only a limited number of disadvantages faced
by the manufacturing sector. Compared to China and Vietnam, Indian manufacturers are still at a cost
disadvantage of 15% and 5.8%, respectively, even with the PLI scheme.53
● The scheme only caters to a small number of large players who will make incremental investments in new
projects. Its benefits will not directly accrue to small players, which may still face shortcomings in scaling up
their businesses.
● The scheme further excludes existing production capacities from availing benefits under the scheme. This
may warrant introduction of separate schemes so as not to put excluded players and those with existing
capacities at a disadvantage.
● When discretionary powers are assigned to any government to select beneficiaries under a scheme, rent-seeking
may occur due to lack of transparency. The influence of corruption and favouritism on decision making as
regards to selection of applicants can further skew the graph in favour of certain players.
● The application/permission system allowing for significant discretionary elements increases the chance of each
PLI scheme degenerating into a Subsidy-Permit-Raj much like the Licence-Permit-Raj of the pre-liberalisation
era.54 This may lead to creation of dominant players in the Indian economy, potentially leading to competition
concerns.
● Different PLI schemes are currently being overseen by their respective ministries. It has led to inconsistencies
in the design of the schemes, in terms of qualifying criteria, incentive structures and their quality of
implementation.55

52
Critics of PLI are missing economic logic and strategic benefits, Ninan, Ajit, Times of India, 2022, https://bit.ly/3P1dR7j
53
PLI Scheme - A Game Changer, Nirmal Bang, 2020, Pg. 1, http://bit.ly/3TXe7oG
54
A subsidy-tariff-permit raj?, Business Standard, 2020, https://bit.ly/3gXcSbE
55
A subsidy-tariff-permit raj?, Business Standard, 2020, https://bit.ly/3gXcSbE
7
Potential for Reform/Recommendations
PLI schemes pose an excellent opportunity for market players considering expansion into the specific
product categories. However, improvements in certain areas under the schemes can help make them more inclusive,
expand the beneficiary pool and enhance the effectiveness of the schemes.

Design of PLI Scheme

State Representation in the Selection Committee: Since 'Production, Supply and Distribution of Goods' is
a state subject, greater state involvement might improve the outcomes of the scheme. It can be envisaged in the form
of states participation in the Selection Committee for the beneficiaries. A federal Selection Committee would
increase the political acceptability of the scheme amongst the states and also lead to a fair geographical distribution
of the benefits of the scheme.

Quality Benchmarking: While the PLI scheme focuses on making Indian-made products cost-competitive,
its design fails to ensure the global quality competitiveness of goods produced. It may be desirable to institute a
graded structure of incentives, wherein those companies that comply with international standards of quality receive
higher incentives.

External Panel of Auditors: The fine print of the process of ascertaining the truthfulness of the investment
and turnover figures reported by companies is not publicly available for PLI Schemes in many sectors, thereby
reducing transparency. It is recommended that an independent panel of auditors may be engaged by the government
to audit a certain percentage of eligible beneficiaries (randomly selected) each year. Further, the remuneration of the
auditor may be partially tied to the accuracy of the audit, thereby aligning the incentives of the government and the
auditor. However, this may further burden the state’s capacity to efficiently implement the scheme.

PLI Scheme for Textiles

Reducing the Investment Limit: The bulk of the textiles sector is driven by MSMEs. These also form the
more labour intensive segment of the sector. Therefore, specific eligibility criteria for smaller firms may be provided
under the scheme, with reduced investment limits. This will provide a boost to these units to expand their scale of
operations.

Inclusion of Handlooms: The handloom industry employs over 30 lakh households in India, and there is a
considerable global demand for Indian handloom products.56 Each Indian state specialises in a different variety of
handloom products, and Odisha is one of the notable states in the Handloom, Textiles & Handicrafts map of the
country, which can benefit from the sector’s inclusion in the scheme. It is worth noting here that given the
fragmented and small-scale nature of the handloom sector, its inclusion in the scheme can cause additional strain on
the state's capacity to implement the scheme, owing to the possibility of misreporting of investment and turnover
figures by the firms.

Address the geographical skewness: There is a need to address the geographical skewness of projects
approved under the scheme by incentivising investment in certain states. Currently, the distribution of approved
beneficiaries remains skewed with Madhya Pradesh, Gujarat and Maharashtra accounting for the majority of
approved projects and investment.

PLI Scheme for Large-Scale Electronics

Reduce the incremental turnover criteria: In the first year, the eligibility to be fulfilled for getting the
subsidy from the government is a turnover of INR 4,000 crore. In the subsequent years, the turnover required is INR
8,000 crore, 15,000 crores, 20,000 crores and 25,000 crores.57 The heightened targets required could be unattainable
for most companies. Only 1 out of the 16 companies selected in round one have been able to achieve the targets set to

56
Indian Handloom Industry: Potential and Prospects, Exim Bank, 2018, Pg. 9, https://bit.ly/3VMgzzK
57
Gazette Notification, MEITY, 2020, Pg. 7, http://bit.ly/3Emr2eh
8
avail incentives.58 Having elusive targets increases the risk of failure of the whole scheme. Therefore, the incremental
turnover for the scheme can be revised to make it more inclusive and feasible.

Reduce tariffs on imported components: With an increase in production of mobile phones, the imports of
electronic components required for manufacturing/assembling mobiles has risen by 27%.59 The government can
reduce tariffs on such components to ensure steady participation from investors who otherwise shy away from
investing in India due to higher tariff rates and high cost of manufacturing.

Incentivise Investment in Research & Development (R&D): A major structural shortcoming of the
Indian manufacturing sector is the poor emphasis on R&D. Private industry players spend a meagre 0.5% of their
total turnover on R&D.60 Compared to countries like South Korea and the USA, which spend 4.8% and 3.45% of
their GDP on R&D, India spends only 0.7%.61 The PLI scheme must link higher incentives to companies investing a
larger portion of their turnover in R&D in developing indigenous technology rather than only importing parts and
assembling them in India.

Conclusion
Given the recency of the launch of the PLI schemes, the success of these schemes cannot be determined
with certainty based on the facts at hand. However, whether the applicants would continue to produce in India
beyond the scheme's duration is a critical issue that the government must consider. If they continue to manufacture in
India and in the event that the government continues to offer the incentives offered by the PLI Scheme, the Indian
taxpayer would have to bear the burden of ongoing protection to such firms for keeping domestic production
competitive on a global scale.

The current situation makes it clear that the government cannot substitute short-term policy fixes for the
long-term actions needed to improve the performance of the Indian manufacturing sector. These include
strengthening the existing infrastructure, skill development of labour, simplifying the regulatory framework,
streamlining the land acquisition process, and aiding innovation, among others. As for whether the PLI schemes are
able to achieve their desired outcomes, more evidence is required and the government must assess the impact of
existing PLI schemes before extending them to other sectors.

58
First-Ever Disbursement Approved by Empowered Committee in PLI Scheme for Large-Scale Electronics Manufacturing,
2022, https://bit.ly/3jfmHCM
59
SectorVector - Signal change, CRISIL, 2022, http://bit.ly/3V3qyAB
60
The PLI Scheme: A Boon or a Bane, Biz Odisha, 2022, https://bizodisha.com/2022/10/the-pli-scheme-a-boon-or-a-bane/
61
The PLI Scheme: A Boon or a Bane, Biz Odisha, 2022, https://bizodisha.com/2022/10/the-pli-scheme-a-boon-or-a-bane/

9
[Draft Opinion Piece]

CAN THE PRODUCTION LINKED INCENTIVE SCHEMES SET THE STAGE FOR AN ATMANIRBHAR
BHARAT?

Finance Minister Nirmala Sitharaman recently commented that Atmanirbhar Bharat is neither a socialist stance nor
does it favour protectionism. On the contrary, it is a move to make India's industries competitive on a global scale by
strengthening the manufacturing sector through infrastructural and technological advancement, to make India
self-reliant. To further the vision of an Atmanirbhar Bharat, in April 2020, the government launched the Production
Linked Incentive (PLI) schemes to boost domestic production and create employment in the manufacturing sector.

The PLI schemes initially launched in 3 sectors and further expanded in another 12, including food products,
automobiles, textiles, and speciality steel, among others, have drawn attention from companies from across the world
to invest in India. The fundamental drive behind the launch of these schemes is to incentivise domestic production.

Given the stubborn consistency of the Indian manufacturing sector, it has dawdled behind the agriculture and service
sectors in terms of employment generation and GDP contribution, respectively, since Independence. In this light, the
government's intention to provide much-needed momentum to the sector to attract FDIs, strengthen domestic
production capacity, improve cost-effectiveness, increase exports, decrease dependence on imports, and generate
employment opportunities, may be well placed. India must focus on the manufacturing sector to achieve inclusive
growth, and strengthen the sector, to make the country Atmanirbhar.

Does the PLI have what it takes to turn around the manufacturing sector?
According to the government, the overarching PLI schemes have the potential to create at least 60 lakh jobs, along
with a production worth INR 30 lakh crore in the next five years. Several sectors, such as mobile phone
manufacturing and pharmaceuticals, show tremendous export potential, with an estimated annual export potential of
INR 2 lakh crores. Given the large scale investments and compounded figures promised, the schemes are expected to
create ripples warranting hope for all stakeholders alike.

Since the PLI schemes are relatively new and pending large-scale implementation, it is better to look closely at the
policy design and weed out the bugs in their nascent stage rather than letting them take root and amplify over the
years.

How much is the scheme going to cost the taxpayer? Is it sustainable?

The budget for all the PLI schemes has been set at INR 3.46 lakh crores, spread over five years, accounting for
approximately 1.5% of the Union Budget outlay. Specific investment criteria for eligibility, gestation period, and
turnover criteria for availing incentives have been defined for each sector under the schemes. But, the schemes'
affordability and the actual cost to the Indian taxpayer will be contingent upon firms achieving the milestones set to
be eligible for the incentive payout. The schemes may also be able to pay for themselves through the additional taxes
generated in case the maximum projected milestones are achieved. In any case, policy changes must be introduced in
the manufacturing sector to make India a favourable destination for manufacturers on its own merits rather than
through short-term schemes.

Is the government on the right track with the PLI schemes' implementation?
Warren Buffet once said, "What we learn from history is that people never learn from history." The same can also be
said for the incumbent government, which has increased tariffs on products in several sectors covered under the PLI
schemes, reversing the trend of liberalisation followed since 1991. According to a study conducted by the Indian
Cellular and Electronics Association (ICEA), high import tariffs can negate the impact of the PLI scheme and
adversely impact competitiveness and scale.

India's low rank as an electronics exporter nation, compared to China and Vietnam, which have encouraged domestic
production using comparable strategies, can be attributed to its heavy reliance on tariffs, due to which investors and
electronic component makers do not consider India a viable market. For the PLI schemes to attract investment, it
would be prudent of the government to reconsider the tariff hikes at least until the production in the target sectors
10
takes off. But ensuring global cost-competitiveness is not enough. The schemes must also ensure that the production
meets quality benchmarks and that the incentives are linked to the quality of output.

Further, excessive centralisation of the PLI has not only reduced the political acceptability of the scheme but has also
led to geographical skewness of approved beneficiaries. For example, in the case of the PLI scheme for Textiles, the
majority of approved beneficiaries are concentrated in a few States (Gujrat, Madhya Pradesh, and Maharashtra). The
government must envision greater state involvement in the implementation of PLI in the form of state participation in
the Selection Committee for the beneficiaries. In addition, greater transparency with regard to the selection of
beneficiaries and the audit process would reduce the influence of corruption and favouritism and ensure the
realisation of the maximum benefits of the scheme.'

The government believes that the expected metrics outlined by the policy will propel India to be one of the largest
manufacturing economies for some of the key industries such as pharmaceuticals, electronics, textiles, and speciality
steel, which in turn might alleviate some of the structural impediments to India's manufacturing sector. But the PLI
schemes can overcome only a limited number of disadvantages faced by the manufacturing sector. For instance, in
the case of mobile phone manufacturing, Indian manufacturers are still at a cost disadvantage of 15% and 5.8%
compared to China and Vietnam, respectively, even with the PLI scheme.

It cannot be for long overlooked that increasing human and factor productivity along with improving infrastructure
and regulatory frameworks are prerequisites to boosting the manufacturing sector, and short-term policy fixes can not
be substituted for the long-term actions needed to improve the performance of the Indian manufacturing sector and
make India Atmanirbhar.

11
Appendix 1

Target sectors under which PLI schemes have been launched:

Year Sector Ministry

March 202062 Key Starting Materials (KSMs)/Drug Department of Pharmaceuticals

Intermediates (DIs) and Active
Pharmaceutical Ingredients (APIs)

Large-Scale Electronics Manufacturing Ministry of Electronics and Information

Technology

Manufacturing of Medical Devices Department of Pharmaceuticals

November 2020 Electronic/Technology Products Ministry of Electronics and Information

Technology

Pharmaceuticals drugs Department of Pharmaceuticals

Telecom & Networking Products Department of Telecommunications

Food Products Ministry of Food Processing Industries

White Goods (ACs & LED) Department for Promotion of Industry and
Internal Trade

High-Efficiency Solar PV Modules Ministry of New and Renewable Energy

Automobiles & Auto Components Department of Heavy Industry

Advance Chemistry Cell (ACC) Battery Department of Heavy Industry

Textile Products: MMF segment and Ministry of Textiles

technical textiles

Specialty Steel Ministry of Steel

September 2021 Drones and Drone Components Ministry of Civil Aviation

June 202263 Design-Led Manufacturing Department of Telecommunications

62
Production Linked Incentive (PLI) Schemes in India, Invest India, https://bit.ly/3Eggz46
63
DoT extends PLI Scheme for Telecom and Networking Products to 42 beneficiaries with a total committed Outlay of Rs. 4115
crore, 2022, https://bit.ly/3VUtJe3
12
Appendix 2

Comparison: PLI and Merchandise Exports from India Scheme (MEIS)64

The PLI schemes aim at incentivising domestic production and promoting the export of goods and may be said to
have replaced the Merchandise Exports from India Scheme (2015-2020), an incentive scheme for the export of
goods. The PLI schemes offer an incentive on incremental production, in contrast with the MEIS, which incentivises
exports. A major difference in both schemes is that while the MEIS considers existing production capacity, the PLI
schemes do not and necessitate new investment. The PLI scheme may accord incentives to a few large players in the
specified sectors who meet the eligibility criteria for investment, unlike in the MEIS, where benefits accrue to all
players irrespective of size and across a range of sectors.

S. No. Criteria PLI MEIS

1. Incentive on Domestic Production Exports

2. Investment limits and Set Not Set

production targets

3. Existing production capacity No, eligibility only on Yes

considered new investment

4. Benefits accrue to A few large players All players, irrespective of

size

5. Sectors 15 Sectors announced Available across a range of

sectors

6. Compliance with Yes No

WTO Regulations

64
PLI Scheme - A Game Changer, Nirmal Bang, 2020, http://bit.ly/3TXe7oG
13
Appendix 3

Details of PLI Scheme for Textiles

Applicants are needed to form a new company registered under the Companies Act 2013, in order to
become eligible for receiving benefits under the scheme. They may apply for approval under any of the two parts as
given in the table below:

Scheme Details Part 1 Part 2

Minimum Investment INR 300 crores INR 100 crores

Minimum Turnover INR 600 crores (incremental turnover INR 200 crores (incremental
of 25% in subsequent years) turnover of 25% in subsequent
years)

Incentive 15% (reduced by 1% in subsequent 11% (reduced by 1% in subsequent

years) years)

Ceiling on incremental 10% 10%

turnover

Gestation Period 2 years 2 years

Source: Gazette Notification, Ministry of Textiles, 2021, Pg. 17-18, https://bit.ly/3OpoLnh

The Empowered Group of Secretaries (EGoS) will monitor the implementation of the scheme. The composition of
the EGoS for monitoring of PLI for Textiles will be as under:65
1. Cabinet Secretary, Chairperson
2. CEO, NITI Aayog, Member
3. Secretary, Department for Promotion of Industry and Internal Trade, Member Convenor
4. Secretary, Department of Commerce, Member

The Scheme will be implemented with the assistance of a Project Management Agency (PMA) which will be
responsible for providing secretarial, managerial and implementation support and carrying out responsibilities as
assigned by MoT from time to time. The PMA shall process a claim for disbursement of incentive within 45 days
from the date of receipt of such claim along with all supporting documents and will make appropriate
recommendations to MoT.

The sample scrutiny of claims of accounts and cost audit of companies (if required) shall be done by the Ministry of
Textiles through a cost auditor.

65
File No. 12015/03/2020-IT Government of India Ministry of Textiles Dated, 2021, Operational Guidelines for Product, PLI
for Textiles, 2021, https://bit.ly/3BDd8DS
14
Appendix 4

Details of PLI Scheme for Large Scale Electronics Manufacturing66

The Scheme shall be implemented through a Nodal Agency. This Nodal Agency shall act as a Project Management
Agency (PMA) and be responsible for:

- Appraisal of applications and verification of eligibility for support under the Scheme
- Examination of claims eligible for disbursement of incentive under the Scheme
- Compilation of data regarding progress and performance of the Scheme including Incremental
Investment and Incremental Sales of Manufactured goods for companies under the Scheme.

An Empowered Committee (EC) including CEO NITI Aayog, Secretary Economic Affairs, Secretary Expenditure,
Secretary MeitY, Secretary Revenue, Secretary DPIIT and DGFT will be formed.

The EC will consider applications, claims and disbursement as found eligible by the Project Management Agency
under the Scheme, for approval. The EC will also conduct a periodic review of eligible companies with respect to
their investments, employment generation, production and value addition under the Scheme. The EC will also be
authorised to carry out any amendments in the Scheme Guidelines.

66
Gazette Notification, MEITY, 2020, Pg. 8-9, http://bit.ly/3Emr2eh
15