: Opinion: PLI welcome but not enough #IndiaNEWS #News By B Sambamurthy India has been striving hard to accelerate the growth of the manufacturing sector. There has been no surfeit of initiatives by

Opinion: PLI welcome but not enough #IndiaNEWS #News
By B Sambamurthy
India has been striving hard to accelerate the growth of the manufacturing sector. There has been no surfeit of initiatives by governments over the last two decades. But the results are suboptimal. The share of manufacturing, which was about 15% of the GDP during 2000, crawled over the next two decades to just about 18% in 2020. Annual employment generation is a measly 1%. The 25% goal has eluded us.
The Prime Minister gave a clarion call to make India a global manufacturing hub and economic powerhouse. Ease of doing business, plug-and-play infrastructure, opening up new sectors for FDI are among the major projects that have begun to attract investment.
PLI Scheme
In a serious bid to give a major push to manufacturing, the government launched the Production Linked Incentive (PLI) scheme in 2020. The scheme is very innovative in many ways. It envisages, among other things, incentives up to 6% of incremental sales; has a budget outlay of nearly Rs 2 lakh crore for the next 5 years. The Finance Minister said this programme is expected to create Rs 28. 5 lakh crore worth of additional output and generate over 6. 4 million jobs. The response appears to be overwhelming and as per reports, it has attracted Rs 2. 3 lakh crore ( billion) covering over 14 sectors.
Market Mechanisms Better
The selection of industries and individual parties is best left to the market mechanism rather than case-by-case government approval. ‘Government knows best’ narrative is the antithesis of the market economy. Experts caution that discredited License Permit Raj must not reappear. A good number of beneficiaries are already large-scale industries and shouldn’t need financial incentives.
In fact, many highly innovative Indian start-ups have gone global without any government incentives. Of course, some are facing rough weather due to unsustainable valuations, drying global liquidity. Even if some of them were to fold up, as they would, there is no cost to the exchequer.
Lift Productivity
We urgently need effective interventions to exponentially enhance labour and capital productivity. For example, South Korea’s electronics manufacturing productivity is 18 times higher than India’s. Similarly, their chemical manufacturing is a whopping 30 times more productive. With globally high capital/output ratios, India may need more than a trillion-dollar investment in manufacturing to double its share in the next 5 years.
It is imperative that we have interventions to help achieve exponential enhancement of productivity to the global best-in-class level and bring down the high level of capital/output ratio. The proposed incentives must not be used to mask these productivity shortfalls.

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