The Performance-Linked Incentive (PLI) Schemes will play a key role in achieving manufacturing scale - CEO NITI Aayog interview
Economic Times Interview
- The PLI scheme has been extended to 10 more sectors. Do you think this is enough to attract manufacturing shifting out of China?
The PLI schemes will have a huge role to play in achieving size and scale in manufacturing, as these schemes incentivise incremental production. The total budgetary outlay for these schemes is Rs. 1.96 lakh crores or $26 billion. On average 5% of the production value is provided as an incentive. This implies that the minimum production in the country as a result of the PLI schemes stands to be around $520 billion in five years.
The PLI schemes must also be seen in conjunction with a host of other government initiatives taken recently. 29 Central Labour Laws have been rationalised into 4 Labour Codes. The MSME definition has been revised, raising investment limits upwards, enabling MSMEs to get bigger and more productive. The business environment is only getting easier, as we jumped 79 positions in the World Bank’s Ease of Doing Business Index. Infrastructure investments are continuing in earnest with the Rs. 1 lakh crore National Infrastructure Pipeline. Our Corporate Tax rates are now on par with the best in the world. With these moves, India has positioned itself as a strong alternative to companies looking to diversify their supply chains. Combined with the potential of our large domestic market, India is poised to take its rightful place in global value chains. Prime Minister’s AatmaNirbhar initiative will make India both self-reliant and a key driver of global exports. We need an export push for India to grow fast and on a sustained basis.
- One of the goals is to make domestic industry competitive to lift exports. Does the incentive offset the disadvantages the Indian industry faces?
Cost disadvantages often accrue from a lack of size and scale. This is where Indian industry has been held back. The PLI schemes will play a decisive role in this regard. By incentivising production, the scheme spurs investment as well. Higher investments will drive efficiencies and quality upgradation, boosting our industry’s competitiveness. The incentives will raise the competitiveness of not just large firms, but also for all firms across the value chain. E.g a car manufacturer (OEM) will have hundreds of MSME suppliers under tier 1, tier 2, and tier 3 categories. If the OEM benefits from the PLI scheme, naturally the orders of its MSME suppliers will also increase. So the benefits of the scheme extend not only to the companies selected under the PLI Scheme, but also the myriad of suppliers under them. This increase in economic activity spurred by the PLI scheme will then have the knock-on effects of increased investments across the value chain, bringing these sectors into a virtuous investment led growth cycle.
- There is a general sense that the economy is recovering faster than expected. Even Moody’s has revised its forecast for India. What is your sense?
I am quite confident that we will be able to sustain this recovery in the near future. All signs seem to indicate that the pace of recovery is increasing. The Index of Industrial Production (IIP), which was in contraction for 6 months has turned positive in September. Manufacturing PMI in October 2020 was not just growing, but was at multi-year highs. These trends are likely to persist. This is because along with fiscal and monetary stimuli, the government introduced reforms which were long demanded. Agriculture has been reformed, commercial coal mining is a reality, labour laws have been rationalised and codified and path breaking PLI schemes in the manufacturing sector launched. The definition of MSMEs have been revised upwards substantially, which will enhance their capacity to invest further and grow, whilst maintaining the benefits that come with MSME status, such as preferential public procurement. These reforms will sustain growth in the near term particularly as they are accompanied by fiscal and monetary stimuli.
- The government has rolled out three big stimulus packages to boost the economy, the latest was announced today itself. One of the criticisms is that most measures address supply side issues and there is not much to boost demand. What would you say?
As we continue to unlock the economy, there are clear signs that the economy is reviving. If the economy is reviving that means employment is reviving. If employment is rising, then demand will rise as well. Therefore, as a result of the initiatives taken to boost employment, we should see demand rise as well.
However, as an immediate term relief to the most vulnerable, an extra Rs. 40,000 crores were allocated to the MGNREGA budget. In October, the LTC Cash Voucher Scheme and the Special Festival Advance Scheme were announced to boost consumer demand. Government capital expenditure, which carries with it a huge multiplier effect, has also been given a fillip, with Rs. 25,000 crores allocated for capital expenditures on roads, defence, water supply, urban development, and domestically produced capital equipment. As part of Atmanirbhar Bharat 3.0, a demand boost for residential real estate has also been given, by raising the cap on the differential between circle rates and agreement value, which will help in clearing unsold inventory, benefiting owners and developers, both.
So, there have been targeted interventions to boost demand, along with supply. The focus has always been to ensure the stimulus packages support long-term growth.
- Government has already announced labour and agriculture reforms and now mega push to manufacturing. What according to you could be the next big priority areas for the government in the short to medium term and how do we propose to go about it.
Infrastructure remains a priority area. As part of Atmanirbhar Bharat 3.0, Rs. 6,000 crores equity was infused in the National Investment & Infrastructure Fund. Logistics is an area where India’s competitiveness can be improved. Digitisation of ports would help in reducing our port turn around times, for instance. States must also take the lead in instituting reforms, particularly in land and labour. At the same time, we must continue our push towards developing competitiveness in sunrise sectors of growth. Electric mobility & battery storage manufacturing is one area. The future of mobility is clean, connected, and shared, and India must be at the forefront of this revolution. There also lies immense potential in healthcare and education. India can emerge as a leader in areas such as food processing, mobile manufacturing, networking products, pharmaceuticals, medical devices, and solar photovoltaic system manufacturing. The PLI schemes introduced will go a long way in ensuring India’s competitiveness in these sectors.
Above all, India must focus on the application of technology across sectors. Manufacturing is likely to be more and more tech driven, and we must be at the frontiers of this shift. India presents several unique use-case scenarios for technologies such as AI and blockchain. The solutions presented by these technologies in India can then be replicated across the world. India can be a driver in applications of technologies such as artificial intelligence (AI) and blockchain, amongst others.
- Niti Aayog has kick-started work on a fresh list of CPSEs for disinvestment. What is the roadmap for the government? Which sectors are we looking at and which could be some new companies that can be on the radar?
We are working on identifying fresh sectors of potential disinvestment. A lot of work has already happened in this regard. NITI acts as the Disinvestment Commission and has made several recommendations. DIPAM is taking them forward for implementation following due process.
- With stock markets picking up, will you push for greater urgency on this count?
The purpose of disinvestment is to put assets to more efficient use and generate maximum value for the economy as a whole. The success of the disinvestment process will not just depend on which companies are listed for disinvestment and when, but also on easing the business environment. Therefore, whilst capitalising on the value of a company is an important consideration, we must take a longer term view of bringing efficiency and higher productivity in the economy.
- The outbreak of pandemic had severely affected jobs in the country. Government has announced a new scheme to boost employment. While some of the job creation in the formal sector will come through...what is it that needs to be done to ensure job creation in the unorganised sector which forms a huge chunk of India’s labour workforce also gets a boost.
As I mentioned earlier, our economic recovery is well underway. As the economy returns to a high growth path, job creation in the informal sector will pick up pace. The aim of the government is also to encourage formalisation of the Indian economy. Formal jobs come with a host of benefits such as written contracts, defined leave, and social security. These benefits are not enjoyed by those in the informal and unorganised sector. The labour codes introduced extended the concept of fixed-term employment (FTE) to all sectors, apart from a select few. Importantly, the FTE hires will be entitled to enjoy the same benefits as a regular employee. The scheme announced by the Finance Minister, the Atmanirbhar Bharat Rozgar Yojana, supports the creation of new formal jobs as well. Therefore, the focus is not just on job creation, but also formal job creation, that provide a security net to workers.
- India needs to significantly ramp up exports. What specific export driven measures can help India increase its share in global trade?
The PLI schemes will no doubt play an important role. States must also take the lead here. They must reform and become easy and simple. Cross subsidisation of power, whereby higher prices for industry subsidise the prices paid by domestic and agricultural consumers erodes our competitiveness. Logistics costs must also be brought down to improve competitiveness. At the same time, the private sector must focus on pursuing excellence in quality and driving innovation through application of technology.
This interview was originally published in The Economic Times