The Centre has notified a Rs 10,683 crore Production Linked Incentive (PLI) scheme for the textiles industry with a special emphasis on high-value fabrics, and garments. The move is in line with plans announced in the 2021 Budget for boosting domestic production and encouraging job creation. At a time when the economy is reeling from the effects of the pandemic and the job sector has taken a beating, the PLI scheme is one of the key components of efforts to trigger a turnaround. Here’s all you need to know.
What Is PLI?
As part of the 2021-22 Budget, the Centre had said it would bring in production-linked incentive schemes for 13 sectors with a sum of Rs 1.97 lakh crore earmarked for the purpose. As the name suggests, PLI is a way to reward increased production in a specified sector, and has ramifications for economic growth and job creation. At a time when the country is looking at ways to revive an economy hard hit by the Covid-19 pandemic, a lot rides on the success of such a scheme, with the Centre saying the goal is to “create national manufacturing champions and generate employment opportunities for the country’s youth".
But such schemes are also attractive to foreign companies, encouraging them to produce in India. Thus, the PLI scheme neatly dovetails with the Narendra Modi government’s push for Atmanirbhar Bharat. According to a report by financial consultancy EY, the PLI scheme “has generated interest among domestic and foreign investors alike, owing to the significant budget outlay and incentives promised".
How Does It Work?
According to an online report, what a PIL scheme does is to provide a company incentives on incremental sales over a base year for production inside the country.
The EY report said that while the likes of China and Southeast Asian nations like Vietnam, Indonesia and the Philippines offer incentives in the form of reduced corporate taxes, tax deductions and tax holidays, etc., “the India PLI schemes are designed on a direct correlation between the incentives and upscaling of manufacturing capacities". It adds that there is a “sharp, structured approach to incentives, thus making it attractive to investors".
For example, with the textile PLI, the Centre is looking to boost the production of high-value man-made fibre (MMF) fabrics, garments and technical textiles and say that the “incentive structure has been so formulated that industry will be encouraged to invest in fresh capacities in these segments".
Following the textile PLI announcement, reports said that the stocks of some textile companies registered gains with industry players welcoming the Centre’s move.
The Centre said that over a period of five years — which is the duration of the PLI schemes — the textile PLI “will lead to fresh investment of more than Rs 19,000 crore, cumulative turnover of over Rs 3 lakh crore" while additional employment of more than 7.5 lakh jobs would be created in this sector along with “several lakh more for supporting activities".
How Will It Help?
The Ministry of Commerce and Industry had said in a statement in April this year that “PLI schemes are a cornerstone of the government’s push for achieving an Atmanirbhar Bharat".
As it notified the textiles PLI, the Centre said that the announcement of PLI Schemes for 13 sectors could potentitally see minimum production amount to around Rs 37.5 lakh crore over 5 years while “minimum expected employment over 5 years is nearly 1 crore".
A report by GEPL Capital says that the PLI scheme has a two-pronged goal, “cut down on imports; capture the growing demand in the domestic market".
The EY report says that by encouraging “investors to create large-scale manufacturing facilities", the PLI scheme would provide a fillip to the industry at large through the creation of better infrastructure and its “ripples are expected to be felt by manufacturers of all sizes, even if they are not direct recipients of the incentives".
It also noted the “heavy reliance on imports for raw material and finished goods" and says that the PLI scheme can address this issue by ensuring an increase in domestic production, thus triggering a “two-fold impact — an immediate reduction in reliance on imports and in the long term, a higher quantum of exports from India".
Which Sectors Have It?
The first three PLI schemes — for mobile phone and electronic manufacturing, drug intermediaries and active pharmaceutical ingredients (APIs), medical devices — were approved in March, 2020. Another six were cleared by November last year in the areas of electronic and tech products, pharmaceuticals drugs, telecom and networking products, food products, white goods. And, now, textiles has been added to the mix.Automobiles and Auto Components, advanced batteries and specialty steel sectors, too, have been identified for the rollout of PLIs.