“The PLI scheme needs a thorough restructuring. The focus has to be on manufacturing niche and advanced technology products in which India is lagging. The idea is to take pole position in the global production of these high-tech products,” Garg said in his free-wheeling interview. (The first part of the interview can be read here)

The former finance secretary pointed out that the idea behind the PLI scheme was to attract global giants in certain key sectors, like chip-making or mobile manufacturing, to shift their manufacturing base from China or elsewhere to India. The money lost on account of the shift because of lower productivity or higher costs could be compensated through the PLI scheme. 

"The government gave 4-6 per cent of the product price as an incentive... that made manufacturers (of mobile handsets) like Apple shift their base to India," Garg pointed out.

However, he emphasised that the scheme could not be extended to every sector, as this would not bring in any great benefit.  

'PLI Is For High-Tech Sectors, Not For Job Creation'

"PLI is good if you can get a major technology leader to shift manufacturing to our country. But you can't extend it to routine manufacturing such as textiles, air-conditioners or medical devices, as you won't get what you want."

"PLI is not for creating employment. Job creation is incidental. It's meant to attract futuristic production here," he said. The former bureaucrat said that companies pursuing a China-Plus strategy that are wishing to relocate to India, will do so to strengthen their own manufacturing network and not to boost employment in India.

Though thousands of new jobs have been added under the PLI scheme, it has fallen short of expectations. With an eye on employment generation, Finance Minister Nirmala Sitharaman, while presenting the Union Budget for 2024-25, announced the employment-linked incentive (ELI) to support the existing PLI programme.

“While the PLI scheme's focus is on boosting domestic manufacturing through financial incentives tied to production targets, the ELI scheme aims to ensure that this growth translates into substantial employment opportunities,” KPMG in a report said.

Though the eligibility and requirement criteria may vary from sector to sector, maintaining a minimum domestic value addition (DVA) is one of the key conditions that companies need to maintain under the scheme, which is essentially a fiscal incentive package. For example, the minimum DVA for the automobile sector is 50 per cent, while for the pharmaceutical industry, the threshold is significantly higher.

The PLI scheme is applicable in 14 critical sectors that have selected target segments. Till now, more than 755 applications have been approved with an investment of about Rs 1.20 lakh crore. The government aims to boost investments and jobs while making India the global manufacturing hub.

Once their eligibility for the scheme is approved, the companies enjoy significant financial incentives based on incremental production over the base year. The incentives are offered to encourage companies to expand their manufacturing capabilities, along with investments, and thereby strengthen the supply chain.

Though the PLI scheme has been hailed as a success story by India Inc., which wants it to be introduced to many more sectors, other independent observers have agreed with the need to fine-tune it.

According to an Observer Research Foundation analysis of the scheme, in the long run, continued policy support, infrastructure development and regulatory reforms will be essential to sustain and amplify the benefits of the PLI scheme.

'Don't Be Shy Of China, India Needs Her Neighbour'

Garg pointed out that there is no need to be shy of attracting Chinese firms in certain sectors. For instance, in solar cells, "About 75 per cent of global innovation is being done by Chinese firms... if you don't get them to come here, you stand to lose," he argued. 

India has often delayed PLI approvals by Chinese firms to set up factories in India. Often, companies that have to source major components from China for their manufacturing plans here, find similar stonewalling of applications.

India has had border tensions with Beijing in the past. There have also been complaints of China dumping excess production in India. These, along with the suspicion about Chinese business intentions, have often led to extra scrutiny of Chinese applications for setting up factories in India. 

However, India has been more proactive in recent times, and is believed to be softening its stance towards business with the dragon.

"Don't be shy about getting the Chinese," said Garg, while signing off.