Is PLI working? Time to show data

Going by a raft of announcements about the production-linked incentives (PLI)-backed projects in recent weeks—for EV batteries, automobiles and laptops—and claims of the scheme’s grand success one can be forgiven for assuming that India would soon turn into a manufacturing hub like China. But the truth may be more intriguing.

The PLI—and also the DLI (design-linked incentive)—is part of a host of economic policies initiated to boost manufacturing, beginning with import substitution initiated in 2014 and progressing to corporate tax cut, licence-permit raj and others.

Result: Manufacturing is stuck exactly where it was—17.3% of the GVA in both FY15 and FY24 (P)—still to rise to the promised 25% mark.

But first, the official narrative on PLIs.

Claims of PLI's success

On September 29, 2024, Commerce and Industry Minister Piyush Goyal addressed the CEOs of over 140 PLI beneficiaries to mark a decade of ‘Make in India’. At this function, his ministry presented the following claims about the “PLI impact”: Realised actual investment of ₹1.46 lakh crore (until August 2024), actual production/sales worth ₹12.50 lakh crore, around 9.5 lakh new jobs (direct and indirect) and exports exceeding ₹4 lakh crore with substantial contribution from key sectors such as electronics, pharmaceuticals and food processing.

Four days earlier, on September 25, 2024, his ministry had claimed: Realisation of ₹1.32 lakh crore in investments, ₹10.9 lakh crore in output, over 8.5 lakh jobs (direct and indirect), exports adding ₹4 lakh crore. This too was to mark a decade of ‘Make in India’.

Note 1: These numbers are not backed by sector-specific disaggregate details of the PLIs disbursed and corresponding rise in output/sales, investment, exports and jobs linked to such disbursals.

The ministry’s “Export Import Data Bank” is complex and risky – given endless HS Code classifications at 2/4/6/8-digit levels and lack of common ground with the PLI-supported sectors.

The ministry provides monthly “selected major commodities”. The commodity-wise data on electronic goods shows: Net exports are negative and very high—from (-) $58 billion in FY22 to (-) $54 billion in FY23 and $66 billion in FY24. The logic for this timeline is: “Approval” for the “first-ever disbursement” under the PLI came on September 9, 2022 (FY23).

This rising deficit is in line with the study of Raghuram Rajan et al published in May 2023 which found: No value addition in PLI-backed mobiles phones (“electronic/technology products” sector), flourishing assembling projects – not manufacturing – with commensurate rise in imports of components like semiconductors, PCBAs, displays, cameras and batteries, leading to negative net exports.

Note 2: Two mobile phones in news lately – Apple’s iPhone16 (Pro and Pro Max) and Google’s Pixel 8– are both assembled in India. So also, Tata’s Hosur plant for iPhones to be operational next month. Assembling and deficits mark (i) PLIs for mobile phones (ii) ‘Make in India’ and (iii) import substitution policy – tariff barriers erected for mobile phones in 2018 – evidently incentivising imports of components. Import substitution is the very anti-thesis of trade theory (Ricardian theory of comparative advantages).

Further, the ministry’s monthly commodity-wise data for PLI-backed pharmaceuticals is ambiguous: The exports data are listed for “drugs & pharmaceuticals”, while imports data are for “medicinal & pharmaceutical products” – two entirely different entities.

The ‘food processing” sector is entirely missing.

The NITI Aayog was to track PLI outflows and outcomes by “developing a PLI dashboard to monitor all PLI schemes” – it said so in its annual report of 2021-22. There’s no sign of it yet nor mention of it in annual report of 2023-24.

Moreover, the “Empowered Group of Secretaries (EGoS)” set up “for monitoring the PLI schemes of all the 14 sectors” doesn’t give any data.

Reviews of PLIs

There have been at least three reviews of 14 PLIs schemes.

The first review was in June 2023, after which the ministry said, PLIs generated investment of ₹62,500 crore, increased FDI in manufacturing by 76%, output/sales by over ₹6.75 lakh crore, created around 3,25,000 new jobs and boosted exports by ₹2.56 lakh crore. Ironically, it also said “import substitution of 60% has been achieved in the Telecom sector”.

Actual data were not provided, nor the review report made public.

National dailies revealed details from the review meeting:

(a) No takers for PLIs in six sectors (of 14 sectors) – speciality steel, textile, battery, white goods, solar panels and automotive and

(b) Total disbursal of ₹2,900 crore (just 1.5% of ₹1.97 lakh crore earmarked) for the rest eight sectors: Large-scale electronics manufacturing, IT hardware, bulk drugs, medical devices, pharmaceuticals, telecom and networking products, food processing and drones and drone components.

Note 3: The ministry corrected itself in 2024 and stopped linking PLIs with FDIs it did in June 2023 despite no causal relation having been established. Other claims: Total disbursal of ₹2,900 crore remained unchanged until December 26, 2023.

The second review was in January 2024, which revealed additional disbursement of ₹1,000 crore.

The third review was in June 2024, which (newspapers) revealed: Continued delays in PLI payments due to which DPIIT was tasked to streamline disbursement and handhold companies to file correct claims (“corrective steps”).

Note 4: None of the review reports are in public domain.

Note 5: Need for official study/assessment of the impact of PLI schemes. PLI was first “approved” on March 21, 2020 (for medical devices). Expanded to 10 sectors on November 20, 2020 – as part of ‘AatmaNirbhar Bharat 3.0’. ‘PLI 2.0’ was launched in May 2023.

Note 6: No official study to assess import substitution policy (launched in 2014), ‘Make in India 1.0’ (launched in 2015), ‘Make in India 2.0’ (launched in 2021), AtmaNirbhar Bharat 0.1 (launched in May 2020), 0.2 or 0.3 and corporate tax cut of 2019 – all aimed at boosting manufacturing.

Note 7: Years down the line, many sectors have no takers. PLIs for white goods (ACs and LED lights) was re-opened on July 8, 2024, for speciality steel to be re-opened soon (announced on September 27, 2024), for automobiles and auto components (EV batteries are separate category called ACC) re-opened for a year from January 1, 2024 but there is no proposal for textile (the only labour-intensive one) yet. A day after the July 2024 budget, Finance Minister Nirmala Sitharaman said about PLIs for textile: “As and when the proposals come to me, that window is still open.”).

State of manufacturing: Output, investment, exports and jobs

Here is what official data reveals. These are tracked from FY22 (as explained earlier) and the data pertains to whole of manufacturing – not PLI-specific.

Manufacturing output and growth: MoSPI data shows manufacturing GVA in FY24 (P) is exactly where it was in FY15: 17.3%. In fact, it fell from 18.1% in FY16 when ‘Make in India’ was launched to take it to 25% and from 18.4% in FY21 when corporate tax was cut.

Manufacturing GVA fell from 18.5% and growth from 9.4% in FY22 to 16.9% and (-)2.2%, respectively, in FY23. The numbers went up to 17.3% and 9.9%, respectively, in FY24 (P) – partly due to low-base effect. Manufacturing output data is not considered here as not available for FY24.

The manufacturing IIP growth fell from 11.8% in FY22 to 4.5% in FY23 and went up to 5.5% in FY24 but during April-August 2024 (FY25), it fell again to 3.6%, from 6% in the corresponding period of FY24.

Manufacturing investment: No causal relation is known between PLI and equity FDI. The DPIIT data are available for “computer software and hardware” and “drugs and pharmaceuticals” (relevant to PLIs). In the first, equity FDI fell by -35% in FY23 and -15% in FY24; in the second, it went up by 45.5% in FY23 but fell by (-)48.3% in FY24. Overall equity FDI inflows fell by -30% in FY23 and -4% in FY24.

Private GFCF (all sectors) remains stagnant despite the corporate tax cut of 2019 (FY20) – 10.8% of the GDP in FY20 and 10.9% in FY23 (up to which data is available). It fell from peaks of 11.9% in FY16 and 16.8% in FY08 (2011-12 series).

Note 8: Corporate tax cut came (in 2018) a year after the US Congress found President Trump’s 2017 corporate tax cut had failed: Tax collection fell, tax cut was used for a record-breaking stock buyback, instead of investment or jobs. It failed in India too.

Note 9: Corporate tax cut of 2019 and PLIs of 2020 came because industry demanded it! This was disclosed by Finance Minister Nirmala Sitharaman on September 13, 2022.

Merchandise exports: It went up marginally from 13.4% in FY22 to 13.5% in FY23 and fell to 12.3% in FY24 (P).

Its growth fell from 44.5% in FY22 to 15.3% in FY23 and further to (-)0.4% in FY24 (P).

World Bank’s September 2024 report (“India Development Update”) pointed at “decline” in exports of “low-skill” sectors: Apparel, leather, textiles and footwear (from 4.5% in 2013 to 3.5% in 2022) – despite China’s withdrawal from such exports.

Note 10: India went back to overnight bans/restrictions on laptops/PCs and agricultural commodities.

Manufacturing Jobs: The annual PLFS report of 2023-24 shows: Manufacturing jobs fell from 11.6% in 2021-22 to 11.4% in both 2022-23 and 2023-24.

Worse, agriculture’s job share went up from 45.5% in 2021-22 to 45.8% in 2022-23 and 46.1% in 2023-24.

Note 11: PLIs are directed at capital-and-tech-intensive sectors which produce low jobs – except ‘textile’ which isn’t really pushed in any case. Besides, PLIs don’t cover apparel, leather and footwear. Unlike PLIs, DLIs offer 50% subsidy on total project cost – and a host of such projects have been announced in Gujarat and Maharashtra recently.

Note 12: DLI-supported Micron’s semiconductor plants, for example, would create 5,000 direct jobs – at $400,000 or ₹3.2 crore of public money for each job! Total funds earmarked for PLIs and DLIs – public money to subsidise private business – are ₹3.56 lakh crore (₹2.06 lakh crore for PLIs and ₹1.5 lakh crore for DLIs). Imagine how many jobs this money spent on labour-intensive sectors would create. Since DLIs for semiconductors are similar to PLIs for “electronic/technology products” both should be counted together.

There are more to note.

Note 13: India abandoned its industrial policy in the works in December 2023 – deciding in favour of PLIs and DLIs. Industrial or manufacturing policy are key to developing vision, plans and strategies for better outcomes.

Note 14: India’s investment policy is confounding: Liberalised FDI and FDI though PLI go hand-in-hand with unilaterally cancellation of 68 BITs linked to FTAs (2017) and strong opposition to the WTO’s investment pact FDI – Investment Facilitation for Development (IFD) – at Abu Dhabi in February 2024!