When exports decline, can PLI be of any help?

exports declination and PLI

The globe has been on the verge of a recession as a result of various threats that Russia’s invasion of Ukraine more than a year ago posed. Although India’s prognosis may be favourable overall, its labor-intensive industries may feel the effects of any recession. The current policy effort to increase manufacturing and job development hasn’t exactly been inspiring.

India’s exports growth, a silver lining during the pandemic-hit years, started to significantly slow down as global GDP started to slow down last year. But exports in labor-intensive industries decreased already. In 2021–22, when exports as a whole increased by 45%, labor-intensive industries expanded by 36%. Overall exports have increased by almost 10% this year, but the rise of the latter has decreased to just 4%.

Although this pattern is not new, the current environment presents a unique set of difficulties because these industries have recently experienced a number of difficulties, including lockdowns and demonetization, according to economists. Because of their heavy reliance on exports to the US and EU, labor-intensive industries may wind up bearing the brunt of the global slowdown. Among other things, footwear, leather goods, gems and jewellery, and textiles are some important industries that have a greater than 25% exposure to these two regions.

Data on domestic manufacturing indicates that these sectors are weak when compared to industrial production as a whole. Not only could exports be affected, but India’s employment issue may also deteriorate as a result.

Is PLI a game changer?

The production-linked incentive (PLI) programme was hailed as a game-changer for most of 2022, promising to stimulate domestic manufacturing, encourage exports, and create jobs in order to address some of these issues. The programme was not only overlooked in the budget for this year, but its implementation history paints a different picture.

The programme provides incentives to specific sunrise and strategic industries depending on sales of goods produced in India. Nirmala Itharaman, the finance minister, had pledged a substantial 1.97 trillion rupee investment for 13 important industries over the next five years last year. The success story isn’t complete, despite the government’s enthusiasm for enlisting industry titans like Samsung, Foxconn Hon Hai, Rising Star, Wistron, and Pegatron. Chief economic adviser V. Anantha Nageswaran stated during a webinar in November 2022 that only two or three areas had seen the scheme’s implementation to date and that more needed to happen, presumably within the following two years.

The Department for Promotion of Industry and Internal Trade’s data up to September 2022 revealed that while PLI investments have increased and now account for 15% of planned spending, employment creation has lagged far behind at just 3% of expected. Pharmaceutical medication and mobile-specific electronic component markets, two PLI success stories thus far, have a notably large gap between investment and jobs. Two industries that are anticipated to contribute more than 60% of all jobs under the plan—ACC battery and car and auto components—had not yet gotten any funding.

Budgetary Cuts

Given that the PLI scheme was just introduced two years ago, it could be too soon to assess its efficacy. But, the lack of vigour in this year’s Budget raises concerns about whether the programme can still accomplish its intended goals, particularly at a time when investments, exports, and jobs are anticipated to suffer owing to the downturn in global growth.

Since the programme is dependent on a little increase in production, enterprises who are unable to raise production because of a decline in both local and international demand may not be eligible for the programme, according to analysts. For 2023–2024, the government significantly reduced funding for a number of PLI areas, possibly in anticipation of a recession. Moreover, many sectors’ revised predictions for 2022–2023 were lower.

“With the estimated budgeted allocation for last year, the government anticipated substantially higher investment and production under the scheme. This year, they’ve made the predicted allocation more sensible “said Ajay Sahai, the Federation of Indian Export Organizations’ general manager. He said that the programme has increased exports of mobile phones and specific electronic goods and will attract big businesses in other industries as well, opening up prospects for numerous auxiliary small and medium-sized businesses. The availability of local content will promote indigenization, “Sahai continued.

The initiative, according to N.R. Bhanumurthy, vice chancellor of the Dr. B.R. Ambedkar School of Economics University in Bengaluru, was reportedly announced to give the production sectors a break so that the job situation wouldn’t be impacted.

The PLI scheme does not offer much on this front, despite the fact that investments have been increasing, as the jobs situation is anticipated to be negatively impacted by slower domestic manufacturing and exports of labor-intensive goods.