Nirmala Sitharaman read a record short speech while presenting the Interim Budget 2024-25. Good. Brevity surely is the soul of wit.
Unfortunately, whether by design or a carefully decided silence, she forgot to mention the big flagship manufacturing turnaround programme of the government in its second term — the production-linked incentive (PLI) scheme. Not even once did she mention this in the budget speech (which consisted of more than 5,000 words).
While capital expenditure (or Capex), the other big showpiece of the government’s investment-push-for-growth story, did receive its pride of place, PLI schemes were conspicuously absent.
It was only in the two budget documents — the budget at a glance and the highlights of budget documents — that the PLI provision in the Ministry of Information Technology & Electronics (MEITY), which runs only two PLI schemes, was mentioned.
Why has the government turned taciturn on PLIs? Has the PLI become such an underperforming programme?
The Show Began in 2020
Three PLI schemes were approved in March 2020 and another 10 in November 2020. The government launched the first round of the largest PLI, that is, the Large Scale Electronics Manufacturing (LSEM) PLI in April 2020. The PLIs, thus, had begun featuring in a major way in India’s policy and government publicity pitch in 2020-21.
Nirmala Sitharaman, in her budget speech 2021-22, delivered on 1 February 2021, took the PLIs onboard.
She proudly announced an outlay of Rs 1.97 trillion for the PLI schemes for “13 key sectors, to create national manufacturing champions and generate employment opportunities for the country’s youth.” She also claimed that minimum production in India as a result of PLI schemes was “expected to be over US$ 500 billion in 5 years.”
That five-year period expires in 2025-26, only two years from now.
In 2020-21, the government disbursed no PLI incentive, and in 2021-22, only Rs 10.45 crore. Nothing to really write home about.
2022-23 Actuals Capture PLI Non-performance
The year 2022-23, the second of the five-year PLI period, was expected to be the first real full year of PLI roll-out and disbursement. For the year, the government made a total budget provision of Rs 7,481 crore for the PLIs.
Of the 14 PLIs announced by then, the largest provision was made for the LSEM PLI (which caters primarily to mobile manufacturing) of Rs 5,300 crore (about 70% of the total PLI budget).
As many as five PLIs (Advanced Batteries, Drones, Electronics Hardware, Speciality Steel, and High Efficiency Solar Panels) had no budget provision. Three PLIs (Automobiles and Automobile Parts, White Goods and Pharmaceutical Drugs) had minuscule provisions, of only about Rs 3 crore each.
There wasn’t any good roll-out during the year. The overall budget provision for PLIs was drastically reduced to Rs 3,887 crore in the revised estimates of the 2022-23 budget. While there was a substantial hike in the revised budget for the pharmaceutical drugs PLI — from Rs 3 crore to Rs 694 crore — the budget for the largest PLI of LSEM was drastically reduced from Rs 5,300 crore to Rs 2,203 crore. There was a significant reduction in the budget of other major PLIs of Key Starting Materials and Telecom Products as well.
The actual expenditure for PLIs in 2022-23 drifted lower. At Rs 2,917 crore, it was only about 39% of the original budget provision of Rs 7,481 crore and more than 25% lower than the revised estimates.
The actual disbursement of incentives for LSEM PLI turned out to be only Rs 1,655 crore. The Pharmaceuticals PLI disbursed Rs 655 crore of incentives and Food Processing PLI disbursed Rs 490 crore. Eight other PLIs were disbursed for amounts ranging from only Rs 1.65 crore to Rs 39.22 crore.
The actual 2022-23 PLI expenditure data has been officially presented for the first time as part of the 2024-25 budget. The performance indicates that there is something seriously wrong with the implementation of the PLI programme. The incentives disbursed in the first two years amount to less than 2% of the total scheme outlay.
Does this underperformance and disappointment explain the shutting out of PLIs from the budget speech on earler this week?
2023-24 Provisions and Performance Inspire No Confidence Either
The 2023-24 budget provision of Rs 8,078 crores for the 14 PLIs was not materially higher than the 2022-23 budget provision of Rs 7,481 crores. Again, the government could make budget provisions for only 10 out of 14 PLI schemes.
The LSEM PLI, with a budget provision of Rs 4499.04 crore, more than 50% of the total provision, again seemed to be the only real game in the town. Potential take-off was indicated in two other PLIs — Automobiles and Auto-components — with a budget provision of Rs 604 crore and Electronics Hardware with a provision of Rs 146 crore.
Overall, this kind of budget provisioning was quite underwhelming because the PLI schemes had entered the third full year of their implementation.
The government, with a budget provision of Rs 8,007 crores in the revised estimates of 2023-24 budget, has chosen to retain PLI incentives at almost the same level as 2023-24 one, with unchanged provision for the LSEM PLI. There is a reduced provision for the two PLIs which were expected to be rolled out during the year. The budget provision for Automobiles and Auto-components PLI has been reduced to Rs 483.77 crore and for Electronics Hardware to Rs. 70.42 crore.
The lacklustre budget provisions reflect uninspiring PLI performance during the year 2023-24 as well. In the year-end review for 2023, released on 26 December 2023, the government chose to report the performance of the year gone by only, that is, “incentives worth around Rs 2,900 crores have been disbursed in FY 2022-23”.
Nothing was mentioned for the disbursements in the Financial Year 2023-24. It appears fairly certain that the government would have found it very difficult to cross disbursement of even Rs 5,000 crore that year.
2024-25 Budget Provisions Suggest the PLI Plot is Almost Lost
The budget provisions for 2024-25 for the PLIs made in the Interim Budget do not indicate the likelihood of any great lift-up in 2024-25, the fourth and penultimate year of the PLI programme roll-out. The government, however, continues to add new schemes to the PLI stable. Two new PLIs — Toys and Leather goods — have been added, making it 16 PLIs.
Again, only four PLIs — Large Scale Electronics Manufacturing (Rs 6,125 crores), Pharmaceutical (Rs 2,000 crores), Food Processing (Rs 1,444 crores), and Automobiles and Auto-components (Rs 3,500 crore) — with a total provision of Rs 13,069 crore in 2024-25 budget, account for more than 92% of the total PLI budget provision of Rs 14,167 crore.
Of the 16 PLIs, as many as five (Speciality Steels, High-Efficiency Solar Panels, Textiles, Toys, and Leather goods) have either zero or close to zero budget provision. Advanced Battery and Specialty Steel PLIs have budget provisions at Rs 250 crores and at Rs 270 crores respectively, a signal that they are probably coming to life. Other PLIs have miniscule provisions, almost at the level of the 2023-24 revised estimates.
Considering the track record of PLI schemes in 2022-23 and 2023-24, how would these schemes deliver in 2024-25 is anybody’s guess. In the first three years of PLIs until 2023-24, the aggregate disbursements of less than Rs 8,000 crore could not cross even the 5% threshold of the PLI budget of Rs 1.97 trillion.
Though highly unlikely, even if the entire budget provision of 2024-25 was to be actually utilised, the PLIs would barely disburse 10% of its total allocation when four-fifth of its life would be over.
There perhaps cannot be any better indication of the utter failure of any government scheme. For PLIs, it is quite galling as the programme was presented as the real game changer for changing India’s manufacturing fortunes.
(The author is a former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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