In the right direction

The Union Cabinet approved a Rs 26,058-crore production linked incentive (PLI) scheme for auto, auto-components and drone industries to promote domestic production and boost employment. The scheme is also aimed at facilitating a transition from a fossil fuel-based automotive sector to a renewable-based energy sector. In the auto sector, the scheme aims to attract investments of around Rs 42,500 crore in the next five years with an incremental production of over Rs 2.3-lakh crore, creating 7.6 lakh employment opportunities at the same time. The scheme also allocates Rs 120 crore spread over the next three years for drone technologies. The allocation is expected to earn Rs 5,000 crore and facilitate incremental production of Rs 1,500 crore. Given the magnitude of the problems it aims to solve, the set objectives of the scheme offer a daunting task to be achieved in the future. It is in this context that the slashed amount of the PLI scheme — from the previously announced Rs 57,043 crores to Rs 26,058 crore — is a little surprising. The production linked incentives for the auto sector are a continuum of the PLI schemes launched during the 2021-22 budget session across 13 sectors with a total outlay of Rs 1.97 lakh crore over five years. The sectors were selected on the basis of their growth potential, ability to generate employment and value to the exports of the country. Production linked incentive schemes simply offer subsidies within the selected sectors on the parameters of increase in production, thus incentivizing the producers to ramp up their operations. In general, the problem with the PLI schemes is that incentive is just one factor that drives production figures. It has to be complemented with an environment that is suitable for the production units to operate within; this could simply be read as ease of doing business. Additionally, an increase in production is possible only after there is an adequate supply of factors of production including labour and capital. To fully capitalize on the potential of the PLI schemes, the government must undertake parallel policy initiatives to ensure an adequate supply of these factors. In case the supply of factors of production is not up to the mark, the listed sectors may end up appropriating the share of other sectors. This disparity could rather lead to a negative fallout. It has to be mentioned here that the government is already working on various employment and skill development schemes that could potentially turn the labour challenge into an employment opportunity. One of the main focuses of the scheme is to head the country towards greener fuels swiftly. India has already two PLI schemes — Scheme for Advanced Chemistry Cell worth Rs 18,000 crore and Adaption of Manufacturing of Electric Vehicles worth Rs 10,000 crore — in this domain. However, India's ambition to compete at the global stage in this sector is still a faraway destination. India not just lies far behind countries like China but also depends heavily on the import of components essential for the production of electric vehicles. The government had earlier made a call to manufacturers to avoid imports from China but that is highly unlikely until there is some alternate provisioning to fill the gap. One of the major roadblocks for India has been its heavy dependence on China for Advanced Chemistry Cell which is elemental in the production of EVs. The 18,000-crore Scheme for Advanced Chemistry Cell has been a useful step but it will take at least a few years to make some significant mark in this sector. The steps taken by the government are in the right direction but it should go a step further to lay out a detailed financial breakdown of the programme — including aligned activities for increasing capital and labour flow to make the PLI scheme a success in a true sense. India, at this point, could also refrain from being in direct competition from leading countries in the Electric Vehicle space. This is only to suggest that the country should focus on strengthening the fundamentals at this juncture. Being in the race with comparatively incompetent fundamentals could prove detrimental in the long run. To emerge stronger, India should go along with its stated principle of Atmanirbhar Bharat.