In a post-colonial democracy crippled by rising unemployment and - risking the hazard of conforming to a Malthusian paradigm - with a rising population, what is it that its people need the most?

Atmanirbhar Bharat is the boat the NDA government has hitched itself to in hopes of redeeming itself in the aftermath of the pandemic.

Almost a year since its announcement, Finance Minister Nirmala Sitaraman said Atmanirbhar Bharat is not a socialist stance neither does it favor protectionism. On the contrary, it is a move to make India’s industries competitive on a global scale by strengthening the manufacturing sector through infrastructural and technological advancement, which in turn, is believed, would make India self-reliant.

As a first step, the government came out with performance-linked incentive (PLI) schemes for sectors that are extensively import dependent such as electronics and pharmaceuticals, gradually expanding it to labor intensive sectors such as textiles.

PLI schemes are the government's attempt to provide much needed momentum to shake off the stubborn consistency of India’s  manufacturing sector. It hopes to attract FDIs, strengthen domestic production capacity, improve cost-effectiveness, increase imports as well as decrease dependence on external global value chains (GVCs) (hence the term Atmanirbhar). The scheme provides subsidies to foreign and domestic players for settling up manufacturing units in India for the production of select goods for which specific investment and turnover criteria has been defined depending on the industry.

What sets PLIs apart from erstwhile schemes that aim for strengthening export capacity of India such as MEIS (Merchandise Exports from India Schemes) is its targeted effort to boost domestic production by incentivising incremental production.

The government believes that expected metrics outlined by the policy will propel India to be one of the largest exporters for some of the key industries such as pharmaceuticals, electronics, textiles and steel which in turn might alleviate some of the structural impediments to India’s economic growth.

Given the multi-digit investments and compounded figures of promises the announcement of an overarching scheme such as the PLI brings (to be implemented across 15 sectors), it is expected to create ripples warranting hope for all stakeholders alike. 

Since the PLI schemes are relatively new and pending large scale implementation, it is better to lend a closer look to the policy design and weed out the bugs in their nascent stage rather than letting them take root and amplify over the years.

Some academicians point that, one of the major detractors of the organic growth of the manufacturing sector in India, has been importing more raw material and goods in comparison to total exports, causing a trade deficit. This dependency on external value chains causes a significant part of the production process to be outsourced. This has often been linked to lack of jobs, therefore rising unemployment in the country.

Given that the scheme outlines employment as one of the markers of its success, it is necessary to evaluate how increased production is linked not just to the top-
down approach to influence industries but also to regulate the ground-up, otherwise overlooked factors such as

leveraging the demographic dividend, optimizing human potential, research and development, infrastructure and connectivity.

Although the scheme has proven to be successful for industries such as Electronics, Indian manufacturers still are still at a cost disadvantage of 15% and 5.8%, respectively, even with the PLI scheme. It is apparent that plugging the gaps in the supply chain or attracting FDI alone cannot create a strong foundation for India's economy.

Our companies are weighed down by multiple factors such as tariffs, trade policies and compliance cost amongst others. This proves that there is an incumbent need for a multi-faceted approach to increasing the productivity of the manufacturing sector.

Having said all that, can the PLI scheme create an ecosystem for sustained FDI, inducing corporate led industrialisation for a mixed economy such as India? Could we learn from fellow south asian nations to form better strategies for an export oriented economic growth, if yes- should we look to our immediate neighbors at the SAARC or farther beyond?

The Asian Tigers-Singapore, Hong Kong, South Korea and Taiwan have been hailed for uplifting their people out of the colonial hangover. Since the late 60’s, the Asian Tigers worked to create a sophisticated trade regime through prudent economic management. As iterated by scholars, CITE political stability and well-developed infrastructure go hand in hand to ensure steady flow of FDI. Promoting education and skill training is equally if not more central to building an industry. For instance, according to a report by the Government of Odisha, One of the common impediments to the proliferation of industries in India is the lack of skilled labor.

Taking Singapore’s example, from centrally determining a basic wage limit (to abate friction between labor and management) to investing in wide scale labor training and education

programs- it has built its current stability through a sustained holistic effort across administrative, political and social variables.

Hinging our hopes on the industries to raise civil society would be, if anything, absurd. There is a need to reconcile the social and the economic. The imperative role of the government in promoting education and training, and encouraging research and development to upgrade technology is a precursor to high productivity and profits.

What all is the scheme bound to impact, more importantly, how do we do an impact analysis for a relatively new scheme such as the PLI. For the purposes of a pre-facto, qualitative analysis it is rather audacious to look at the scheme in isolation. Its relationship with other trade and export regulations such as tariffs needs to be juxtaposed to understand the multi-focal impact of the scheme. Another factor worth consideration as tax paying citizens is that since the PLIs invest taxpayer money to incentivise both domestic and foreign players to produce in India, transparency and accountability for both the beneficiaries as well as the government becomes necessary.

Given that the threshold for investment for an entity to avail subsidy is set as high, it leaves little scope for smaller players to benefit from the scheme. This is particularly the case for labor intensive industries such as textiles where most of the production is undertaken by MSMEs which in turn could severely compromise the negotiating power of these firms as well the entities engaged with them in the face of bigger names.

Factoring in demographic and regional factors instead of homogenizing the production process could perhaps ensure a more equitable distribution of the benefits as well as optimize the use of resources specific to that area- making the scheme sustainable in the long run in addition to political advantage.

With trade liberalization and exports being the center of attention for all developing economies, where do the PLI schemes stand to take us and is it a horse worth betting on?                                                                                 If India plans to walk down this road, two caveats are worth noting- first that developed countries are not as keen on exports as they were back in the 80s and second countries with a long history of protectionism such as India might find it rather difficult to liberalize on a large scale.

It may be better to maintain a gentle pace for reforms, especially when it comes to tariffs so that domestic firms get some time to improve their efficiency and competitiveness.

Clearly no simplistic causal relations can be drawn, no liner solutions to a multi variable equation such as this.

Coming back to the question of who benefits from the scheme- since the strengthening of the manufacturing sector is seen as an elixir for poverty, as it did for the Asian Tigers, it is essential to evaluate the scheme in terms of employment as a marker of its success. 

Then again how far does economic development affect poverty alleviation and does that necessity translate to attenuating inequality? Perhaps that is a question worth keeping in mind while implementing the scheme throughout diverse socio-cultural and regional actors.

The Asian Tigers could probably be one of the better examples for India to look to for understanding the importance of a thought out strategic alliance with the corporates that not only ensures rapid economic development but also safeguards the sovereign and its people against flailing foreign interests in face of a competitive market and changing loyalties. 

If we’ve decided to sit at the table, let's make sure we make the right bets and call the bluffs while we’re at it because policies such as these are not one timers, contrary to what might appear at first.                            To win big, we need to stay in the game, persuasively enough to make sure others stay at the table too for as long as it takes to foster our industries.

1. Madhavan, N. “What exactly is Atmanirbhar Bharat? - The Hindu BusinessLine.” The Hindu Business Line, 15 April 2021, https://www.thehindubusinessli....
2. Devagan, Devendra Kumar, et al. “Enablers for Competitiveness of Indian Manufacturing Sector: An ISM-Fuzzy MICMAC Analysis.” Procedia Social and Behavioral Sciences, 2015, pp. 416-432.
3. Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581; Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581 ; Factsheet Details: PLI Schemes, PIB, 2021, https://pib.gov.in/FactsheetDetails.aspx?Id=148581
4. Devagan, Devendra Kumar, et al. “Enablers for Competitiveness of Indian Manufacturing Sector: An ISM-Fuzzy MICMAC Analysis.” Procedia Social and Behavioral Sciences, 2015, pp. 416-432
5. PLI Scheme - A Game Changer, Nirmal Bang, 2020, Pg. 1, http://bit.ly/3TXe7oG
6. Strategic Roadmap for Development of ESDM Sector in Odisha, Government Of Odisha, Pg 87-90, https://bit.ly/3iA6d7T
7. Mishra, V., et al. Economic Restructuring in East Asia and India: Perspectives on Policy Reform. Palgrave Macmillan UK, 1995. Accessed 6 December 2022.