How the Production Linked Initiative (PLI) Scheme Can Benefit SMEs


The government has announced the second round of production-linked incentives (PLI) for 13 key sectors. This scheme aims at increasing production across manufacturing facilities in the country. It is expected to generate more employment across the sector and boost growth through exports. The Commerce Ministry expects the scheme to help reduce import duty as an estimated $500 billion worth of goods is expected to be manufactured over the next five years.

The MSME sector contributes to around 6.11% of the manufacturing GDP through its 63.4 million units throughout the country. Therefore, it is anticipated that the scheme will not only boost the SME sector but increase employment opportunities too. Here is how the Production Linked Initiative (PLI) scheme can Benefit the SME sector in the years to come.

What is the Production Linked Initiative (PLI) Scheme?

An outlay of INR 1.97 lakh crores was announced by the Finance Minister for Production-Linked Incentive (PLI) Schemes on 1st February 2021. The scheme announced during the Union Budget 2021-22 focuses on Atmanirbhar Bharat and achieving global competitiveness through domestic production. The PLI scheme is aimed at the rapid growth and holistic development of the manufacturing sector in the following ways:

1. Scale-up the capacity of manufacturing units: Under the PLI scheme, an increase in production capacity or incremental turnover will be incentivized. Therefore, manufacturers will have to upscale by expanding their manufacturing facilities. As the industrial infrastructure improves, it will in turn have a ripple effect on SMEs, thus providing them more opportunities to grow.

2. Improved exports: PLI schemes intend to plug the dependency on raw material import while boosting exports through domestic manufacture of goods. This export-led approach will have a positive impact on the sector in the long term.

3. New job opportunities: Increased manufacturing capacities would require a larger workforce too. The PLI framework enables the optimum utilization of existing manpower and thereby create new opportunities for the expansive human capital of the country.

Approved Sectors for PLI

The PLI Scheme was announced by the government with the intention of boosting self-reliance in the manufacturing sector. The long-term goal is to create manufacturing champions in the country. Thirteen sectors have been approved for the PLI scheme. The sectors majorly benefiting from the scheme are:

1. Pharmaceuticals: This is the second scheme for the pharma industry, hence it can now focus on increasing global manufacturing revenue. The MSME sector can benefit from the special sub-group created for its advantage. 

2. Telecom & Networking Products: The telecom sector is a huge importer of equipment. Under the PLI scheme, MSME units will receive additional support, and the minimum threshold has been reduced. Digital transformation process enhances the scheme and will provide additional incentives in the initial years.

3. Automobiles & Auto Components: With the largest budget outlay, the auto sector is anticipating overcoming the impact of economic slowdown. The entire ecosystem, including SMEs in component manufacturing and OEM, is expected to grow. 

4. Advance Chemistry Cell (ACC) Battery: The adoption rate of electric vehicles (EVs) in India is low. Incentivizing battery manufacturers will boost the confidence of new entrants into the industry. 

5. Textiles: Focusing on the global opportunity in the sector, the PLI scheme will aid the shift of production from natural fibres to man-made ones.

Benefits of PLI Scheme for the SME Sector

The PLI scheme may not be directed towards the SME sector. But as the manufacturing ecosystem grows, it will lead to more opportunities for all. Experts advise it is the right time for the rollout of the scheme, as global players are recreating their supply chains. Building an international transhipment point will help lower logistics cost. It will provide Indian exporters connectivity to markets across Africa, Europe, and the Middle East.

The manufacturers in India must also create local supply chains through SMEs to speed up delivery. Experts predict demand aggregation in sectors like automobiles and electronics. Companies will be able to move from assembling components to molding them. It will give SME companies indirect exposure to the global market and also help create a positive sentiment for local Indian products. Cost-effectiveness in manufacturing will help deliver more value at a global level.

Another objective of the scheme is to entice MNCs to explore export opportunities in the country. This encourages large investments from them, which in turn creates a demand for the SME sector. It will also encourage global competitiveness in product quality. However, building a robust infrastructure must be prioritized to achieve cost-effectiveness in the production process. Localization of component manufacturing will gradually lower their costs, allowing more entrepreneurs to scale up their production.