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GS Paper: GS3-12.Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth

  • India’s Current Account Balance sees a spike

    India’s current account balance saw a far lower surplus of $6.5 billion (0.9% of GDP) in the first quarter compared with a surplus of $19.1 billion (3.7% of GDP) a year earlier.

    What is External Sector?

    • The external sector is the portion of a country’s economy that interacts with the economies of other countries.
    • In the goods market, the external sector involves exports and imports.
    • In the financial market it involves capital flows.

    Various terminologies related:

    [A] Balance of Payment (BoP)

    • BoP is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world.
    • These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services.
    • It consists of two components: the current account and the capital account.
    • The current account reflects a country’s net income, while the capital account reflects the net change in ownership of national assets.

    (1) Current Account

    • Current account of BoP consists of all transactions relating to goods, services and income, it is functionally classified into merchandise and
    • Current account deficit is the situation where payments on the country are more than the payments into the country.
    • In current account surplus, there is a net inward payment into the country on the current.

    (2) Capital Account

    • The capital account records the net flow of investment transaction into an economy.
    • Investments (FDI and FII) and borrowings (ECB) are part of the capital account.

    [B] Balance of Trade

    • Trade “balance” of a country shows the difference between what it earns from its exports and what it pays for its imports.
    • If this number is in negative – that is, the total value of goods imported by a country is more than the total value of goods exported by that country – then it is referred to as a “trade deficit”.
    • If India has a trade deficit with China then China would necessarily have a “trade surplus” with India.

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  • [pib] National Export Insurance Account (NEIA) Scheme

    The Centre has approved the contribution of Grant-in-aid (Corpus) of ₹1,650 Crore to the National Export Insurance Account (NEIA).

    National Export Insurance Account Scheme

    • NEIA Trust was established in 2006 to promote project exports from India that are of strategic and national importance.
    • The NEIA Trust promotes Medium and Long Term (MLT) /project exports.
    • It extends (partial/full) support to covers issued by ECGC (ECGC Ltd, formerly known as Export Credit Guarantee Corporation of India Ltd.) to MLT/project export and to Exim Bank for Buyer’s Credit (BC-NEIA) tied to project exports from India.

    Benefits offered

    • The capital infusion in NEIA Trust will help the Indian Project Exporters (IPE) to tap the huge potential of project exports in focus market.
    • Support to project exports with Indian content sourced from across the country will enhance the manufacturing in India.
    • In addition, assuming an average 75% Indian content in the projects, it is estimated that around 12000 workers will move into formal sector.

    Performance highlights

    • Since inception, NEIA has extended 213 covers, with a consolidated project value of Rs. 53,000 crores, to 52 countries as of 31st August 2021.
    • Its impact in enabling project exports has been most significant in Africa and South Asia.

     

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  • Defence Ministry issues order for OFB dissolution

    The Defence Ministry has issued an order for the dissolution of the Ordnance Factory Board (OFB) with effect from October 1.

    Ordnance Factory Board (OFB)

    • OFB consisting of the Indian Ordnance Factories is a government agency under the control of the department of defence production (DDP).
    • It is engaged in research, development, production, testing, marketing and logistics of a product range in the areas of air, land and sea systems.
    • OFB comprises 41 ordnance factories, nine training institutes, three regional marketing centres and four regional controllers of safety, which are spread all across the country.

    Take a look at this timeline

    1712 – Establishment of the Dutch Ostend Company’s Gun Powder Factory at Ichhapur

    1775 – Establishment of the Board of Ordnance at Fort William, Kolkata.

    1787 – Establishment of the Gun Powder Factory at Ishapore.

    1935 – Indian Ordnance Service was introduced to administer the whole Defence Production Industry of India.

    1954 – Indian Ordnance Service (IOS) renamed to Indian Ordnance Factories Service (IOFS).

    1979 – Ordnance Factory Board is established on 2 April.

    Why are OFBs significant?

    • OFB is the world’s largest government-operated production organization and the oldest organization in India.
    • It has a total workforce of about 80,000.
    • It is often called the “Fourth Arm of Defence” and the “Force Behind the Armed Forces” of India.
    • OFB is the 35th largest defence equipment manufacturer in the world, 2nd largest in Asia, and the largest in India.

    Why corporatization?

    • It is a major decision in terms of national security and also make the country self-sufficient in defence manufacturing as repeatedly emphasized by PM.
    • This move would allow these companies autonomy and help improve accountability and efficiency.
    • This restructuring is aimed at transforming the ordnance factories into productive and profitable assets, deepening specialization in the product range, enhancing competitiveness, improving quality and achieving cost efficiency.

    What about employees?

    • All employees of the OFB (Group A, B and C) belonging to the production units would be transferred to the corporate entities on deemed deputation.
    • The pension liabilities of the retirees and existing employees would continue to be borne by the government.

    Significance of the move

    • With OFB dissolution, its assets, employees and management would be transferred to seven newly constituted defence public sector undertakings (DPSUs).
    • This would mean the end of the OFB, the establishment of which was accepted by the British in 1775.

     

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  • What are Electronic Gold Receipts?

    The board of the Securities and Exchange Board of India (SEBI) has approved the framework for a gold exchange as well as for vault managers. This approval paves the way for gold exchanges to be set up for trading in ‘Electronic Gold Receipt’ (EGR).

    What is EGR?

    • SEBI’s concept paper proposes issuing an electronic gold receipt in exchange pf physical gold (similar to equity shares), deposited with a vault manager (like a depositary participant) and this receipt can then be traded.
    • The government wants India’s outsized influence in the physical market for gold to be visible in the financial market for gold as well.

    Why need EGRs?

    • EGI is a way of getting people to not hoard gold, by creating an exchange that provides transparent pricing and liquidity (to cash or back to gold).
    • India is a net importer of gold. We are price takers and not price setters. The whole idea is to move from being price takers to be price setters.
    • Price discovery at the exchanges will thus lead to transparency in gold pricing.
    • The gold exchanges would provide transparent price discovery, investment liquidity and assurance in the quality of gold.

    What is the SEBI regulation?

    • SEBI has also proposed a regulatory framework for setting up a gold exchange.
    • Existing stock exchanges will be allowed to provide the platform for trading of EGRs.
    • The denomination for trading of EGR and conversion of EGR into gold will be decided by the stock exchange with the approval of SEBI.
    • The clearing corporation will settle the trades executed on the stock exchanges by way of transferring EGRs and funds to the buyer and seller, respectively.

    How will EGR work?

    • EGR holders, at their discretion, can withdraw the underlying gold from the vaults after surrendering the EGRs.
    • SEBI-accredited vault managers will be responsible for the storage and safekeeping of gold deposits, creation of EGRs, withdrawal of gold, grievance redressal and periodic reconciliation of physical gold with the records of depository.
    • The vault manager will have a networth of at least ₹50 crore.

    Back2Basics: Securities and Exchange Board of India (SEBI)

    • The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
    • It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

    Jurisdiction of SEBI

    • SEBI has to be responsive to the needs of three groups, which constitute the market:
    1. Issuers of securities
    2. Investors
    3. Market intermediaries

    SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.

    • It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
    • Though this makes it very powerful, there is an appeal process to create accountability.
    • There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
    • A second appeal lies directly to the Supreme Court.

     

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  • What is a Cartel?

    Last week, the Competition Commission of India (CCI) has slapped a penalty on a cartel of beer companies for hiking the prices.

    What is a Cartel?

    • According to CCI, a “Cartel includes an association of producers, sellers, distributors, traders or service providers who, by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or, trade in goods or provision of services”.
    • The International Competition Network, which is a global body dedicated to enforcing competition law, has a simpler definition.
    • The three common components of a cartel are:
    1. an agreement
    2. between competitors
    3. to restrict competition

    What is Cartelization?

    • Cartelization is when enterprises collude to fix prices, indulge in bid rigging, or share customers, etc.
    • But when prices are controlled by the government under a law, that is not cartelization.
    • The Competition Act contains strong provisions against cartels.
    • It also has the leniency provision to incentivise a party to a cartel to break away and report to the Commission, and thereby expect total or partial leniency.
    • This has proved a highly effective tool against cartels worldwide.
    • Cartels almost invariably involve secret conspiracies.

    How do they work?

    • According to ICN, four categories of conduct are commonly identified across jurisdictions (countries). These are:
    1. price-fixing
    2. output restrictions
    3. market allocation and
    4. bid-rigging
    • In sum, participants in hard-core cartels agree to insulate themselves from the rigours of a competitive marketplace, substituting cooperation for competition.

    How do cartels hurt?

    • While it may be difficult to accurately quantify the ill-effects of cartels, they not only directly hurt the consumers but also, indirectly, undermine overall economic efficiency and innovations.
    • A successful cartel raises the price above the competitive level and reduces output.
    • Consumers choose either not to pay the higher price for some or all of the cartelised product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators.

    In other words, by artificially holding back the supply or raising prices in a coordinated manner, companies either force some consumers out of the market by making the commodity (say, beer) more scarce or by earning profits that free competition would not have allowed.

    Are there provisions in the Competition Act against monopolistic prices?

    • There are provisions in the Competition Act against abuse of dominance.
    • One of the abuses is when a dominant enterprise “directly or indirectly imposes unfair or discriminatory prices” in purchase or sale of goods or services.
    • Thus, excessive pricing by a dominant enterprise could, in certain conditions, be regarded as an abuse and, therefore, subject to investigation by the Competition Commission if it were fully functional.
    • However, it should be understood that where pricing is a result of normal supply and demand, the Competition Commission may have no role.

    How might cartels be worse than monopolies?

    • It is generally well understood that monopolies are bad for both individual consumer interest as well as the society at large.
    • That’s because a monopolist completely dominates the concerned market and, more often than not, abuses this dominance either in the form of charging higher than warranted prices or by providing lower than the warranted quality of the good or service in question.

    How to stop the spread of cartelisation?

    • Cartels are not easy to detect and identify.
    • As such, experts often suggest providing a strong deterrence to those cartels that are found guilty of being one.
    • Typically this takes the form of a monetary penalty that exceeds the gains amassed by the cartel.
    • However, it must also be pointed out that it is not always easy to ascertain the exact gains from cartelisation.
    • In fact, the threat of stringent penalties can be used in conjunction with providing leniency — as was done in the beer case.

    Try this PYQ:

    One of the implications of equality in society is the absence of:

    (a) Privileges

    (b) Restraints

    (c) Competition

    (d) Ideology

     

    [wpdiscuz-feedback id=”9yl0ox4504″ question=”Please leave a feedback on this” opened=”1″]Post your answers here.[/wpdiscuz-feedback]

    Back2Basics: Competition Commission of India (CCI)

    • The CCI is the chief national competition regulator in India.
    • It is a statutory body within the Ministry of Corporate Affairs.
    • It is responsible for enforcing The Competition Act, 2002 in order to promote competition and prevent activities that have an appreciable adverse effect on competition in India.

     

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  • Service Exports from India Scheme (SEIS)

    The Directorate General of Foreign Trade has imposed a cap on the total entitlement under the Services Exports from India Scheme (SEIS) at Rs 5 crore per exporter for shipments done in 2019-20 (FY20). The move is expected to benefit small businesses in the services sector.

    About SEIS

    • Service Exports from India Scheme (SEIS) aims to promote export of services from India by providing duty scrip credit for eligible exports.
    • Under the scheme, service providers, located in India, would be rewarded under the SEIS scheme, for all eligible export of services from India.
    • SEIS was earlier termed as Served from India Scheme (SFIS).

    Eligibility

    • Service Providers of notified services, located in India are eligible for the Service Exports from India Scheme.
    • To be eligible, a service provider (Company / LLP / Partnership Firm) should have a minimum net free foreign exchange earnings of USD 15000 in the preceding financial year to be eligible for duty credit scrips.
    • For proprietorships or individual service providers, minimum net foreign exchange earnings of USD10,000 in the preceding financial year is required to be eligible for the scheme.
    • Also, in order to claim reward under the SEIS scheme, the service provider shall have to have an active Import Export Code (IE Code) at the time of rendering such services for which rewards are claimed.

    Back2Basics: Merchandise Exports from India Scheme (MEIS)

    • MEIS was launched with an objective to enhance the export of notified goods manufactured in a country.
    • This scheme came into effect on 1 April 2015 through the Foreign Trade Policy and was in existence till 2020.
    • It intended to incentivize exports of goods manufactured in India or produced in India.
    • The incentives were for goods widely exported from India, industries producing or manufacturing such goods with a view to making Indian exports competitive.
    • The MEIS covered almost 5000 goods notified for the purpose of the scheme.

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  • SEBI introduces T+1 Settlement System

    The Capital markets regulator Securities and Exchange Board of India (SEBI) has introduced T+1 settlement cycle for completion of share transactions on optional basis in a move to enhance market liquidity.

    What is T+1 Settlement System?

    • T+1 means that settlements will have to be cleared within one day of the actual transactions taking place.
    • Currently, trades on the Indian stock exchanges are settled in two working days after the transaction is done (T+2).
    • In April 2002, stock exchanges had introduced a T+3 rolling settlement cycle. This was shortened to T+2 from April 1, 2003.

    What has Sebi allowed?

    • SEBI has allowed stock exchanges to start the T+1 system as an option in place of T+2.
    • If it opts for the T+1 settlement cycle for a scrip, the stock exchange will have to mandatorily continue with it for a minimum 6 months.
    • Thereafter, if it intends to switch back to T+2, it will do so by giving one month’s advance notice to the market.
    • Any subsequent switch (from T+1 to T+2 or vice versa) will be subject to a minimum period.
    • A stock exchange may choose to offer the T+1 settlement cycle on any of the scrips, after giving at least one month’s advance notice to all stakeholders, including the public at large.

    Why T+1 settlement?

    • Reduced settlement time: A shortened cycle not only reduces settlement time but also reduces and frees up the capital required to collateralize that risk.
    • Quick settlement: T+1 also reduces the number of outstanding unsettled trades at any instant, and thus decreases the unsettled exposure to Clearing Corporation by 50%.
    • Speedy recovery of assets: The narrower the settlement cycle, the narrower the time window for a counterparty insolvency/bankruptcy to impact the settlement of a trade.
    • Risk reduction: Systemic risk depends on the number of outstanding trades and concentration of risk at critical institutions such as clearing corporations, and becomes critical when the magnitude of outstanding transactions increases.

    How does T+2 work?

    • If an investor sells shares, settlement of the trade takes place in two working days (T+2).
    • The broker who handles the trade will get the money, but will credit the amount in the investor’s account only.
    • In effect, the investor will get the money only after three days.
    • In T+1, settlement of the trade takes place in one working day and the investor will get the money on the following day.
    • The move to T+1 will not require large operational or technical changes by market participants, nor will it cause fragmentation and risk to the core clearance and settlement ecosystem.

    Why are foreign investors opposing it?

    • Foreign investors operating from different geographies would face time zones, information flow process, and foreign exchange problems.
    • Foreign investors will also find it difficult to hedge their net India exposure in dollar terms at the end of the day under the T+1 system.
    • In 2020, SEBI had deferred the plan to halve the trade settlement cycle to one day (T+1) following opposition from foreign investors.

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    Back2Basics: SEBI

    • The SEBI is the regulatory body for securities and commodity market in India under the jurisdiction of Ministry of Finance Government of India.
    • It was established on 12 April 1988 and given Statutory Powers on 30 January 1992 through the SEBI Act, 1992.

    Jurisdiction of SEBI

    • SEBI has to be responsive to the needs of three groups, which constitute the market:
    1. Issuers of securities
    2. Investors
    3. Market intermediaries

    SEBI has three powers rolled into one body: quasi-legislative, quasi-judicial and quasi-executive.

    • It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity.
    • Though this makes it very powerful, there is an appeal process to create accountability.
    • There is a Securities Appellate Tribunal which is a three-member tribunal and is currently headed by Justice Tarun Agarwala, former Chief Justice of the Meghalaya High Court.
    • A second appeal lies directly to the Supreme Court.

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  • The end of the doing business rankings

    The World Bank Group has scrapped its flagship publication, the ‘Doing Business’ report.

    Doing Business Report

    • This report publishes the influential annual ranking of countries on the Ease of Doing Business (EDB) index.
    • It ranks countries by the simplicity of rules framed for setting up and conducting businesses.

    Utility of the index

    The World Bank’s decision has wide ramifications, as the index serves varied purposes.

    • Many countries showcase improved ranking to signal market-friendly policies to attract foreign investments. National leaders often set EDB rank targets.
    • This helps them measure domestic policies against global “best practices” and browbeat domestic critics.
    • India, for instance, wanted its administration to ensure that India breaks into the top 50 ranks of the EDB index.
    • Some countries seem to use their political heft to improve their rank, polish their international image and sway public opinion (as appears to be China’s case).

    Issues with the credibility of the report

    • The Group acted on its commissioned study to examine the ethical issues flagged in preparing the 2018 and 2020 editions of the EDB index.
    • It is accused of having exerted pressure on the internal team working on the Doing Business report to falsely boost China’s rank by doctoring the underlying data.
    • Similarly, tensions were also reportedly brought to bear in the case of Saudi Arabia’s rank, among others.

    EDB index rank vs economic outcomes

    • There is a disconnect between the stellar rise in EDB index rank and economic outcomes.
    • The theory underlying the EDB index could be suspect, the measurement and data could be faulty, or both.
    • For example, China’s phenomenal economic success, especially its agricultural performance (after the reforms in 1978), is perhaps the most unmistakable evidence demonstrating that lack of clarity of property rights may not be the binding constraint in a market economy.
    • What matters is economic incentives.
    • Measuring regulatory functions underlying the index could be tricky and subjective and possibly politically motivated as well, as the controversies surrounding the index seem to suggest.

    EODB in India: At what cost

    Ans. Weakening labour regulations

    • Closer home, India has weaponised the mandate to improve the rank in the EDB index to whittle down labour laws and their enforcement and bring them close to the free-market ideal of ‘hire and fire’.
    • Most States have emulated Maharashtra’s lead of administrative fiat, which renders labour laws toothless by dismantling official labour inspection systems and allowing employers to file self-regulation reports.
    • The government has farmed out critical safety regulations such as annual inspection and certification of industrial boilers to ‘third party’ private agencies.
    • The Labour Department’s inspection is now not mandated; it is optional only by prior intimation to employers.

    Implications of such moves

    • Such abdication of the government’s responsibility towards workers has reportedly affected industrial relations.
    • The workers’ strike at Wistron’s iPhone assembly factory in Karnataka last year is an example.
    • Further, severe industrial accidents are rising, damaging life and productive industrial assets.

    Why did World Bank scrap the index?

    • Investigations into “data irregularities” in preparing the EDB index, as brought out by the independent agency, seems to confirm many shortcomings repeatedly brought to light for years now.
    • The index appears motivated to support the free-market ideal.
    • It is dressed up under scientific garb and is underpinned by seemingly objective methods and data collection.
    • Strong leaders (and motivated officials) seem to have used their position to manipulate the index to suit their political and ideological ends.

    Conclusion

    • India claimed the success of its Make in India initiative by relying on its ranking on the EDB index without tangible evidence.
    • Handing over law enforcement to employers by self-reporting compliance seems to have increased industrial unrest and accidents.
    • It perhaps calls for honest soul-searching as to what havoc a questionable benchmark can wreak.

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  • National Monetization Pipeline shows promise — and limits

    The government of India recently announced an asset monetization plan, wherein existing public assets worth Rs 6 trillion would be monetized by leasing them out to private operators for fixed terms.

    The plan has generated a lot of print so it is worth discussing its pros and cons.

    About NMP

    • The identified assets are primarily concentrated in roads, railways, power, oil and gas, and telecoms.
    • The lease proceeds are expected to be used for new infrastructure investment which, in turn, will contribute to the government’s ambitious Rs 111 trillion infrastructure investment plan.

    Important issues raised by the plan

    [I] How much should the government expect to raise from the plan?

    Revenue Potential

    • In deciding the amount to bid for leasing rights, bidders compute the present discounted value of the annual cash flow from the asset for the duration of the lease.
    • The biggest uncertainty in this calculation surrounds the cash flow on these public assets.
    • Rates of return estimates on public capital in the US have been estimated to be upwards of 15 per cent.
    • However, this is India with its myriad uncertainties regarding pricing, bill collection, asset quality, regulatory framework as well as policy reversals.
    • Hence there is significant uncertainty regarding the revenue potential of the plan.

    [II] Is the plan likely to increase the efficiency of the economy?

    a. Efficiency of the economy

    • The NITI Aayog believes that the private sector is better at managing and operating the identified public assets than the public sector.
    • There is certainly scope for efficiency gains. However, there are significant efficiency impediments too.
    • One set of efficiency issues surrounds usage fees. A second factor related to efficiency is the effect of the plan on competition.

    b. Stressed sectors

    • The identified assets belong to core sectors of the economy spanning transport, energy and communication.
    • Sectors like telecoms and ports have already seen rising concentration of ownership in recent years.
    • An acceleration and extension of this trend to other segments of the infrastructure landscape would be seriously worrying.
    • While some of this could well be rationalized through the stipulation of rules for the allocation of leasing rights, the plan is silent on this.

    c. Financing of the lease bids

    • If bidders finance their bids using domestic savings, there is a clear opportunity cost of the plan since these savings would otherwise have been invested in alternative projects.
    • Moreover, the bidding for scarce domestic savings by prospective investors will also raise domestic interest rates which will put downward pressure on domestic private investment.
    • It would also be worth reminding ourselves that the last round of PPP-based infrastructure funding routed through banks ended up with a heap of NPAs in public sector bank balance sheets.

    Biggest flaw of the NMP

    • No clear objective: The biggest drawback of the plan is that it fails to articulate the reasons for public sector inefficiency in asset management.
    • No focus on management: If it is personnel-related, then privatizing management may be the right answer. If the inefficiency is related to constraints on pricing and bill collection, then the roots of the problem are unlikely to be addressed by leasing out their management to private operators.
    • No clear assessment of underperforming sectors: The plan document also fails to outline whether the identified brownfield assets are the public sector’s highest cash flow assets or the relatively under-performing ones.

    Better alternatives for the govt

    • The way around this is to welcome foreign investors to bid for the assets.
    • But this will require serious political will since entrenching foreign influence on Indian public assets will generate controversy.
    • On this aspect too, the announced plan is low on details.

    Way forward

    • If the private sector is indeed more efficient in running infrastructure assets, the most efficient strategy would be to lease out the worst-performing assets rather than the best performing ones.
    • The NITI Aayog would do the policy landscape a big service by following up the proposal with a white paper that addresses some of these efficiency-related issues.
    • Without that, the monetization plan, while intriguing, is incomplete.

    Conclusion

    • A monetization plan envisages the private sector paying an upfront fee to the government which the government uses for new infrastructure investment.
    • As much as private bidders finance themselves by borrowing, this amounts to the private sector borrowing and handing over the funds to the government to invest in infrastructure.
    • This could enhance efficiency in infrastructure investment only if the government faces higher interest rates in capital markets than the private sector.

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  • [pib] PLI Scheme for White Goods

    A total of  52 companies have filed their application with a committed investment of Rs 5,866 crore under the PLI scheme to incentivize the domestic manufacturing of components of White Goods.

    What are White Goods?

    • White goods refer to heavy consumer durables or large home appliances, which were traditionally available only in white.
    • They include appliances such as washing machines, air conditioners, stoves, refrigerators, etc. The white goods industry in India is highly concentrated.

    Why PLI scheme for white goods?

    • Indian appliance and consumer electronics (ACE) market reached INR 76,400 crore (~$10.93 bn) in 2019.
    • Appliances and consumer electronics industry is expected to double to reach INR 1.48 lakh crore (~$21.18 bn) by 2025.
    • The PLI Scheme on White Goods is designed to create complete component ecosystem for Air Conditioners and LED Lights Industry in India and make India an integral part of the global supply chains.
    • Only manufacturing of components of ACs and LED Lights will be incentivized under the Scheme.

    What is PLI Scheme?

    • As the name suggests, the scheme provides incentives to companies for enhancing their domestic manufacturing apart from focusing on reducing import bills and improving the cost competitiveness of local goods.
    • PLI scheme offers incentives on incremental sales for products manufactured in India.
    • The scheme for respective sectors has to be implemented by the concerned ministries and departments.

    Criteria laid for the scheme

    • Eligibility criteria for businesses under the PLI scheme vary based on the sector approved under the scheme.
    • For instance, the eligibility for telecom units is subject to the achievement of a minimum threshold of cumulative incremental investment and incremental sales of manufactured goods.
    • The minimum investment threshold for MSME is Rs 10 crore and Rs 100 crores for others.
    • Under food processing, SMEs and others must hold over 50 per cent of the stock of their subsidiaries, if any.
    • On the other hand, for businesses under pharmaceuticals, the project has to be a greenfield project while the net worth of the company should not be less than 30 per cent of the total committed investment.

    What are the incentives offered?

    • An incentive of 4-6 per cent was offered last year on mobile and electronic components manufacturers such as resistors, transistors, diodes, etc.
    • Similarly, 10 percent incentives were offered for six years (FY22-27) of the scheme for the food processing industry.
    • For white goods too, the incentive of 4-6 per cent on incremental sales of goods manufactured in India for a period of five years was offered to companies engaged in the manufacturing of air conditioners and LED lights.

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