Think Tank Chief Raises Concerns Over PLI for Shoes and Handicrafts, Advocates Support for Small Firms

In a recent statement, the founder of Global Trade Research Initiative (GTRI), Ajay Srivastava, expressed concerns over the government’s plan to roll out production-linked incentive (PLI) schemes for sectors like leather shoes and handicrafts. Srivastava argued that since these sectors are predominantly comprised of small firms, which focus on specialized production rather than scale, implementing PLI schemes could potentially harm small enterprises.

According to Srivastava, instead of relying on PLI, small firms require assistance in terms of access to technology and low-cost finance, which can be facilitated through separate schemes tailored to their needs. He emphasized that supporting small businesses in these areas would be more beneficial than introducing PLI schemes that primarily cater to large-scale production.

The Indian government has been actively pursuing its ambitious PLI scheme, aiming to bolster the manufacturing sector and position the country as a global manufacturing hub. While the scheme has already covered 14 sectors and received an allocation of Rs 1.97 trillion for the fiscal year 2023, there have been calls to extend its benefits to additional sectors such as toys, furniture, and leather.

GTRI further highlighted the issue of competitive distortion that may arise from implementing PLI schemes for industries with numerous manufacturers, regardless of their size. Sectors like food processing and automobiles, where multiple domestic manufacturers produce similar products, could face imbalances due to the scheme’s selective financial support.

The think tank explained that PLI schemes, which provide financial incentives of 4-6% of incremental sales and potentially increase profit margins by 30-40%, can create an unfair advantage for certain firms, while others are left at a disadvantage. GTRI recommended that PLI schemes should focus solely on cutting-edge product groups in which India lacks manufacturing capabilities, avoiding sectors with existing competitive dynamics.

Furthermore, GTRI stressed the need for deep manufacturing PLI support in the electronics sector. The trade deficit in electronics has widened in recent years, with imports reaching $72.5 billion and exports at $22.7 billion in the fiscal year 2023. In order to reduce dependence on imports and promote local production, GTRI suggested a comprehensive analysis of trade data for final products and related components, ensuring that firms add genuine value rather than simply benefiting from tariffs and labor cost advantages.

Ajay Srivastava concluded by emphasizing the importance of critically evaluating the performance of sectors over the past decades. He urged the government to focus on sectors that genuinely contribute to the economy and discourage practices driven solely by tariff protection and labor arbitrage.
Source:https://www.business-standard.com/economy/news/govt-shouldn-t-roll-out-pli-for-shoes-handicrafts-says-think-tank-boss-123052201008_1.html