Deeper reforms

PLI alone will not bring in investment

The government’s production-linked incentive (PLI) scheme is the closest India has got to an industrial policy. Several PLI programmes have been designed for a subset of sectors that the government believes is relevant for India’s development and economic security. Some of these are clearly related to the green transition, such as the scheme for batteries. But there are others that are more traditional export-oriented sectors. One such is textiles, which is a well-known, labour-intensive sector that is relevant for employment growth. However, as this newspaper has reported, the growth of private investment in some of these sectors — including textiles, information technology hardware, and speciality steel — has been slower than anticipated. In fact, according to a review of the schemes by an inter-ministerial panel, investment has been lagging in several sectors. It is becoming increasingly clear that, even with the subsidies provided, there are certain sectors that require policy reform at a deeper level if they are to become properly competitive.

Textiles is one such sector. Its impact on job creation and livelihoods is undeniable. Indeed, the sustained growth and poverty reduction that have been achieved in countries like Bangladesh are a consequence of productivity in this sector. The government envisaged that putting some public money into incentivising increased production in this sector in India would lead to a takeoff. But that has not been the case. Although over Rs 10,000 crore has been set aside for this programme, which is focused on man-made fibre and garments, only a small fraction of that money has been disbursed. Indeed, there is no sign that it will re-energise the sector or cause a structural shift in employment patterns. Multiple tweaks to the programme have already been proposed and implemented — with reports earlier this month that the Union Ministry of Textiles was working on yet another revision. It is time to consider that the problem is not the exact parameters of the PLI scheme but the broader hope that it would serve as a shortcut, removing the need for deeper reform.

The reason some countries have done well on textiles and garments exports is simple: They have solid infrastructure, reliable trade policy with low tariffs on inputs, an employable workforce, and investor-friendly regulations. Of these four requirements, the Indian government has worked hard on building infrastructure and, to an extent, on easing regulations. However, trade policy has been noticeably unpredictable and workforce development has not happened as desired. Nor has there been judicial or administrative reform that provides business with confidence that regulations will be fairly enforced. It is not surprising, therefore, that there are few takers for the money on offer.

The government needs to stop discussing the large amounts of money set aside for the PLI schemes and engage actively with the concerns of potential investors in each of these underperforming sectors, from textiles to food processing. The PLI programmes themselves are clearly not solutions to underlying problems, and should not be considered to be open-ended offers, either. The danger is that if the government broadens eligibility, it may lead to unsustainable projects. There is only one formula for labour-intensive export growth: Creating business-friendly conditions.