PLI Scheme - How do production-linked incentive schemes work

Say you are the government, and you want to spur production of a certain category of goods. The demand for such goods isn’t all that great. But you think once they are manufactured in large quantities, or sold at the right price points, it should work out fine.

This is where you will employ PLI or a production-linked incentive scheme. The PLI is an old and popular tool with governments to spur production of goods that the country sees as necessary for social good, taxes, or employment-generation reasons.

PLIs are essentially the incentives to companies to boost product. They could be in the form of tax rebates, import and export duty concessions, or maybe easier land-acquisition terms. Generally, the benefits of a PLI scheme are passed on to the final consumers of the goods in terms of lower prices.

Take the example of electric vehicles. They don’t have ready demand but a shift to greener automobile is essential for the country. In this regard, the government has what is called the FAME scheme. It stands for Faster Adoption and Manufacturing of Hybrid and Electric Vehicles. Under this scheme are a whole lot of concessions for EV makers.

Recently, the Indian government identified 13 priority sectors where PLI schemes will be launched with a total outlay of Rs 2 trillion. Sectors for which incentives have already been approved are electronic or technology products, pharmaceuticals drugs, telecom & networking products, food Products, high-efficiency solar modules, automobile and auto components, specialty steel, textile manufacturing, advanced chemistry cell battery, textiles, and specialty steel.