In the right direction

The Union Cabinet approved a Rs 26,058 crore Production Incentive Program (PLI) for the automotive, auto components and drone industries to promote domestic production and boost domestic production. ‘use. The program also aims to facilitate the transition from an automotive sector based on fossil fuels to one based on renewable energies. In the automotive sector, the program aims to attract investment of around Rs 42,500 crore over the next five years with additional output of over 2.3 lakh crore, at the same time creating 7.6 lakh of jobs. . The program also allocates Rs 120 crore spread over the next three years for drone technologies. The allocation is expected to bring in Rs 5,000 crore and facilitate the incremental production of Rs 1,500 crore. Given the scale of the problems it aims to address, the targets set by the program present a daunting task to accomplish. the future. It is in this context that the reduced amount of the PLI scheme – from Rs 57,043 crores previously announced to Rs 26,058 crores – is a bit surprising. The production-related incentives for the automotive sector are a continuum of PLI programs launched in the 2021-22 budget session in 13 sectors with a total expenditure of Rs 1.97 lakh crore over five years. The sectors were selected on the basis of their growth potential, their ability to generate jobs and the value of the country’s exports. Production-linked incentive programs simply offer subsidies within selected sectors on the parameters of increasing production, thereby inducing producers to speed up their operations. In general, the problem with PLI schemes is that the incentive is only one factor that determines production numbers. It must be supplemented by an environment suitable for the operation of production units; it could simply be interpreted as the ease of doing business. Moreover, an increase in production is only possible if there is an adequate supply of factors of production, including labor and capital. To take full advantage of the potential of LIP schemes, the government must undertake parallel policy initiatives to ensure an adequate supply of these factors. In the event that the supply of factors of production is not up to par, the sectors listed may end up appropriating the share of other sectors. Rather, this disparity could lead to negative spillovers. It should be mentioned here that the government is already working on various employment and skills development programs that could potentially turn the challenge of work into an opportunity for employment. One of the main objectives of the program is to quickly orient the country towards greener fuels. India already has two PLI programs – Scheme for Advanced Chemistry Cell worth Rs 18,000 crore and Adaptation of Electric Vehicle Manufacturing worth Rs 10,000 crore – in this area. However, India’s ambition to compete on the world stage in this sector is still a distant destination. India is not only far behind countries like China, but is also heavily dependent on the import of components essential for the production of electric vehicles. The government had previously called on manufacturers to avoid imports from China, but that is highly unlikely until there are other supplies to fill the void. One of the main hurdles for India has been its heavy reliance on China for advanced chemistry cells, which are essential in the production of electric vehicles. The 18,000 crore scheme for the advanced chemistry cell was a useful step, but it will take at least a few years to make a significant mark in this industry. The measures taken by the government are going in the right direction, but it should go further to present a detailed financial breakdown of the program, including activities aligned to increase the flow of capital and labor to make the program PLI a real success. India, at this stage, could also refrain from competing directly with the leading countries in the electric vehicle space. This only suggests that the country should focus on strengthening the fundamentals at this point. Being in the race with relatively incompetent fundamentals could prove to be detrimental in the long run. To emerge stronger, India would have to abide by its stated principle of Atmanirbhar Bharat.

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