Industry

Industrial Relations Code (Amendment) Bill, 2026: Clarifying Repeal and Continuity

Context: As reported by Business Standard and CNBCTV18, the Industrial Relations Code (Amendment) Bill, 2026 has been introduced in the Lok Sabha to remove interpretational ambiguities regarding “repeal and savings” provisions under the Industrial Relations Code, 2020. The move seeks to prevent avoidable litigation and ensure continuity in labour adjudication.

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The Industrial Relations Code, 2020 consolidated three major labour laws:

  • Trade Unions Act, 1926
  • Industrial Employment (Standing Orders) Act, 1946
  • Industrial Disputes Act, 1947

Key Amendments

1. Repeal Clarification

The amendment explicitly states that repeal of the three legacy laws operates by virtue of Section 104 of the Code itself, and not through any separate executive repeal mechanism. This removes ambiguity regarding the source of repeal authority.

2. Savings Continuity

It reinforces that past rights, liabilities, penalties, notifications, and ongoing proceedings under the old laws continue without disruption. This ensures smooth transition and protects pending disputes.

3. Legal Certainty Shield

The drafting has been tightened to guard against misconceived constitutional challenges such as ultra vires or excessive delegation arguments, which could otherwise undermine the Code’s implementation.

Why the Amendment Was Necessary

  • High Litigation Burden: With nearly 54 million pending cases in Indian courts, even narrow interpretational disputes can escalate into prolonged litigation.
  • Continuity Risks in Labour Disputes: Labour cases often span several years. Any uncertainty over “which law applies” can delay proceedings through preliminary objections.
  • Large Compliance Universe: With approximately 7.7 crore MSMEs registered nationally, minor drafting ambiguities can multiply into widespread compliance confusion.

Significance

  • Regulatory Predictability: Clear repeal mechanics stabilise the legal foundation for employers, trade unions, and labour authorities.
  • Faster Dispute Resolution: Reduced scope for preliminary jurisdictional challenges allows tribunals to focus on substantive issues.
  • Reform Credibility: Demonstrates legislative responsiveness to safeguard the labour code architecture, strengthening investor and labour confidence.

Potential Concerns

  • Drafting Optics: A clarificatory amendment soon after enactment may raise concerns regarding initial drafting precision.
  • Residual Transition Issues: Questions relating to subordinate legislation, rule-making, or forum transitions may still arise.
  • Compliance Fatigue: Frequent amendments may create uncertainty, especially among MSMEs managing layered regulatory obligations.

The Amendment Bill primarily aims to ensure legal continuity and interpretational clarity, reinforcing the structural integrity of India’s labour reform framework.

India’s Special Economic Zone (SEZ) Slowdown

Context: Recent Commerce Ministry data reveal that 466 Special Economic Zone (SEZ) units have shut down over the last five years across seven SEZs, signalling structural stress in India’s flagship export-promotion framework. Closures accelerated after the COVID-19 shock, peaking in FY25 (100 units) and FY22 (113 units).

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About Special Economic Zones (SEZs):

India announced its SEZ policy in 2000 under the Foreign Trade Policy, later institutionalised through the SEZ Act, 2005 and SEZ Rules (2006). SEZs were envisaged as duty-free enclaves to promote exports, attract domestic and foreign investment, generate employment, and create world-class infrastructure. Section 18 of the Act also allows International Financial Services Centres (IFSCs) within SEZs, a provision operationalised through GIFT City.

Current Status of the SEZ Sector:

Despite rising exports and investments, the sector shows signs of stagnation. Employment declined marginally from 31.94 lakh to 31.77 lakh (FY25), while exports doubled from ₹7.59 lakh crore (FY21) to ₹14.63 lakh crore (FY25) and investments rose from ₹6.17 lakh crore to ₹7.82 lakh crore. However, sectoral stress is evident: gems and jewellery units fell from ~500 (pre-2019) to ~360 by FY22, reflecting vulnerability to global demand shocks and policy rigidities.

Consequences of the SEZ Slowdown:

  • Export Headwinds: U.S. tariffs and compliance rigidity have slowed SEZ export growth to below 4% YoY (FY24–25).
  • Idle Capacity: 25–30% capacity underutilisation during seasonal demand dips undermines efficiency.
  • Competitiveness Loss: Competing economies like Vietnam attract three times more FDI due to flexible domestic-linkage rules.
  • Fiscal Impact: Over 35 units sought de-notification since 2023, implying an estimated ₹2,800 crore annual revenue shortfall (customs and income tax).
  • Employment Risks: The gems and jewellery SEZs employ about 1.05 lakh artisans; declining U.S. orders led to 12,000+ job losses in FY25.

Way Forward

India must recalibrate SEZs to a post-pandemic, geopolitically fragmented trade environment.

  • Policy Flexibility: Allow controlled domestic subcontracting (job-work) with fair duty adjustment, akin to China’s dual-use SEZ model.
  • Global Branding: Reposition Indian SEZs via coordinated outreach with Invest India.
  • Investment Protection: Negotiate modern Bilateral Investment Treaties (BITs) aligned with global best practices.
  • Innovation Push: Launch an SEZ Innovation & Skill Mission offering tax incentives for R&D, design, and upskilling.
  • Digital Integration: Seamlessly link SEZs with the National Single-Window System to cut approval delays.

Conclusion:

The SEZ slowdown reflects not failure, but policy inertia amid changing global trade dynamics. Targeted reforms can restore SEZs as engines of export competitiveness, jobs, and investment.

Index of Eight Core Industries

Context: The Index of Eight Core Industries grew at 1.7% in June 2025, as compared to 5% in June 2024. IIP had registered a growth of mere 0.5% in April 2025, its lowest in the last eight months.  The output of eight core infrastructure sectors makes up 40% of the country's industrial production. 

Relevance of the Topic: Prelims: Key facts about Index of Eight Core Industries.

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Index Of Eight Core Industries

  • Index of Eight Core Industries (ICI) measures combined and individual performance of production of eight core sectors in India, comprising- coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity. 
  • These eight core industries constitute 40.27% of the total index of industrial production (IIP).
  • This index is prepared by the Office of the Economic Advisor, Ministry of Commerce and Industry.
  • It is published monthly with the base year as 2011-12.

Weightage of different sectors in the Index:

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  • Highest Weightage: Refinery products.
  • Lowest Weightage: Fertilisers.

Toxins of Bhopal Gas Tragedy 1984

Context: Toxic waste weighing 337 tonnes from the defunct Union Carbide factory has been completely incinerated at a private waste treatment facility in Pithampur industrial area, Dhar district in Madhya Pradesh. The waste was moved to the treatment facility in early 2025, more than 40 years after the Bhopal gas tragedy. 

Relevance of the Topic:Prelims: Heavy Metals, Persistent Organic Pollutants. 

What was the Bhopal Gas Tragedy? 

  • The Bhopal disaster or Bhopal gas tragedy was a chemical accident on the night of 2–3 December 1984 at the Union Carbide India Limited (UCIL) pesticide plant in Bhopal, Madhya Pradesh.
  • The world's worst industrial disaster occurred due to the release of nearly 40 metric tons of methyl isocyanate (MIC) from the plant. Over 5000 people lost their lives and thousands suffered physical disabilities due to the leak of toxic methyl isocyanate gas. 

Read also: Industrial Disaster

Toxins of Bhopal Gas Tragedy 1984

Toxins associated with Bhopal Gas Tragedy: 

  • Along with MIC, past reports have indicated the release of worrisome concentrations of toxins, persistent organic pollutants (POPs) and heavy metals.
    • Toxins included: Hexachlorobutadiene, Chloroform, Carbon tetrachloride, Trichlorobenzene
    • Heavy metals: Mercury, chromium, copper, nickel, and lead.

What are Persistent Organic Pollutants (POPs)?

  • Persistent Organic Pollutants (POPs) are organic compounds that do not break down easily and remain intact in the environment for long periods.
  • They become widely distributed geographically, accumulate in the fatty tissue of living organisms and are toxic to humans and wildlife.
  • Their effects include- Cancer, allergies and hypersensitivity, damage to the central and peripheral nervous systems, reproductive disorders, and disruption of the immune system.
  • The Stockholm Convention on POPs is an international environmental treaty to protect human health and the environment from POPs.
    • The Convention was adopted in 2001 and came into effect in 2004. 
    • India is a party to the Convention. 

What are Heavy Metals?

  • Heavy metals are a group of metals and metalloids that have relatively high densities, atomic weights, or atomic numbers. They are classified as heavy metals because their density is at least 5x that of water. 
  • They are often characterised by their toxicity, persistence in the environment, and potential to bioaccumulate in living organisms and have adverse effects on human health and the environment.
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  • Common Examples:
    • Mercury: Can damage multiple organs even at low concentrations by accumulating in soft tissue and preventing normal cellular function.
    • Lead: 
      • Can damage chlorophyll and disrupt photosynthesis in plants. 
      • Developmental issues, brain impairment & cancer. 
    • Arsenic: Carcinogenic. 
    • Chromium: Carcinogenic, impair immune system. 
    • Nickel: Carcinogenic. 

India’s Garment Sector need Reforms

Context: India’s stagnant garment export performance emphasises the urgent need for policy reforms to scale up the sector and enhance global competitiveness.

Relevance of the Topic: Mains: Garment Sector- significance, challenges, reforms.

State of India's Garment Sector

  • India’s textiles and apparel (T&A) sector employs a workforce of 45 million and contributes 2.3% to the overall GDP of India. 
  • T&A sector has grown steadily from $11.5 billion in FY2001 to $37 billion in FY25. However, its share in global trade remains low (4.2%). 
  • The apparel segment alone (under HS codes 61 and 62) has an even lower share of 3% ($15.7 billion). Additionally, this share has remained stagnant for the past two decades. In the last few years, apparel exports have declined at an AAGR of -2%.

India has set an ambitious target to increase its T&A exports from $37 billion in FY25 to $100 billion by 2030.

Key Challenges in India’s Garment Sector: 

  • Lack of scale: Over 80% of India’s apparel units are Micro, Small and Medium Enterprises (MSMEs) which are too small and dispersed. Unlike China and Vietnam, India lacks large, integrated factories that benefit from economies of scale, reducing unit costs, speeding up delivery, and attracting bulk global orders.
  • High Interest Rate: Interest rates in India average around 9%, much higher than China (3%) or Vietnam (4.5%). For an industry operating on low margins (~4-5%), this makes investment and expansion economically difficult.
  • Outdated Fibre Mix: India’s cotton-to-Man Made Fibre ratio (60:40) contrasts with the global average (30:70), indicating an outdated fibre mix, and the global shift towards man-made fibres.
  • Raw Material Cost: MMF (Man-Made Fibres) such as polyester and viscose are 20% costlier in India compared to competitors (Bangladesh, China, Vietnam). Non-tariff barriers like quality control orders hinder MMF-based apparel growth.
  • Rigid and Complex Labour Laws: India’s 52 central labour laws have created rigidities, discouraging formal hiring and scale. Overtime wages are legally mandated at 2x hourly pay, compared to 1.25x internationally, raising production costs significantly.
  • Low Labour Productivity and Skilling Gaps: A large portion of the workforce is semi-skilled or unskilled, with poor access to modern training. Lack of effective, demand-linked skilling programs reduces efficiency and competitiveness.

Case Study: Shahi Exports 

  • Founded in 1974 by Sarla Ahuja, Shahi Exports started with just 15 women and has grown into India’s largest apparel exporter.
  • It operates 50+ factories, 3 mills, across 8 states, with over 1 lakh workers, 70% women.
  • Built scale through vertical integration (80% fabric made in-house), professionalism, and sustainable practices.
  • Success of Shahi Exports demonstrates that Indian firms can scale with the right investment, vision, and long-term policy support.

Way Forward

  • Capital must be made accessible and affordable for scale-focused investments. A structured capital subsidy of 25-30% linked to the size of the unit can provide the initial push. Five to seven-year tax holiday for units would allow investments to mature and become globally competitive.
  • India’s garment sector needs to transition into a fashion-driven industry. To support this, it is crucial to incentivise and invest in MMF-based apparel while removing non-tariff barriers, such as the quality control orders on MMF.
  • Simplify labour laws and align overtime wages with global standards to reduce cost burdens. Link MGNREGA funds (say 25-30%) to subsidise labour costs in garment units
  • Schemes like SAMARTH should be significantly scaled up to provide short-cycle demand-linked skilling, especially for women. 
  • Shift from production-based to export-linked incentives to reward global market success.
  • At least two of the PM MITRA parks should be developed as garment-focused hubs in labour-abundant states like Uttar Pradesh and Madhya Pradesh. This would help reduce worker migration to southern states, lower production costs, support local employment, and foster balanced, inclusive industrial growth across regions.
  • Encourage Vertical Integration: support units to produce in-house fabric and processing, improving efficiency and delivery timelines.

India’s garment sector holds immense potential to generate jobs and boost exports, but without bold policy reforms, this opportunity will slip away. Learning from success stories like Shahi Exports and focusing on scale, skilling, and export competitiveness can transform this sector into a global leader. 

Also Read: Crisis in Cotton Production in India 

Centre notifies guidelines to boost Electric Car Manufacturing in India 

Context: The Ministry of Heavy Industries (MHI) has notified the Scheme to Promote Manufacturing of Electric Passenger Cars in India (SPMEPCI). 

Relevance of the Topic: Prelims: Key facts related to SPMEPCI & associated guidelines.

Scheme to Promote Manufacturing of Electric Passenger Cars in India

The scheme aims to:

  • Boost domestic EV manufacturing by significantly reducing import duties for foreign manufacturers that commit to investing in local production.
  • Attract global investments in electric vehicles (EV) and position India as a global automotive manufacturing hub.

Key Features of SPMEPCI: 

  • Approved companies will be allowed to import up to 8,000 Completely Built Units (CBUs) of electric four-wheelers (e-4W) annually at a reduced customs duty of 15% (subject to a minimum CIF value of USD 35,000 per unit) for a period of five years.
  • To qualify for these benefits:
    • Applicants must commit to a minimum investment of Rs 4,150 crore within 3 years of receiving approval. They must establish manufacturing facilities and commence production within this period. 
    • They must achieve minimum domestic value addition (DVA) of 25% within 3 years, and minimum DVA of 50% within 5 years from the date of issuance of approval letter.
    • They should have global revenues of ₹10,000 crore at the time of application to qualify and receive benefits. 
  • Total duty foregone will be limited to either Rs 6,484 crore or the actual investment made by the applicant, whichever is lower.

Foreign companies can invest in existing EV manufacturing setups in India (brownfield investments), instead of only setting up entirely new factories earlier (greenfield investments).

Significance of SPMEPCI guidelines: 

  • Boosts Domestic Manufacturing: Attracts global EV companies to set up factories in India, strengthening the Make in India and Atma Nirbhar Bharat initiatives.
  • Encourages EV Adoption: Makes electric vehicles more affordable to Indian consumers through reduced import duties.
  • Promotes Investment & Technology Transfer: Ensures large-scale investments, local job creation, and introduction of advanced EV technologies.

The scheme aligns with India’s climate goals, including its commitment to achieve net-zero emissions by 2070. It will also foster environmental sustainability through strategic policy interventions in the EV ecosystem.

PLI Push in Budget 2025

Context: Funding for the various production linked incentive schemes (PLI) has more than doubled in the recent Union Budget 2025-26. This underscores the importance for the manufacturing sector and the government’s push for making India self-reliant and a major global manufacturing hub.

Relevance of the topic:

Prelims: PLI Scheme

Mains: PLI Scheme: Objectives, Impacts, Challenges

Increase in PLI Budget (2025-26)

  • FY26 (BE): ₹19,482.58 crore
  • FY25 (RE): ₹9,360.36 crore 
  • Growth: 108% increase

About Production Linked Incentive (PLI) Scheme

  • Aim: To scale up domestic manufacturing capability, accompanied by higher import substitution and employment generation.
  • Launched in March 2020, the scheme initially targeted three industries:
    • Mobile and allied Component Manufacturing
    • Electrical Component Manufacturing and
    • Medical Devices.

Later, it was extended to 14 sectors.

  1. Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
  2. Manufacturing of Medical Devices: Department of Pharmaceuticals
  3. Pharmaceuticals drugs: Department of Pharmaceuticals
  4. Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
  5. Electronic/Technology Products: Ministry of Electronics and Information Technology
  6. Telecom & Networking Products: Department of Telecommunications
  7. Food Products: Ministry of Food Processing Industries
  8. White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
  9. High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
  10. Automobiles & Auto Components: Department of Heavy Industry
  11. Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
  12. Textile Products: MMF segment and technical textiles: Ministry of Textiles
  13. Specialty Steel: Ministry of Steel
  14. Drones and Drone Components: Ministry of Civil Aviation

Key Features of the PLI Scheme:

  • Outcome-based Incentives: Incentives will be disbursed only after the production has taken place. 
  • Incremental Production Focus:
    • The calculation of incentives is based on incremental production at a high rate of growth. 
    • In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive will be calculated on the basis of sales, performance and local value addition done over the period of five years.
  • Emphasis on Scale: The scheme focuses on size and scale by selecting producers who can deliver high volumes.
  • Strategic Sectors: Sectors chosen include, those with:
    • Cutting-edge technology
    • Potential for integration with global value chains
    • High job-creation capacity
    • Sectors closely linked to the rural economy. 
  • WTO Compliance: The scheme is designed to align with World Trade Organisation (WTO) commitments, as the quantum of support is not directly linked to exports or value-addition.

Read More: Production Linked Incentive 

PLI Scheme for Smartphones: A Case Study

  • Growth in Smartphone Production & Exports:
    • India has become a key player in global smartphone exports.
    • Handsets are now the second highest exported product from India
    • Exports Value (April-November 2024): $13.1 billion
    • Target for 2025: More than $20 billion in smartphone exports.
  • Investment & Incentive Disbursal:
    • Total Investment Committed: ₹11,324 crore
    • Total Production Target: ₹10.7 lakh crore
    • Disbursed Incentives (2022-25): ₹8,700 crore to 19 eligible companies
    • Investment Made (as of June 2024): ₹8,282 crore
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  • Employment Generation:
    • Direct employment created: 1,22,613 jobs in three years
    • Indirect employment: Increased opportunities in logistics, retail, and supply chain
  • Challenges Faced:
    • Failure of Some Domestic Players: Companies like Lava, Bhagwati, and Optiemus failed to meet PLI targets.
    • Investment-Subsidy Mismatch: Actual investment by companies (₹8,282 crore) is slightly lower than total disbursal (₹8,700 crore).
    • Over-Reliance on Global Giants: Over 75% of incentives went to Apple's contract manufacturers (Foxconn, Tata Electronics, Pegatron).

The PLI scheme, complemented by the National Manufacturing Mission, is pivotal in making India a global manufacturing hub. 

By boosting investment, reducing import dependence, and enhancing domestic value addition, it strengthens Make in India and Atmanirbhar Bharat. Effective implementation and infrastructure development will be key to its long-term success.

New Definition of MSMEs: Budget 2025-26

Context: The Union Budget 2025-26 has introduced a series of measures to strengthen the Micro, Small, and Medium Enterprises (MSME) sector. 

Relevance of the Topic:Prelims: Definition of micro, small, and medium enterprises (MSMEs); New initiatives for MSMEs. 

Current Landscape of MSMEs in India:

  • The share of MSMEs in India’s Gross Value Added (GVA) is 30.1% in 2022-23.
  • In 2023-24, MSME-related products accounted for 45.73% of India’s total exports.
  • Currently, over 5.93 crore registered MSMEs employ more than 25 crore people in India. 

Major Initiatives in Budget for MSME sector:

1. New Definition of MSMEs:

  • The investment and turnover limits for MSME classification will be increased to 2.5 times and 2 times, respectively. 
  • This will help MSMEs to scale operations and to access better resources. It is expected to improve efficiency, technological adoption, and employment generation.
MSMEs Revised Definition
Investment (not exceeding)(in Rupees crores)Turnover (not exceeding)(in Rupees crores)
Current Revised Current Revised 
Micro Enterprises12.5510
Small Enterprises102550100
Medium Enterprises50125250500

2. Enhanced Credit Availability: 

  • Credit guarantee cover for micro and small enterprises is increased from ₹5 crore to ₹10 crore.
  • Credit guarantee cover of startups will double from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors.
  • Exporter MSMEs will benefit from term loans up to ₹20 crore with enhanced guarantee cover.

3. Credit Cards for Micro Enterprises: 

  • New customised Credit Card scheme for micro enterprises registered on Udyam portal.
  • It will provide ₹5 lakh in credit, with 10 lakh cards set to be issued in the first year.

4. Support for Startups and First-Time Entrepreneurs:

  • New Fund of Funds with ₹10,000 crore corpus to be established to support startups. 
  • A scheme to provide term loans up to ₹2 crore, over five years, to 5 lakh first-time entrepreneurs (women, Scheduled Caste, and Scheduled Tribe).

5. Focus on Labour-Intensive Sectors: 

  • Product Scheme for footwear and leather sector to support design, component manufacturing, and non-leather footwear production. It is expected to create 22 lakh jobs and generate a turnover of ₹4 lakh crore.
  • New scheme for the toy sector to promote cluster development, skill-building and to position India as a global toy manufacturing hub.
  • National Institute of Food Technology, Entrepreneurship and Management to be established in Bihar, to boost food processing industries in the eastern region.

6. Manufacturing and Clean Tech Initiatives: 

  • The National Manufacturing Mission to provide policy support and roadmaps for small, medium, and large industries, under Make in India initiative.
  • Special emphasis will be given to clean tech manufacturing, fostering domestic production of solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment.

Production Linked Incentive

Context: The Government’s flagship Production Linked Incentive (PLI) scheme has been a mixed bag so far in terms of job creation.

Relevance of the topic:

Prelims: Key features of the PLI scheme

Mains: Significance of PLI Scheme; Challenges associated with PLI Scheme. 

About the PLI Scheme: 

  • The Production Linked Incentive (PLI) scheme refers to a rebate given to producers. This rebate is calculated as a certain percentage of sales of the producer (sales referred to in it can be total sales or incremental sales). 
  • The incentive percentages vary across sectors calculated on the basis of incremental sales, ranging from as low as 1% for the electronics and technology products to as high as 20% for the manufacturing of critical key starting drugs and certain drug intermediaries.

Key Features of the PLI Scheme:

  • Outcome-based Incentives: Incentives will be disbursed only after the production has taken place. 
  • Incremental Production Focus:
    • The calculation of incentives is based on incremental production at a high rate of growth. 
    • In some sectors such as advanced chemistry cell batteries, textile products and the drone industry, the incentive will be calculated on the basis of sales, performance and local value addition done over the period of five years.
  • Emphasis on Scale: The scheme focuses on size and scale by selecting producers who can deliver high volumes.
  • Strategic Sectors: Sectors chosen include, those with:
    • Cutting-edge technology
    • Potential for integration with global value chains
    • High job-creation capacity
    • Sectors closely linked to the rural economy. 
  • WTO Compliance: The scheme is designed to align with World Trade Organisation (WTO) commitments, as the quantum of support is not directly linked to exports or value-addition.

Coverage of the Scheme:

The PLI scheme has been rolled out for manufacturing in 14 sectors. 

  1. Key Starting Materials (KSMs)/Drug Intermediates (DIs) and Active Pharmaceutical Ingredients (APIs): Department of Pharmaceuticals
  2. Manufacturing of Medical Devices: Department of Pharmaceuticals
  3. Pharmaceuticals drugs: Department of Pharmaceuticals
  4. Large Scale Electronics Manufacturing: Ministry of Electronics and Information Technology
  5. Electronic/Technology Products: Ministry of Electronics and Information Technology
  6. Telecom & Networking Products: Department of Telecommunications
  7. Food Products: Ministry of Food Processing Industries
  8. White Goods (ACs & LED): Department for Promotion of Industry and Internal Trade
  9. High-Efficiency Solar PV Modules: Ministry of New and Renewable Energy
  10. Automobiles & Auto Components: Department of Heavy Industry
  11. Advance Chemistry Cell (ACC) Battery: Department of Heavy Industry
  12. Textile Products: MMF segment and technical textiles: Ministry of Textiles
  13. Specialty Steel: Ministry of Steel
  14. Drones and Drone Components: Ministry of Civil Aviation

Significance of PLI Scheme:

  • Utilising the comparative advantage: In some sectors the domestic industry has comparative advantage over other countries, focusing on these sectors could generate higher returns. For instance The Indian pharmaceutical industry is the third largest in the world by volume and 14th largest in terms of value. It contributes 3.5% of the total drugs and medicines exported globally.
  • Increased ability to tap the high global and domestic demand: This will help satisfy the growing domestic demand in the respective sectors and also give a fillip to exports.
  • Developing the nascent but high-potential sectors: These sectors may not be significant but in the present socio-economic context, present high potential. The growth of the processed food industry leads to better prices for farmers and reduces high levels of wastage.
  • Attract Global Manufacturers: The renewed scheme could attract big global IT hardware manufacturers to shift their production base to India and give a boost to local production of laptops, servers and personal computers among others.
  • Generate Employment: The expected incremental production value could touch Rs 3.35 lakh crore, and the scheme could generate 75,000 direct jobs – in total, the employment figure could touch 2 lakh when accounted for indirect jobs.
  • Increase Exports: The IT hardware industry is targeted to reach a production of $24 billion by 2025-26, with exports anticipated to be in the range of $12-17 billion during the same period. This revised PLI is expected to serve as a major catalyst for both global and domestic companies aiming to establish or expand their IT hardware manufacturing operations in India,

Potential Issues with the Scheme: 

  • Absence of Common Parameters: DPIIT has raised concerns there were no common set of parameters to understand the value addition by companies that have received or are likely to receive incentives under the PLI scheme. At present, different ministries monitor the value addition of their respective PLI schemes. There is no way to compare two different schemes.
  • Multiple Deliverables: Also, there are various deliverables such as the number of jobs created, the rise in exports and quality improvement. There is no centralised database to gauge all these.
  • Steep Targets: Departments and ministries which interact with companies operating in their sector also face certain specific issues. For instance, at times, the target for companies to qualify for incentives are too steep. As for the Information Technology hardware sector, until last fiscal, only 3-4 companies managed to achieve the incremental sales targets to qualify for the PLI scheme out of the 14 companies that had been approved.
  • Designing sector specific incentives: The implementation of PLI scheme in the Electronics sector and Pharmaceutical sector has highlighted that every sector has to have different eligibility thresholds. Given the large range of activities covered in the 10 sectors, effectively determining the thresholds for each could become a difficult task.
  • Interfering with natural economic processes: In the long run, an economy can become competitive only when sectors can die and be born. Resources get reallocated to sectors that see higher productivity growth. External interference may hinder optimised allocation of resources.
  • Relative disadvantage for sectors with no incentives: The limited resources of the economy in the form of Capital and human resources will be nudged towards incentivized sectors thus indirectly disincentivizing other sectors.

What can be done to further Improve the Scheme?

  • Pre-defined Sunset clause on scheme: It will not only be beneficial for the sector in the long-term, it will also encourage the individual players to see it as a one-time opportunity for capacity building.
  • Improve technological competence: The breathing room created by these incentives could be used by the industry players to increase their technological competence and transition towards becoming globally competitive.
  • Improve business environment: It can be done by improving transparency and predictability in the policy framework. For example, simplification of the taxation regime or easing the land acquisition process etc. This becomes even more important for industries which are outside the purview PLI Scheme.
  • Managing the real exchange rate better to strengthen the export regime: The real exchange rate (adjusted for inflation) in India has appreciated 19% in the last decade on account of both Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). This appreciation negatively affects the overall exports.
  • Augment industrial infrastructure and connectivity by increasing expenditure on infra creation for improved competitiveness.
  • Regular scheme review to keep track of progress and address concerns over raw materials, funds, skilled workforce, payments etc
  • Increased investments in innovation, research and skill development is necessary to build talent for PLI success. 

Conclusion:

  • The scheme and its associated ecosystem have ensured that India is well-positioned to develop resilient GVCs, which will continue to provide national security in the evolving global scenario.
  • However, the incentives should be well-crafted and temporary so that the industries receiving support can mature and become economically viable without protection. Keeping them in place for too long may slow down, rather than accelerate growth in these sectors.

The case for a new industrial policy

Context: India needs a policy that will facilitate sustained economic growth and transform the country into a global manufacturing hub.

What is Industrial Policy?

  • Industrial policies are government interventions specifically designed to alter the composition of economic activities in pursuit of predetermined public objectives.
    • These objectives typically encompass enhancing innovation, increasing productivity, and fostering economic growth. 
    • However, they may also extend to objectives such as facilitating the climate transition, improving labour market outcomes, reducing regional disparities and expanding export capacity. 
  • A defining feature of industrial policy is its inherent selectivity, wherein policymakers strategically prioritise certain sectors or industries over others to induce structural transformation, albeit with the implicit trade-off that some sectors may be de-prioritised.

Need for Industrial Policy

  • Excessive government intervention can lead to market distortions, dampen competitive dynamics, and foster inefficiencies, turning the economy into a bureaucratic drag. 
  • On the other hand, a laissez-faire approach can leave market failures like negative externalities and public goods under-provided, destabilising the economy. 
  • The key is to apply just the right amount of regulatory nudge - enough to correct market failures and guide resource allocation efficiently, but not so much to make it excessive.

Evolution

  • India’s industrial policy post-Independence created a system where progress was trapped in a maze of bureaucracy.
    • The Industries (Development and Regulation) Act of 1951 birthed the “licence-permit raj,” where every industrial decision required government approval, turning ambition into a bureaucratic hurdle. 
    • The Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 and the Foreign Exchange Regulation Act (FERA) of 1973 further restricted growth and isolated Indian industries from global competition. 
    • Intended to protect and foster growth, these policies instead stifled innovation and redirected business efforts towards navigating regulatory obstacles rather than competing in the market. 
    • This legacy of excessive control and inefficiency is precisely why industrial policy is often vilified as a harbinger of inefficiency and protectionism.
  • However, the recent resurgence of industrial policy, after a period of decline, is driven by a global rethinking of market-driven approaches and the challenges posed by technological disruption, economic stagnation, and geopolitical competition, particularly with China.
    • Developing countries, disillusioned with the Washington Consensus, seek proactive government interventions to diversify and upgrade their economies, while advanced economies grapple with declining manufacturing employment and the lingering effects of the financial crisis. 
    • China’s rapid industrialisation, coupled with rising concerns about technological transfer and competition, has prompted both protectionist measures and calls for stronger industrial strategies in the US and Europe. 
    • Technological changes, including automation and digitalisation, further emphasise the need for government involvement in shaping economic activities.

Reasons why India needs an industrial policy

Economic development involves transitioning from agriculture to manufacturing and services. A well-designed industrial policy can guide this structural transformation, facilitating the shift towards more productive sectors essential for sustained economic growth. 

  • Economic Growth: Government intervention can foster innovation and knowledge spillovers, leading to sustained economic growth.
  • Productivity Growth: Learning and innovation are endogenous processes that require government support. For e.g. Japan and Germany witnessed productivity growth in sectors where state intervention facilitated technology transfer and skills development, particularly in industries such as electronics and automotive manufacturing.
  • Removing Market Imperfection:
    • In India, market imperfections are particularly evident in sectors such as research and development (R&D) and infrastructure, where private firms underinvest because they cannot fully capture the returns on their investments. 
    • Hence, a market-oriented industrial policy can strategically target these inefficiencies by providing selective incentives and fostering a more favourable business environment.
  • Empirical Evidence:
    • Studies in this domain show that countries with active industrial policies tend to experience higher rates of total factor productivity growth, as seen in the case of China’s strategic investments in high-tech industries. 
    • There is also historical evidence of the effectiveness of industrial policies in driving rapid industrialisation in East Asia, with data showing significant increases in GDP per capita and manufacturing value-added in these economies during the periods of active state intervention.

Geoeconomics: Economic strength is a critical component of national security in a multipolar world. India’s industrial capabilities, particularly in strategic sectors like defence manufacturing, telecommunications, and critical technologies, are essential for maintaining strategic autonomy and reducing dependency on foreign powers. An industrial policy that prioritises these sectors can align economic growth with national security objectives.

Categorisation of Central Public Sector Enterprises (CPSEs)

Context: The process for upgrading and downgrading of categorised CPSEs to higher/lower schedule has been simplified and the Finance Minister is now final authority for grading CPSEs.

About Central Public Sector enterprises

CPSEs are slotted in four categories — A, B, C and D. This has a bearing on organisational structure and salaries of Board level incumbents. 

  • According to the Department of Public Enterprises under the Finance Ministry, as on June 26, 2023, 71 CPSEs (NTPC, Indian Oil, ONGC, SAIL, BHEL among others) were in A category, while 68 (Air India Assets Holding, Cement Corporation, Garden Reach, besides others) fell in B category; 38 were placed in C and five in D category. 
  • CPSEs are also classified into four Ratnas — Maharatna (11 CPSEs), Navaratna (12 CPSEs), Mini Ratnas-1 (58 CPSEs) and MiniRatnas-2 (10 CPSEs) to define financial and organisational powers.

The criteria laid down by the Government for grant of Maharatna, Navratna and Miniratna status to Central Public Sector Enterprises (CPSEs) is given below:

  • Maharatna: The CPSEs meeting the following criteria are eligible to be considered for grant of Maharatna status.
    • Having Navratna status
    • Listed on Indian stock exchange with minimum prescribed public shareholding under SEBI regulations
    • An average annual turnover of more than Rs. 25,000 crore during the last 3 years
    • An average annual net worth of more than Rs. 15,000 crore during the last 3 years
    • An average annual net profit after tax of more than Rs. 5,000 crore during the last 3 years
    • Should have significant global presence/international operations.
  • Navratna: The CPSEs which are Miniratna I, Schedule ‘A’ and have obtained ‘excellent’ or ‘very good’ MOU rating in three of the last five years and having composite score of 60 or above in following six selected performance indicators are eligible to be considered for grant of Navratna status.
    • Net Profit to Net worth: 25%
    • Manpower Cost to total Cost of Production or Cost of Services: 15%      
    • PBDIT to Capital employed: 15%
    • PBIT to Turnover: 15%
    • Earnings Per Share: 10%
    • Inter Sectoral Performance: 20%
  • Miniratna:
    • Miniratna Category-I status: - The CPSEs which have made profit in the last three years continuously, pre-tax profit is Rs.30 crores or more in at least one of the three years and have a positive net worth are eligible to be considered for grant of Miniratna-I status.
    • Miniratna Category-II status: - The CPSEs which have made profit for the last three years continuously and have a positive net worth are eligible to be considered for grant of Miniratna-II status.
      • Miniratna CPSEs should have not defaulted in the repayment of loans/interest payment on any loans due to the Government.
      • Miniratna CPSEs shall not depend upon budgetary support or Government guarantees.

Process for Upgradation

  • All categorised CPSEs would continue to come to the Department of Public Enterprises (DPE) for upgradation of their schedule with the approval of their Administrative Ministry or Department based on existing guidelines.
    • The proposals for categorisation are to be furnished to the DPE with the concurrence of the financial advisor and the approval of the Minister-in-charge of the administrative Ministry/Department concerned. 
    • The proposal should contain performance of the CPSE for the last five years on
      • Quantitative parameters: investment, capital employed, net sales, profit before tax, number of employees and units, capacity addition, revenue per employee amongst others.
      • Qualitative factors include national importance, complexities of problems faced, technology, expansion prospects and diversification and competition alongside share price, Maharatna/Navaratna/MiniRatna status and ISO certification.
  • The DPE will examine and take the decision on the upgrade with the approval of the finance minister. 
  • Such a proposal would not be referred to the Cabinet Secretariat and PESB (Public Enterprises Service Board).

What is Homologation certificate?

Context: The Indian arm of the Chinese electric vehicle (EV) maker BYD, said that it expects to get a homologation certificate that can help it sell more cars in the country.

About homologation certificate: 

  • Homologation is the process of certifying that a particular vehicle is roadworthy and matches certain specified criteria laid out by the government for all vehicles made or imported into that country.
  • The tests ensure that the vehicle matches the requirements of the Indian market in terms of emission and safety and road-worthiness as per the Central Motor Vehicle Rules.
  • This certificate is issued by the Automotive Research Association of India (ARAI).

About Automotive Research Association of India (ARAI)

  • It is the autonomous research Institute of the automotive industry with the Ministry of Heavy Industries.
  • Established in 1966
  • It offers comprehensive certification and homologation services for entire range of automotive vehicles, systems and components.
  • It is authorized agency for testing and certifying vehicles and engines used for both automotive and non-automotive applications.
  • It assists the vehicle manufacturers for export homologation activities.
  • It also assists the government in the formulation of automotive industry standards and harmonisation of regulations, alongside helping establish vehicle inspection and certification centres across the country.