Industry

About the PLI Scheme

• Production Linked Incentive 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 incentives, calculated on the basis of incremental sales, range from as low as 1 per cent for the electronics and technology products to as high as 20 per cent for the manufacturing of critical key starting drugs and certain drug intermediaries. 

Key Features of PLI Scheme

• The scheme is outcome-based, which means that incentives will be disbursed only after production has taken place.
• 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 to be given will be calculated on the basis of sales, performance and local value addition done over the period of five years.
• The scheme focuses on size and scale by selecting those players who can deliver on volumes.
• The selection of sectors covering cutting-edge technology, sectors for integration with global value chains, job-creating sectors and sectors closely linked to the rural economy, is highly calibrated.
• Also, the design of the PLI scheme is such that it is compatible with World Trade Organization commitments as the quantum of support is not directly linked to exports or value-addition.

Significance of this 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.
• Attracts 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.
• Generates 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. 
• Promotes Digital Economy: By deepening & broadening the electronics ecosystem in India, this scheme will play a key role in catalysing India’s Techade and in achieving the $1 trillion digital economy goal – including $300 billion of electronics manufacturing by 2025-26
• Increased 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.
• Promotes Private Investment: From the perspective of industry, the scheme indicates an attitudinal shift from ‘discouragement’ to ‘encouragement’ for large industries and simultaneously provides the much-needed fiscal space required during the Pandemic.

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.

Way Forward

• 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. Indian manufacturers now feel emboldened to move out of their comfort zone with a clear vision of becoming global champions even as India marches towards its emergence as developed India.
• 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.

Context: Parliament cleared the Competition (Amendment) Bill, 2023, paving the way for the government to enact some significant changes to the country’s antitrust regime, including swifter clearances for mergers and acquisitions (M&As).

The Competition (Amendment) Bill, 2023: Key Features

• Regulation of combinations based on transaction value: The Act prohibits any person or enterprise from entering into a combination which may cause an appreciable adverse effect on competition.  Combinations imply mergers, acquisitions, or amalgamation of enterprises. The prohibition applies to transactions where parties involved have: (i) cumulative assets of more than Rs 1,000 crore, or (ii) cumulative turnover of more than Rs 3,000 crore, subject to certain other conditions. The Bill expands the definition of combinations to include transactions with a value above Rs 2,000 crore.
• Time limit for approval of combinations: The Act requires the CCI to pass an order on an application for approval of combinations within 210 days.  The Bill reduces this time limit to 150 days.
• Definition of control for classification of combinations: For classification of combinations, the Act defines control as control over the affairs or management by one or more enterprises over another enterprise or group.  The Bill modifies the definition of control as the ability to exercise material influence over the management, affairs, or strategic commercial decisions.
• Anti-competitive agreements: Under the Act, anti-competitive agreements include any agreement related to production, supply, storage, or control of goods or services, which can cause an appreciable adverse effect on competition in India.  Any agreement between enterprises or persons, engaged in identical or similar businesses, will have such adverse effect on competition if it meets certain criteria.   These include: (i) directly or indirectly determining purchase or sale prices, (ii) controlling production, supply, markets, or provision of services, or (iii) directly or indirectly leading to collusive bidding.  The Bill adds that enterprises or persons not engaged in identical or similar businesses shall be presumed to be part of such agreements, if they actively participate in the furtherance of such agreements.
• Settlement and Commitment in anti-competitive proceedings: Under the Act, CCI may initiate proceedings against enterprises on grounds of: (i) entering into anti-competitive agreements, or (ii) abuse of dominant position.  Abuse of dominant position includes: (i) discriminatory conditions in the purchase or sale of goods or services, (ii) restricting production of goods or services, or (iii) indulging in practices leading to the denial of market access.  The Bill permits CCI to close inquiry proceedings if the enterprise offers: (i) settlement (may involve payment), or (ii) commitments (may be structural or behavioural in nature).  The manner and implementation of the framework of settlement and commitment may be specified by CCI through regulations.
• Decriminalisation of certain offences: The Bill changes the nature of punishment for certain offences from imposition of fine to penalty.  These offences include failure to comply with orders of CCI and directions of Director General with regard to anti-competitive agreements and abuse of dominant position.

Economic Rationale for Competition

• Competition is the best means of ensuring that the common man has access to the broadest range of goods and services at the most competitive prices.
• With increased competition, producers will have maximum incentive to innovate and specialise. This would result in reduced costs and wider choice to consumers.
• Fair competition in the market is essential to achieve this objective. The goal is to create and sustain fair competition in the economy that will provide a ‘level playing field’ to the producers and make the markets work for the welfare of the consumers.

The Competition Act

• The Competition Act, 2002, as amended by the Competition (Amendment) Act, 2007, follows the philosophy of modern competition laws.
• The Act prohibits anti-competitive agreements, abuse of dominant position by enterprises and regulates combinations (acquisition, acquiring of control and M&A), which causes or likely to cause an appreciable adverse effect on competition within India.

Competition Commission of India

• The objectives of the Competition Act are sought to be achieved through the Competition Commission of India, which has been established by the Central Government with effect from 14th October 2003.
• CCI consists of a Chairperson and 6 Members appointed by the Central Government.
• It is the duty of the Commission to eliminate practices having adverse effects on competition, promote and sustain competition, protect the interests of consumers and ensure freedom of trade in the markets of India.
• The Commission is also required to give opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.

Context: The seasonally adjusted PMI reading moved up from 55.3 in February to 56.4 in March, signalling the strongest improvement in operating conditions in 2023 so far. A reading of over 50 on the PMI indicates an uptick in economic activity.

About PMI

• PMI is an indicator of business activity -- both in the manufacturing and services sectors. It is calculated separately for the manufacturing and services sectors and then a composite index is constructed.
• It is a survey-based measure that asks the respondents about changes in their perception of some key business variables from the month before.
• The PMI is derived from a series of qualitative questions. Executives from a reasonably big sample, running into hundreds of firms, are asked whether key indicators such as output, new orders, business expectations and employment were stronger than the month before and are asked to rate them.
• A figure above 50 denotes expansion in business activity. Anything below 50 denotes contraction. Higher the difference from this mid-point greater the expansion or contraction. The rate of expansion can also be judged by comparing the PMI with that of the previous month data. If the figure is higher than the previous month’s then the economy is expanding at a faster rate. If it is lower than the previous month then it is growing at a lower rate.

Significance

• The PMI is usually released at the start of the month, much before most of the official data on industrial output, manufacturing and GDP growth becomes available. It is, therefore, considered a good leading indicator of economic activity. Economists consider the manufacturing growth measured by the PMI as a good indicator of industrial output, for which official statistics are released later. Central banks of many countries also use the index to help make decisions on interest rates.
• The PMI also gives an indication of corporate earnings and is closely watched by investors as well as the bond markets. A good reading enhances the attractiveness of an economy vis-a-vis another competing economy.

Difference Between PMI and IIP

Context: Ministry of MSME has issued guidelines for revamping of Credit Guarantee Scheme for Micro & Small Enterprises with effect from 1st April 2023. CGTMSE created a landmark by touching the milestone approving guarantees worth Rs 1 lakh crore during FY 2022-23. 

Revamped Credit Guarantee Scheme for Micro & Small Enterprises Scheme

• Objective of CGTMSE Scheme: Aims to encourage first generation entrepreneurs to venture into self-employment opportunities by facilitating credit guarantee support for collateral free/third party guarantee free loans to Micro & Small enterprises (MSEs), especially in absence of collateral. To operationalise the scheme, Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
• Guarantee coverage ranges from 85% for Micro enterprises up to Rs 5 lakhs to 75% for others. 50% coverage for retail activity. 

• Corpus of Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) has been infused with a sum of Rs 8,000 crore to enable additional collateral free guaranteed credit of Rs 2 lakh crore and reduction in cost of credit by 1%.
• Reduction of Annual Guarantee Fee for loans up to Rs 1 crore from a peak rate of 2% p.a. to as low as 0.37% per annum. This will reduce overall cost of credit to Micro & Small Enterprises to a great extent.
• Limit on ceiling for guarantees has been enhanced from Rs 2 crore to 5 crores. Hence, under the scheme provides credit guarantee for loans up to Rs 5 crore, without collateral and third-party guarantee. 
• No legal proceedings up to Rs 10 lakhs: For settlement of claims in respect of guarantees for loan outstanding up to Rs 10 lakh, initiation of legal proceedings will no longer be required.
• Lending Institutions through which CGTMSE Scheme is eligible: Scheduled Commercial Banks including private banks, select Regional Rural Banks, Selected NBFCs and Small Finance Banks, NSIC, NEDFI, SIDBI and The Tamil Nadu Industrial Investment Corporation(TNIIC).

About Lean Manufacturing:

• Lean Manufacturing or Lean Production, which is often known simply as LEAN, is a production practice that considers the expenditure of resources for any goal, other than the creation of value for the end customer, to be wasteful, and thus, a target for elimination.
  • Lean manufacturing includes a set of principles that lean thinkers use to achieve improvements in productivity, quality, and lead-time by eliminating waste through kaizen.
  • Kaizen is a Japanese word that essentially means "change for the better" or "good change." The goal is to provide the customer with a defect free product or service when it is needed and, in the quantity, it is needed.

Why the need for such a Scheme?

• MSMEs form an integral part of almost every value chain and there is a symbiotic relationship between the large corporations and relatively small sized suppliers.
  • As domestic & global competitiveness becomes intensive, there is a need for MSMEs to transition to a new business environment especially with the disruption in the global supply chains and convergence of multiple sourcing as a methodology in vendor development.
  • Recognizing the importance of overall economic growth of a country and the need for enhancing its productivity, competitiveness and employment generation besides resource optimization, many countries have initiated institutional mechanisms for a national approach on improving the quality of manufacturing & services.

Objective:

• The objective of the scheme is to enhance the Domestic and Global Competitiveness of MSMEs through the application of various Lean Techniques that inter-alia includes:
  • Reduction In: Rejected rates, product and raw material movements, product cost.
  • Optimization Of: Space utilisation, Resources like water, energy, natural resources etc.
  • Enhancement Of: Quality in process and product, production & export capabilities, workplace safety, knowledge & skills sets, innovative work culture, social & environmental accountability, profitability, introduction & awareness to industry 4.0, digital empowerment.

Scheme Components:

• Industry Awareness Programmes/Workshop: MSMEs will be made aware of the Scheme through Nation-wide awareness programmes (online and/or face-to-face, as appropriate) with the assistance of stakeholders like Industry Associations, Implementing Agencies, MSME-DFOs, District Industries Centres (DICs), Large Enterprises/OEMs.
  • Training Programmes: Stakeholders like the MSME Officers, Assessors and Consultants will be trained on the MSME Competitiveness (Lean) Scheme to enable an effective implementation by Implementing Agencies like QCI, NPC.
  • Handholding: MSMEs will be provided handholding towards the implementation of Lean Tools and Techniques at three different levels – Basic, Intermediate, and Advanced. Completion of each stage is verifiable end term assessment or assessment by Implementation Agency along MSME -DFOs as the case may be.
  • Benefits/Incentives: Graded incentives will be announced by the Ministry of MSME for MSMEs for encouraging MSME units’ participation under the scheme. Implementation of Lean (Generation of Lean ID) Lean Pledge & Undertaking (Generation of Lean Pledge Level) Implementation of Lean (Basic, Intermediate, Advanced).
  • PR campaign, Advertising & Brand Promotion: For popularising the Lean Scheme, a Nation-wide publicity will be done.
  • Digital Platform: Lean Scheme process will be e-enabled through a single window digital platform which will be utilised for the implementation of the scheme.

Coverage and Eligibility:

• All MSMEs registered with the UDYAM registration portal (of the MoMSME) will be eligible to participate in MSME Competitive (Lean) Scheme and avail related benefits/incentives.
  • Scheme is also open to Common Facilities Centres (CFCs) under SFURTI (Scheme of Fund for Regeneration of Traditional Industries) and Micro & Small Enterprises - Cluster Development Program (MSE-CDP) Schemes.

Financial Assistance for MSME Units:

• To support MSMEs, the government will contribute 90% of implementation cost for handholding and consultancy fees. There will be an additional contribution of 5% for the MSMEs which are part of SFURTI clusters, owned by women/SC/ST and located in NER.
  • In addition to the above, there will be an additional contribution of 5% for MSMEs registering through Industry Associations/Overall Equipment Manufacturing (OEM) organisations after completing all levels.
  • There is a unique feature to encourage Industry Associations and OEMs to motivate their supply chain vendors to participate in this scheme.

Scheme Levels: MSME Competitive (Lean) Scheme can be attained in THREE Levels after registering and taking the Lean Pledge: