K R Sudhaman
Productive linked incentive scheme to stimulate and revive the covid-hit Indian economy is very thoughtful and a welcome development as it weaves in job creation in Modi government’s Atama Nirbhar Bharat. This critical factor that is usually lost while analyzing the possible impact of the scheme in boosting the economy. Majority of Indians still depended on agriculture for jobs. In India 45 per cent of the population still depended on farming which accounts for a mere 17 per cent of GDP. So the need of the hour is to provide jobs to these underemployed but educated youth as urbanization increasingly happens close to clusters of villages. This has twin advantages as the youth could still stay in their villages and work in nearby towns in non-farming industrial jobs.
PLI scheme is being implemented mostly in labour intensive manufacturing though some of them are hi-tech. Textiles and food processing are two areas in particular are not only labour-intensive and can be set up in semi-urban areas as basic raw material came from agriculture and had huge potential to absorb trained manpower in villages and small town.
Finance Minister, Nirmala Sitharaman has so announced Rs1.97 Lakh Crore for PLI Schemes across 13 key sectors, to generate employment opportunities in manufacturing. They are Drug and intermediates, pharma ingredients, electronics manufacturing, medical devices, telecom, food processing, white goods, solar PV modules, auto and auto components, advance chemistry cell battery, textiles and speciality steel.
Credit Suisse (investment bank) estimates that the PLI scheme can generate US $ 150 billion in incremental sales by the financial year 2027, adding up to 1.7 per cent to the GDP by FY ’27. The scheme based on disadvantage/disability faced by a sector is a kind of subsidy to the sector and direct payment from the budget to goods made in India. It aims to give companies incentives on incremental sales from products manufactured in domestic units. Experts also claim that the PLI scheme is a focused scheme and not an investment subsidy scheme.
The most recent PLI scheme announced is in textiles. This is important as this will help in huge job creation with less investment. A petroleum refinery required an investment of Rs 15,000 to 20,000 crore investment and provides job to some 1000-2000 people. But in investment of say Rs 500 crore in setting up textile units will help in creating 30,000 to 40,000 jobs. Also this industry does not require sophisticated skills. Besides in India with so many handloom weavers all across length and breadth of the country, absorbing these rural artisans in nearby textiles mills with a little skilling should not be a problem. Also one of the raw materials is cotton, which is a farm product.
The PLI scheme worth ₹ 10,683 crore for the textiles sector announced in early September will boost domestic manufacturing and exports. The scheme will help in creating direct additional employment of more than 7.5 lakh people and several lakhs more for supporting activities. The payout will be spread over a period of five years, as part of the incentives approved for the textiles sector The PLI scheme is approved for textiles, MMF (man-made fibre) apparel, MMF fabrics, and 10 segments or products of technical textiles. The scheme will result in the production of high-value MMF fabric, garments, and technical textiles in the country. The government estimates that over five years, the PLI Scheme for textiles will result in a fresh investment of more than Rs.19,000 crore, along with a cumulative turnover of over Rs.3 lakh crore.
Garment exports from India has more or less plateaued in the recent years because India has concentrated mostly on cotton garments. World over including China and Vietnam, eightyfive per cent of garment exports are from man-made fibre. In case of India it is just the reverse as manmade fibre formed just single digit or some 15 to 20 per cent of total garment exports. So the expectations that the PLI scheme is likely to create 50-60 world-class global champion companies in man-made fibre and technical textile segments. As per industry insiders, some of the companies are aggressively looking to take its advantage including Indo Rama Synthetics which is likely to set up additional capacity to utilise benefits under the scheme.
As the objective is to promote new facilities particularly in man made fibre sector and technical textiles, the manufacturers shall be given an incentive by the centre from a corpus of Rs. 10,683 crore over 5 years. The textiles ministry has reportedly identified 50 key sectors like sanitary pads, tampons, sweaters and jerseys. The scheme is likely to offer three categories on which incentives will be provided, for already active players in the bracket of Rs. 100-400 crore and over Rs. 400 crore of net turnover exists.
The idea is that if the company in the first category receives a 50 per cent incremental turnover, they will be provided with 9 per cent seed funding from the Government. For the second category, 7 per cent on net incremental turnover will be disbursed. The base year to determine the net incremental turnover will be 2019-20 and the scheme is likely to come into effect from 2022. While for new companies venturing into textiles, a category called Greenfield will apply, these companies will have to make at least a Rs. 500 crore investment, on which the gains would be 11 per cent to start with.
The PLI scheme will boost domestic manufacturing and attract foreign investment, helping local manufacturers achieve scale, and making Indian exports competitive. India’s textiles exports are hit dut to lack of size and scale which results in cost disadvantage. This scheme will help in incentivising large scale production. Niti Aayog CEO Amitabh Kant is of the view that the incentives will raise the competitiveness of not just large firms, but also of all firms across the value chain including MSMEs.
This will also help in V-Shaped recovery in apparel sector besides job creation as it being labour-intensive sector. Manmade fibre garments and technical textiles’ account for US $ 180 billion global trade and, therefore, the scheme would encourage the industry to invest in the manufacturing of these high value-added products. India has been lagging in the MMF textile trade due to expensive raw materials and high tariff barriers apart from cheaper imports from neighbouring countries, the focus of the PLI scheme on MMF seems impressive.
The cotton textile is excluded from this scheme. Industry stakeholders are of the view that India’s cotton exports contracted 18 per cent last year and hence should considered for this as well. It’s for new high potential areas that is understandable – this being tuned for big players only is disappointing but guess Government’s objective is to incentivise for large investments, said a leading textile player. (IPA Service)