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India’s exports hit record high riding on the success of the PLI schemes

Abhinav Singh by Abhinav Singh
9 September 2021
in Economy
PLI, Exports, India, Make in India, Economy, Narendra Modi
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The Narendra Modi government yesterday (September 8) extended the ambit of the revolutionary Production Linked Incentive (PLI) scheme and included the Textiles sector. With a budgetary outlay of Rs 10,683 crore that will be provided over 5 years, the scheme is expected to give a major fillip to the sector. The extension of the scheme comes at a time when India’s merchandise exports in August touched $33.14 billion, 45.17 per cent higher than a year ago and 27.5 per cent over the pre-pandemic level of August 2019. The government’s make in India and as a corollary, ‘Aatmanirbhar Bharat’ push to become the factory of the world is gradually taking shape.

In the first five months of the financial year, exports have touched the $163.67 billion mark which is nearly 67 per cent higher than the same period last year and 22.9 per cent higher than 2019. However, the Modi administration is not sitting on its laurels and is planning to achieve the ambitious target of exports worth $400 billion this year. With 7 months to go, the target looks well attainable. With the introduction of the PLI scheme in the textiles sector, the Union Textiles Ministers Piyush Goyal has set eyes on the target of exports worth 44 billion dollars, come FY22, compared to the current 33 billion dollars.

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PLI scheme and how government seized the opportunity

India’s success comes in the backdrop of the global pandemic which had disrupted the supply chain market. China- the world’s factory dropped the towel and countries across the globe were left scurrying around looking for alternatives. Sensing a window of opportunity, the Modi government swooped in and in March last year, launched the PIL scheme and fast forward today, it has been extended to nearly 10 vital sectors of the economy.

The PLI scheme, a kind of subsidy to the industries in the sectors where India is dependent on imports, is part of the ‘Atma Nirbhar Bharat’ Abhiyan. Instead of providing incentives early to the manufacturing companies, the government is now providing incentives after the output – a change in policy that has yielded considerable benefits. PLI has created a scope for volumes or scale, which never existed earlier. This has created a huge opportunity for exports to grow.

Read more: Extending its PLI scheme, the Modi govt is set to cover 10 sectors with a whopping Rs 2 lakh crore package

China is already wary of the developments and despite the pandemic’s influence considerably easing out, it is holding back supplies to India, to drive up the prices, according to a report by ET. 

Exports are soaring

However, the masterstroke from the government is starting to pay dividends. The export of mobile phones from India grew by a massive 250 per cent year-on-year in the April-June quarter of FY22, thanks to the PLI scheme. There was also a sharp decline in the import of mobile phones at Rs 600 crore during the first quarter. The main aim of helping the mobile phone segment was to boost exports and, in some cases, for national security.

Similarly, despite a sluggish market environment for the automotive sector in the financial year 2020-21, overall automobile exports grew 56.55 per cent in March 2021, owing to the PLI scheme. 

The PLI scheme in the sector is interlinked with the plan for Advance Chemistry Cell (ACC) battery storage. With the cabinet approving the scheme for ACC battery storage production in May 2021, the government has set its sight on making India more environment-friendly and slowly phase out petrol and diesel-based vehicles. The government is playing the long game by betting on the upcoming booming Electronic Vehicle (EV) market.

PLI made us the vaccine hub of the world

Indian in the last fortnight or so has inoculated over 1 crore vaccines in a single day on three separate occasions. The total number of jabs administered has breached the 70 crore mark, despite the doomsayers expecting otherwise through their carefully crafted yet dumb models. The rise and the success of the Indian vaccine story can be attributed to the Pharma sector and in turn the PLI scheme. After China and the US refused to provide the raw materials required for the production of vaccines, India turned inward and ushered a revolution within the industry.

PLI scheme was kickstarted with Active Pharmaceutical Ingredients (APIs)/ Key Starting Materials (KSM) as the focus products. A second PLI scheme for the pharmaceutical sector was launched earlier this year in March with an outlay of an additional USD 2 billion.

Read More: India to experience at least a decade of good growth, thanks to PM Modi

Government removing chinks in the armour

However, one of the major challenges in realising India’s exports dream is the logistics cost, which at times discourages the manufacturers from taking a dip in the market, despite the incentives in store. However, the government has set out to remove those chinks in the armour as well. After the shipping costs witnessed a whopping 300 per cent rise due to the pandemic in August year-on-year, the government is exploring a range of options–including incentivising the setting up of domestic shipping lines and temporary fiscal support — to soften the blow to exporters.

Last month, under the newly unveiled National Monetisation Plan (NMP), one of the major assets to be included was the Indian railways and in specific, the Dedicated Freight Corridor has been earmarked for the scheme. Railways’ share in the transportation of surface freight has declined from 86.2 per cent in 1950-51 to 33 per cent in 2021. To overcome the logistics problem domestically, the government is set to correct the historical anomaly of not having a single dedicated freight corridor.

Currently, Western DFC (WDFC) connecting Haryana and Maharashtra and the Eastern DFC (EDFC) connecting Punjab and West Bengal are under construction. The quicker, cheaper, and more reliable movement of goods will contribute to reducing India’s inordinately high logistics costs which make up for over 13-14 per cent of the GDP. The DFC will bring it down to 8 per cent which will be in tune with the global standards.

Read More: Modi government is set to correct another historical mistake by giving freight trains their own rail lines

Modi government’s sharpness in completing the project will reduce the logistical cost of the railway’s network, which in turn will influence the price of the goods. More importantly, it will also boost ease of doing business and attract greater foreign investment.

Rise in exports and other indicators turning green as well

Despite the UN Conference on Trade and Development report stating that global FDI flows plunged by 35 per cent due to COVID, FDI in India increased by 27 per cent to USD 64 billion in 2020 from USD 51 billion in 2019. The rise in FDI numbers has been pushed up by acquisitions in the information and communication technology (ICT) sector. As reported by TFI, last year, Facebook bought a 9.99 per cent stake in Reliance Jio for $5.7 billion (Rs 43,574 crore), which made it the largest investment for a minority stake by a tech company anywhere in the world.

Reforms have at the core of Modi’s government strategy to keep the economy in a healthy state. The retrospective tax introduced by the UPA regime was an abomination that significantly impacted the investment environment in India. Moreover, it brought international flak to the country, courtesy, the Vodafone and Cairns energy arbitration cases. 

However, the current Modi regime has done away with the dictatorial taxation scheme and mended bridges with Cairns. The MNC couple of days ago announced that it will drop the case and settle for the refund.

Talking of reforms, the introduction of Goods and Services Tax (GST) has changed the face of India’s haphazard tax system. According to the fresh data released by the Finance Ministry, the GST collection for August crossed the one lakh crore mark after doing so in July as well. The gross GST revenue collection stood at Rs 1,12,020 crore which is 30 per cent higher than the previous year – indicating that the economy was indeed recovering at a fast pace.

The aim of a 5 trillion dollar economy by 2025 cannot be achieved without an influx of huge cheap capital in the country, and investment will come only when there is a stable government, conducive taxation environment, structural reforms in the Land and Labor sector. While the predecessors of the current government thought on the same lines, none thought of making Indian the next factory of the world or a scheme like PLI. Even the staunchest of critics of the current administration strongly believe that PLI works and not that it needs any reaffirmation from them, the results speak for themselves.

Tags: exportsFY 22gstIndiaMake In IndiaNational Monetisation PlanPLI
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