Why PLI Is Worth Doing

Critiques are missing both the immediate economic logic & its longer term strategic benefit

- Somnath Mukherjee

The recent VedantaFoxconn semiconductor factory in Gujarat, at an eye-popping investment of $20 billion, has unsurprisingly engendered a firestorm of commentary. It also reignited the policy critique of the government’s flagship Production Linked Incentive (PLI) scheme, the programme that is the fount of investments like VedantaFoxconn. The critique received serious intellectual heft from ex-RBI governor Raghuram Rajan’s cautionary analysis (‘Making In India. But How?’, September 12; bit.ly/3DSKm3Y) in these pages.

How rigorous is the critique, given that empirical evidence will take a few years to come in yet?

For starters, typically PLI on a specific product category is accompanied or preceded by higher tariffs on the product. This reverses a long trend of lower import tariffs, and usually results in higher sticker price for the Indian consumer. Rajan quite evocatively quoted the example of iPhone 13 – costing Rs 1.29 lakh in India versus Rs 92,500 in Chicago.

Sounds logical?

Perhaps in colloquial parlance. In the real policy-making domain, it’s neither new nor terribly surprising. The sticker price of the Mercedes Benz S-class manufactured in India costs Rs 1.6 crore while being available for under Rs 1 crore in the US. The iconic Ralph Lauren Polo T-shirts, stitched in India, retails at price points starting from Rs 13,000 in India. In the US, it’s available at nearly half of that price.

The need for PLIs