Scheme:
The Production-Linked Incentive (PLI) scheme of the Government of India is designed to enhance the manufacturing sector by offering companies incentives based on the increase in their sales of products produced in domestic facilities. This initiative aims to enhance domestic manufacturing capabilities, reduce import dependency, and promote the “Make in India” campaign. The PLI scheme encourages foreign manufacturers to establish production units in India while also incentivizing domestic manufacturers to expand their production and increase exports.
Context:
Indian Railways launched the PLI scheme to promote the domestic production of essential train components, including wheels, brakes, and transmission systems, for Vande Bharat trains and Linke Hofmann Busch (LHB) sets. Previously, many of these components were imported. The main objective now is to enhance the domestic production of wheels, axles, braking systems, locomotives, and track machines. In recent years, Indian Railways has made substantial progress in cutting down on imports.
The PLI scheme will primarily focus on reducing the reliance on imports by promoting the manufacturing of essential train components within India. This move aligns with the broader objectives of the ‘Make in India’ initiative, aiming to increase self-reliance and build a robust domestic supply chain for the railway sector.
Update So Far:
A consultancy firm was selected through a bidding process last year to assist in detailing the scheme. Currently, the import share in Vande Bharat trains is approximately 15%, while in LHB coaches, it stands at around 1.5%. Officials emphasized the need to localize the production of train components and to explore the export opportunities for Vande Bharat trains.
The PLI program will encourage the establishment of new manufacturing facilities or the expansion of existing ones. Also, Indian Railways has also placed a procurement order for 1.54 million forged wheels made domestically to reduce import dependency. The increasing demand for Vande Bharat and LHB train components is significant, with projections indicating that around 4,500 Vande Bharat trains will be in operation across the country by 2047.
The paradigm shift highlights the success of the ‘Make in India’ campaign in boosting domestic production, attracting Foreign Direct Investments (FDIs), and building a strong industrial ecosystem. As the ‘Make in India’ campaign gained traction, the Delhi Metro also took significant steps to localize its manufacturing processes. Today, the metro system proudly produces 90% of its coaches domestically, reflecting the country’s advancing capabilities in railway infrastructure. This shift not only decreases reliance on imports but also fosters job creation and skill development within the nation.
PLI in Other Sectors:
Introduced in March 2020, the Production-Linked Incentive (PLI) scheme initially focused on three industries: mobile and related component manufacturing, electrical component manufacturing, and medical devices. As of a PIB report dated January 17, 2024, the scheme now covers 14 essential sectors, including pharmaceuticals, specialty steel, telecom and networking products, electronic goods, white goods, food products, textiles, solar PV modules, advanced chemistry cell batteries, and drones and their components. With an incentive outlay of Rs. 1.97 lakh crore (over US$26 billion), the PLI scheme has driven significant localization of manufacturing, notably in electronic components and mobile phones, leading to a substantial increase in production and exports.
The PLI scheme has had a transformative impact across various sectors. In pharmaceuticals, it has reduced import dependency by enabling the domestic production of key raw materials and bulk drugs. In telecom, it has achieved a 60% import substitution, with a 370% increase in sales of telecom and networking products by PLI beneficiaries. The food processing sector has seen increased raw material sourcing from Indian farmers, boosting their income and enhancing Indian brand visibility internationally. These achievements underline the PLI scheme’s success in fostering self-reliance, boosting exports, and attracting foreign direct investment across diverse industries.
Impact:
- Self-Sufficient Ecosystem: The introduction of the PLI scheme for railways is expected to significantly boost India’s self-sufficiency in the railway sector. By encouraging domestic production of critical components like wheels, brakes, and transmission systems, India aims to reduce its reliance on imports. This self-sufficiency ensures a more resilient and stable supply chain, capable of meeting the growing demands of the railway sector without external dependencies.
- Efficiency and Competitiveness: The PLI scheme enhances efficiency and competitiveness in the railway manufacturing sector by incentivizing quality improvements and technological advancements. Domestic manufacturers are encouraged to adopt cutting-edge technologies and best practices to meet the performance-linked incentives criteria. This drive towards modernization leads to higher productivity and better-quality products. Moreover, by decreasing reliance on imports, manufacturers can optimise their supply chains, resulting in quicker production cycles and cost savings.
- Enhanced Manufacturing Capabilities: The scheme seeks to substantially boost India’s manufacturing capabilities within the railway sector. By focusing on high-value components and systems, the PLI scheme drives investments in advanced manufacturing technologies and research and development (R&D). Companies are encouraged to either establish new manufacturing units or expand existing ones, thereby increasing their production capacity. This expansion not only meets domestic demand but also positions India as a potential exporter of railway components and systems.
- India as a Hub for Global Railway Investment and Production: The PLI scheme positions India as an attractive hub for global railway investment and production. By fostering a supportive environment for both domestic and international manufacturers, India can attract substantial foreign direct investment (FDI) into the railway sector. The scheme’s incentives, combined with India’s large and growing market for railway infrastructure, make it an ideal destination for global players looking to establish or expand their manufacturing footprint. Moreover, the successful implementation of the PLI scheme showcases India’s commitment to developing a world-class manufacturing ecosystem, which can further boost investor confidence.
Conclusion:
By focusing on domestic manufacturing, drawing in foreign investments, and executing strategic initiatives such as the PLI scheme, the Indian government is guiding the country towards self-reliance and enhanced global competitiveness in the railway infrastructure sector. The unfolding ‘Make in India’ vision revitalizes the domestic manufacturing landscape, positioning India as a pivotal player in the global railway ecosystem. The railway sector’s success story provides a blueprint for other industries, reinforcing India’s commitment to economic growth, innovation, and self-sufficiency on the global stage.
Image Credit (representational): Unsplash
