India’s proposed industrial policy, in the pipeline for over two years, has been put on hold as the government prioritizes the production-linked incentive (PLI) scheme to spur manufacturing growth and attract more private investments. The industrial policy, set to be the third framework of its kind in the history of independent India, aimed to replace the 1991 policy that opened up the economy to liberalization. While economists acknowledge that the PLI scheme addresses existing economic disadvantages and stimulates manufacturing activities, it may not be sufficient to lure companies seeking alternatives to China due to rising geopolitical challenges, logistics costs, infrastructural bottlenecks, and lack of funds for MSMEs.
A government official, speaking anonymously, stated that the industrial policy has been pushed to the “backburner” for now, focusing on boosting manufacturing through free trade agreements and the flagship PLI scheme. The manufacturing sector accounts for only 15% of India’s GDP, and the goal is to improve this percentage and generate more employment opportunities significantly.
The draft industrial policy, titled ‘Industrial Policy 2022—Make in India for the World’, had suggested bold measures such as establishing a specialized development finance institution (DFI) and a technology fund to support companies in advanced technology. It also proposed strategies to assist MSMEs in accessing corporate bond markets for funding.
Economists, however, caution that the PLI scheme is only a partial solution and that more comprehensive measures are necessary to attract investments beyond compensating for existing disadvantages. They emphasize the need for India to become an attractive destination for investors, especially as companies seek alternatives to China. Nonetheless, the government has already launched PLI schemes in 14 sectors with incentives worth over Rs 1.90 lakh crore, and it is projected to account for a significant portion of investment spending in industrial sectors over the next few years.
The National Manufacturing Policy, introduced in 2011, aimed to increase the share of manufacturing in GDP to 25% and create 100 million jobs by 2022. Despite the current share hovering around 17%, the government remains committed to the objective.
