India’s $23 billion Production-Linked Initiative has struggled to achieve production goals, with only 37% of targets met, leading to a decision not to extend the program. Factors such as bureaucratic delays and failure to comply with requirements have hindered its impact. The government, however, remains committed to enhancing support for manufacturing, suggesting a shift towards investment reimbursement strategies to stimulate growth.

India’s ambitious $23 billion initiative aimed at bolstering its manufacturing sector has faced significant challenges and will not be extended. Participating companies, including Apple supplier Foxconn and Reliance Industries, were offered financial incentives contingent upon achieving specific production goals. Unfortunately, many firms have struggled to commence production, and some that met targets found delays in subsidy payments, leading to a shortfall in the program’s overall effectiveness.

As of October 2024, the program had only seen 37% of its targeted production completed, with a mere $1.73 billion in incentives disbursed, representing under 8% of the allocated funds. Despite these setbacks, the Indian government asserts that it remains committed to its manufacturing objectives and is exploring alternatives to enhance support for certain sectors. Recent growth has notably occurred in the pharmaceuticals and mobile-phone sectors, where 94% of the incentives issued were allocated.

Challenges remain as some firms in the food sector failed to achieve compliance required for subsidies, despite exceeding production targets. Reports suggest that bureaucratic obstacles have hindered the effectiveness of the initiative. India is now contemplating a strategy to partially reimburse firms for their investments in plant setups, potentially expediting cost recovery rather than relying on production-based payments.

Trade experts warn that India may have missed critical opportunities to attract foreign investment within this window. The program was launched during a crucial time when many global companies sought to diversify from China due to its production challenges. Although successful in pharmaceuticals and mobile phones, many other sectors, including textiles and solar manufacturing, have not met expectations, primarily due to stiff competition from China.

In the solar industry, for example, several participating companies have fallen behind on production targets, raising concerns about future viability. The government’s commitment to accountability in subsidy distribution remains strong, underscoring the need for performance-based rewards rather than blanket incentives. Overall, the manufacturing landscape in India appears stagnant, with only a third of anticipated production realized under the plan due to systemic inefficiencies and lagging execution.

In summary, India’s $23 billion Production-Linked Initiative has faced notable challenges, including production shortfalls and delayed financial incentives, leading to the non-extension of the program. While the government emphasizes its ongoing commitment to manufacturing, particularly in pharmaceuticals and smartphones, many sectors continue to face substantial hurdles. The proposed shift towards investment reimbursement may offer a new approach, yet the future of India’s manufacturing ambitions remains uncertain as it grapples with external competition and internal bureaucratic inefficiencies.

Original Source: m.economictimes.com

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