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Smartphone PLI: Controversy & Discussion



  Aug 26, 2023

PLI for Smartphones:The Debate


Conflict Over Manufacturing Scheme:

Former Reserve Bank of India (RBI) governor Raghuram Rajan and Minister of State for Electronics Rajeev Chandrasekhar have been engaged in a public disagreement concerning the effectiveness of a Central government scheme aimed at boosting electronics manufacturing in India.
 

Key Features of the PLI Scheme:

The production-linked incentives (PLI) scheme, introduced around five years ago, is designed to encourage more companies, both foreign and domestic, to manufacture products in India. The government offers financial incentives to companies based on a percentage of their revenue generated from manufacturing for up to five years.
 

Rajan's Perspective:

Raghuram Rajan, along with other economists, contends that the PLI scheme isn't effectively driving India toward becoming a self-sufficient manufacturing powerhouse. He argues that the scheme is creating an ecosystem of low-level assembly jobs that remain heavily dependent on imports for components. Rajan suggests that this approach might not lead to sustainable growth in the manufacturing sector.
 

Chandrasekhar's Response:

Minister Rajeev Chandrasekhar counterargues that Rajan's assessment is flawed. He points out that not all imports of components are used solely for mobile phone manufacturing, but also for other products like computer monitors and cameras. Chandrasekhar acknowledges that while India's value-addition in mobile manufacturing might be low currently, it will improve as the supply and assembly chain evolves in India.
 

The Debate's Core:

The primary disagreement revolves around whether the PLI scheme will create lasting, value-added jobs in manufacturing and establish India as a significant manufacturing and supply hub. Chandrasekhar believes that it will take time for the scheme's results to materialize, while Rajan emphasizes the importance of ensuring that taxpayer funds yield meaningful and sustainable outcomes.
 

Long-Term Implications:

The underlying concern is that focusing on low-level assembly jobs might not lead to substantial economic growth or job creation in the long run. Rajan's argument underscores the need for a broader perspective on sustainable economic development, while Chandrasekhar stresses the potential of the PLI scheme to contribute to India's manufacturing capabilities.
 
In summary, the disagreement between Rajan and Chandrasekhar reflects a fundamental debate over the effectiveness and long-term impact of India's production-linked incentives scheme on the country's manufacturing and economic landscape


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