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-By Ankita Dutta.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), has advised the Indian government not to introduce production-linked incentive (PLI) schemes for small sectors such as leather shoes and handicrafts. Srivastava believes that the primary focus of PLI schemes is on expanding production scale, which benefits larger firms. Implementing such schemes for products with many manufacturers, both small and large, may shift business away from small firms and create stress in the sector. Instead, Srivastava suggests that small businesses require separate initiatives that provide support, such as access to technology and low-cost finance.

Over the past few months, there have been demands for PLI schemes for various products, including toys, furniture, and leather. Srivastava believes the government should avoid PLI initiatives in sectors with multiple producers, as the approach gives a price advantage to only a few firms. Furthermore, non-PLI recipients suffer as a result, with PLI giving a disproportionate benefit to only a select few firms. Srivastava proposes that the PLI programs should target innovative product categories that are presently absent from India’s manufacturing capabilities.

PLI money offers incrementally increased margins of 30% to 40% over non-PLI recipients, raising concerns of competitive distortion by granting money to a limited number of firms. Therefore, PLI schemes should avoid incentivizing sectors where small enterprises operate. By focusing only on cutting-edge products, the government can support industry growth without causing undue harm to small businesses in established sectors. Srivastava therefore supports alternate initiatives that support small firms to compete and grow sustainably rather than benefitting a select few larger firms.