SBI house economist calls for extending PLI to MSMEs

The Modi government had in its second term introduced the PLI scheme to boost domestic manufacturing, stagnating at around 16.5 per cent of the GDP.
State Bank of India (SBI)
State Bank of India (SBI)(File Photo)

MUMBAI: Despite many speaking against the production-linked incentives (PLI) citing the net negative returns from it in the medium term, Soumyakanti Ghosh, the chief economic advisor at SBI, has called for an added push for the same.

It is to be proposed in the forthcoming budget and its extension to small businesses given given its job creation and export potentials can add up 30 billion USD to the GDP.

The Modi government had in its second term introduced the PLI scheme to boost domestic manufacturing, which has been stagnating at around 16.5 per cent of the GDP for over two decades, and in turn push exports offering tax incentives to companies set up manufacturing units.

The major sectors covered in the scheme include automobiles, food products, speciality steel, pharmaceuticals, electronics/ technology goods, textiles, aviation. Thus, the PLI scheme has benefited many of our commodity exports, especially mobile and electronic goods, drugs and pharma.

“The PLI scheme has been a game-changer towards augmenting incremental manufacturing capacity, drawing fresh investments to the tune of  Rs 1 trillion, incremental sales of Rs 8.61 trillion (mostly by Apple) of which exports being 40 per cent) and job generation of 8.78 lakh,” Ghosh said in a note Monday.

“Given the fact that small businesses contribute around 45 per cent  of exports and around 40 per cent in manufacturing GVA, the budget should offer a separate PLI scheme for them (MSMEs) should boost the sectoral contribution further and facilitate employment generation with representation from across textiles, garments, handicrafts, food processing, leather, electronics, auto components, bulk drugs etc,” he added.

Calling for lowering imports, especially from China, he said the country imported 102 billion USD from China in FY24 compared to 98 billion USD in FY23. China’s share in our total imports has also increased to 15 per cent in FY24 from 13.7 per cent in FY23. In FY25 imports of around $59 billion is likely to come from commodities and goods where PLI scheme has been announced in textiles, agri, electronics goods, pharma & chemicals.

“If we can reduce our import dependence on China even to the extent of 20 per cent, then we can add around 12 billion dollars to our GDP and overtime if we reduce our dependence by 50 per cent, we can add 30 billion USD to GDP,” he said.

Ghosh has also called for offering tax parity on term deposits with banks, which are facing difficulties in getting deposits, in line with other asset classes.

“In line with MF/equity markets, we propose that the government tweak the tax on deposits interest and make flat tax treatment across maturity ladder. This is needed to get households back to the bank savings” he said and pointed out that households’ net financial savings has declined to 5.3 per cent of GDP in FY23 and is expected to be 5.4 per cent in FY24.

“If we make deposits rate attractive in line with MFs, then this could push up household financial savings and Casa as this amount will be in the hand of depositors, it can unleash an additional spending and thereby additional GST revenue to the government,” he said.

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