New Delhi, May 7 (KNN) Arvind Panagariya, chairman of the 16th Finance Commission, asserted on Monday that India's production-linked incentive (PLI) schemes should be judiciously applied to avoid undercutting the nation's competitive export industries.

While acknowledging that targeted PLIs aimed at larger, more efficient firms should not be equated with indiscriminate protectionism, he cautioned against broad-based incentives across all sectors, reported FE.

"If we use PLIs selectively to promote two or three sectors, that is one thing. But if these are used as a tool for overall industrialisation, with a focus on import-substitution industries, it would amount to punishing competitive export industries," stated the noted trade economist.

He emphasised that with limited capital, the entire industry cannot be expanded through subsidies, underscoring the need to ultimately rely on global market expansion.

The PLI policy, launched in 2021-22, currently comprises 14 schemes with the government aiming to offer Rs 2 trillion in incentives by FY30. However, progress has been sluggish, with significant lags in investments across sectors such as solar PV modules, automobiles, and textiles.

Panagariya's new book, "India's Trade Policy: The 1990s and Beyond," chronicles the evolution of India's trade and industrial policies through a compilation of his topical essays. While acknowledging the beneficial effects of trade liberalisation since 1991, the book denounces intermittent policy reversals, including the major escalation of import tariffs since 2018-19.

The former ADB chief economist's comments on PLIs contribute to the ongoing debate over government incentives aimed at boosting domestic manufacturing. Previous critics, including former RBI governor Raghuram Rajan, have questioned the wisdom of such capital-intensive measures over investments in human capital and education.

Panagariya also made a strong case for India to pursue more free trade agreements (FTAs), citing the stalled Doha Round of the WTO. He emphasised the potential benefits of FTAs with major economies like the European Union and the United States, which could incentivise foreign investments by granting duty-free access to key markets.

However, Panagariya expressed a change of stance regarding India's participation in the Regional Comprehensive Economic Partnership (RCEP), citing trust issues with China in the wake of the Galwan incident. He endorsed the government's policy of gradually decoupling fr0m China in economic spheres.

(KNN Bureau)