Context:
India is set to resume the manufacturing of Penicillin G in 2024, marking a significant development after three decades since the closure of India’s last plant. This revival comes as a result of the government’s Production Linked Incentive (PLI) scheme, initiated during the Covid-19 pandemic to bolster domestic manufacturing.
Relevance:
GS III: Indian Economy
Dimensions of the Article:
- Reasons for the Discontinuation of Penicillin Manufacturing in India:
- Production Linked Incentive (PLI) Scheme Overview
Reasons for the Discontinuation of Penicillin Manufacturing in India:
Competition from Chinese Alternatives:
- Influx of competitively priced Chinese alternatives flooded the market.
- Lower prices made Indian manufacturers economically nonviable, leading to plant closures.
Economic Factors:
- Significantly lower prices of Chinese alternatives rendered Indian production economically unviable.
- Multiple manufacturing plants had to be liquidated for scrap.
Drug Prices Control Order:
- Price caps on essential medicines under the Drug Prices Control Order further incentivized the adoption of cheaper imported products.
- For Example, India initially sold Paracetamol at approximately Rs 800 per kilogram, but the entry of Chinese competitors slashed prices to nearly Rs 400 per kilogram, rendering domestic production economically unviable..
Lack of Urgency for Domestic Revival:
- Availability of cheaper alternatives globally diminished the urgency to revive Penicillin manufacturing domestically.
Disruption in Supply Chain during the Pandemic:
- The COVID-19 pandemic highlighted the vulnerability of supply chains, prompting a reevaluation of self-reliance.
Government Initiatives:
- The government initiated the Production-Linked Incentive (PLI) scheme to boost domestic manufacturing.
High Initial Costs and Capital Investment:
- Substantial capital investment required, particularly for fermented drugs like Penicillin G.
- Profitability often takes years to achieve.
Chinese Dominance in Manufacturing:
- China has emerged as a dominant supplier with expanded manufacturing capabilities.
- Competing with Chinese prices would necessitate substantial investments in larger facilities.
PLI Scheme Impact:
- Significant decrease in API imports, such as Paracetamol, following the implementation of the PLI scheme.
- Ongoing imports highlight the need for further development in domestic API manufacturing.
Incentives Under PLI Scheme:
- PLI scheme offers incentives for fermentation-based bulk drugs like antibiotics, enzymes, and hormones.
- Support includes a 20% incentive for the first four years, 15% for the fifth year, and 5% for the sixth year.
Need for Further Development:
- Despite the decline in API imports, a substantial portion, especially for antibiotics, is still imported.
- The PLI scheme aims to encourage development in domestic API manufacturing.
Production Linked Incentive (PLI) Scheme Overview:
- The PLI Scheme, or Production Linked Incentive Scheme, is a government initiative in India.
- It operates as a performance-linked incentive, offering companies incentives based on incremental sales from domestically manufactured products.
- The primary goals include boosting the manufacturing sector and reducing dependence on imports.
- The scheme has the potential to significantly enhance production, employment, and overall economic growth over the next few years.
- In 2021, the government announced PLI schemes worth Rs 1.97 lakh crore for 13 key sectors, spanning auto components, electronics, pharmaceuticals, textiles, and more.
- These schemes are at various stages of implementation, with the aim of positively impacting the Micro, Small & Medium Enterprises (MSME) ecosystem in the country.
Performance Evaluation of PLI Schemes:
Positive Outcomes:
- Mobile Handset Exports: India doubled the value of mobile handset exports in FY22 to Rs 45,000 crore compared to FY21. FY23 estimates indicate further growth, with an expected export value of Rs 90,000 crore.
- Pharma Industry: India is now manufacturing 35 active pharmaceutical ingredients (APIs) domestically, reducing reliance on imports and showcasing self-sufficiency.
Export Achievements:
- PLI schemes have contributed to exports surpassing Rs 3.2 lakh crore, with notable contributions from electronics, pharma, food processing, and telecom sectors.
Challenges and Slow Implementation:
- Implementation Challenges: The implementation of PLI schemes has been slow, and certain large-ticket industries have been slow to adopt or commence major activities under the scheme.
- Incentive Payouts: The government spent only Rs 10 crore in incentive payouts in 2021-22 for mobile handsets, white goods, and food processing combined. This increased to Rs 2,874 crore in 2022-23.
- Job Creation: The slow start has resulted in lower job creation than projected. Out of the projected 6 million new jobs over seven years, only around 300,000 jobs (5% of the total) were created between 2020 and early-2023 through various PLIs.
-Source: The Hindu
