The first PLI experience in the Indian steel sector: efficacy and challenges

Government of India implemented PLI for specialty steels with an aim to reduce import dependence of high-value added steel products and to incentivize domestic manufacturing of these items in India. It was also expected to result in enhancing the technological base of the steel sector in India, and thereby helps to move up the value chain. An assessment of the trade pattern of various steel items has revealed that despite India being the world’s second largest steel exporter, there remains a significant negative balance of trade in many high value-added steel product categories. PLI scheme was introduced in this context. The study found that the initial response from the industry to the PLI scheme is not very encouraging. This limited participation from firms may be attributed partly to (i) industry-specific characteristics and (ii) stringent minimum eligibility conditions imposed. The steel industry is highly capital intensive, requiring substantial investments for setting up plants, with long gestation period, and considerable uncertainties exist on the returns. Engaging in such entrepreneurial initiatives hinges on the presence of assured profitability conditions in the market. As the government prepares to introduce the second PLI in the sector, the study puts forth a number of suggestions including to ease the stringent minimum conditions on investment and capacity creation to include more firms.