#86 Production-Linked Subsidies & Decoding Charisma

This newsletter is really a weekly public policy&#160;thought-letter. While excellent newsletters on specific themes within public policy already exist, this thought-letter is about frameworks, mental models, and key ideas that will hopefully help you think about any public policy problem in imaginative ways. It seeks to answer just one question:&#160;how do I think about a particular public policy problem/solution?<br/><br/>PS: If you enjoy listening instead of reading, we have this edition available as an audio narration courtesy the good folks at&#160;<a href="https://www.ad-auris.com/">Ad-Auris</a>. If you have any feedback, please send it to us.<br/><br/>India Policy Watch #1: Production-Linked Incentives <br/><br/>Insights on burning policy issues in India<br/><br/>&#8212; Pranay Kotasthane<br/><br/>Production-Linked Incentives (PLI) &#8212; that&#8217;s the name the government&#8217;s recent, most-favourite industrial policy instrument goes by. It seems elegant on paper: the government will reward companies for incremental sales of manufactured goods with a subsidy. More the sales (either domestic or exports), more the subsidy amount. <br/><br/>The intent seems sound too: encourage companies to up their manufacturing game. <br/><br/>First introduced for the electronics sector earlier in the year, PLIs worth &#8377;2 lakh crore for ten disparate sectors over the next five years were announced by the Union Cabinet earlier this month. These sectors are automobiles and auto components, pharmaceutical drugs, advanced chemistry cells (ACC), capital goods, technology products, textile products, white goods, food products, telecom and specialty steel.<br/><br/>Let&#8217;s assume that the size of the incentive is big enough to change companies&#8217; investment decisions at the margin (that&#8217;s a big if). What are the consequences likely to be in that case? Can we anticipate some unintended consequences beforehand? <br/><br/>Let&#8217;s parse this policy through the framework discussed in <a href="https://publ