New Delhi: The Indian government unfairly withheld from South Korean firms the incentives they were promised under the production-linked incentive (PLI) schemes, the chief trade representative at the New Delhi office of the Korea International Trade Association (KITA) told Mint.

Lee Young-Ho, the top trade official, told the business daily in an interview that arbitrary policy changes are a key concern for Korean companies investing in India.

This is the first time that a Korean trade body has commented on the challenges related to the PLI scheme, the newspaper reported.

Lee further raised concerns over the lack of stability of the policies of the government.

"Another worry that Korean companies have had is the lack of stability of the policies of the government. For example, while the PLI scheme was very open in attracting foreign investment when it comes to the production process, there have been a lot of cases where companies have not received their incentives," he told Mint.

“Policies change quickly and easily, and after coming in, the firms have not received the incentives promised," said Lee. This could hold back investors, he added.

The newspaper noted that Lee did not cite specific instances on this matter, but as per media reports, the government withheld incentives claimed by Samsung Electronics Co. Ltd in the first year of the scheme totalling Rs 900 crore on the sales of about Rs 15,000 crore, citing invoicing discrepancies.

"We are currently in advanced stage of discussions with Government of India on the incentive payout. Samsung is a committed partner of India for over 26 years. As the leading smartphone player, we have been working closely with various stakeholders to make the PLI scheme a success," a Samsung spokesperson told Mint.

Also read: Are Government Freebies Under PLI Scheme Truly Necessary to Enhance Manufacturing in India?

The loopholes

The Narendra Modi government's PLI scheme is one of the initiatives under the flagship Atmanirbhar Bharat Abhiyaan. The scheme is aimed at creating more jobs, attracting greater investments, reducing imports, and making India a global manufacturing hub.

While the PLI scheme is being touted as the panacea for India's manufacturing problems, several loopholes in the scheme are raising concerns over its ability to deliver.

For instance, in May, India surpassed $10 billion (Rs 82,000 crore) worth smartphone exports in the financial year 2023, and the rise in exports was attributed to the PLI scheme.

However, Raghuram Rajan, former governor of Reserve Bank of India, opined that the boom in mobile phone exports might be a sign of concern as the growth is happening on the back of assembly rather than genuine manufacturing within the country.

“One key deficiency of the scheme is that the subsidy is paid only for finishing the phone in India, not on how much value is added by manufacturing in India,” he said.

“This matters! It turns out that very little apart from assembly is done in India, though manufacturers claim they intend to do more in future. So India still imports much of what goes into the mobile phone, and when we correct for that, it is very hard to maintain that net exports have gone up,” he said.

Separately, retired Jawaharlal Nehru University professor Arun Kumar wrote that despite a promise of increased profits, the PLI scheme has not gained momentum due to shortage of demand. If one cannot sell more, the subsidy will also not accrue, he wrote in The Wire.

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