India’s Production-Linked Incentive (PLI) scheme, a $23 billion initiative designed to bolster domestic manufacturing and reduce reliance on imports, is set to lapse after failing to meet its targets. Launched in 2020, the programme aimed to position India as a global manufacturing hub, rivalling China in key sectors such as electronics, pharmaceuticals, textiles, and solar panels. However, slow fund disbursement, bureaucratic delays, and unmet production targets have led the government to discontinue the scheme, prompting discussions about the future of India’s industrial strategy.
Understanding the PLI Scheme and Its Goals
The PLI scheme was introduced to increase domestic production, attract foreign investments, and enhance India’s share in global supply chains. Under the programme:
- Cash incentives were provided to companies meeting specific production targets.
- The initiative spanned 14 sectors, including automobiles, electronics, pharmaceuticals, textiles, and solar manufacturing.
- The goal was to increase manufacturing’s GDP contribution from 16 per cent to 25 percent by 2025.
- Major firms such as Foxconn, Tata Group, and Reliance Industries participated, hoping to benefit from government incentives.
Despite its ambitious objectives, the scheme fell short of expectations, with only a fraction of the allocated funds reaching companies.
Performance and Key Challenges
Since its inception, the PLI scheme has struggled to achieve its intended outcomes. Key issues that hindered its success include:
- Slow disbursement of funds: As of October 2024, only $1.73 billion, approximately 8 percent of the total budget, had been released.
- Lower-than-expected production output: Companies produced $151.93 billion worth of goods, achieving just 37 percent of the projected target.
- Sectoral disparities: While the pharmaceuticals and mobile phone industries performed well, sectors such as steel, textiles, and solar panels failed to meet expectations.
- Regulatory and bureaucratic delays: Complex approval processes slowed down investment and production momentum.
The lack of a streamlined incentive disbursement process discouraged companies from expanding operations, reducing the scheme’s impact on industrial growth.
Which Sectors Benefit the Most?
Despite the scheme’s overall underperformance, some sectors witnessed growth:
- Pharmaceuticals saw substantial investments and increased domestic production, reducing dependency on imports.
- Mobile phone manufacturing positioned India as a key player in smartphone assembly, attracting investments from Apple and Samsung suppliers.
- Electronics and semiconductor sectors received early-stage government incentives, encouraging local component manufacturing.
However, other industries, particularly textiles, steel, and solar panel production, struggled due to global competition and supply chain disruptions.
The Government’s Decision: What Comes Next?
With the PLI scheme set to lapse, policymakers are exploring alternative strategies to strengthen domestic manufacturing:
- Direct investment reimbursements: Instead of incentive-based payouts, the government may consider reimbursing companies for setting up production facilities.
- Improved regulatory frameworks: Streamlining approval processes and reducing bureaucratic hurdles to encourage investment.
- Sector-specific policies: Tailored initiatives to support high-growth industries while addressing bottlenecks in underperforming sectors.
While the PLI programme may not continue in its current form, India’s push to enhance its manufacturing capabilities remains a priority.
India’s Manufacturing Landscape in a Global Context
The discontinuation of the PLI scheme raises broader questions about India’s ability to compete with China in manufacturing.
- Cost competitiveness: While India offers a low-cost workforce, infrastructure limitations and policy uncertainties pose challenges.
- Foreign investment attraction: Despite efforts to incentivise global companies, concerns over policy consistency remain.
- Geopolitical shifts: India continues to benefit from global companies diversifying supply chains away from China, but sustained policy support is required.
What This Means for Businesses and Investors
For businesses operating in India or looking to invest, the shift away from the PLI scheme signals the need to:
- Monitor policy changes to stay informed about potential new incentives or regulatory adjustments.
- Diversify risk by evaluating multiple manufacturing locations.
- Strengthen local partnerships to mitigate policy-related risks.
Final Thoughts
India’s $23 billion PLI scheme, once seen as a major step toward industrial self-reliance, will lapse without achieving its full potential. While pharmaceuticals and electronics manufacturing have gained from the initiative, broader challenges in fund disbursement, regulatory efficiency, and sectoral imbalances have limited its impact. Moving forward, India’s manufacturing ambitions will depend on more streamlined policies, infrastructure improvements, and targeted sectoral support to sustain growth and attract global investors.
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