It appears that the government's famed Production-Linked Incentive scheme is fated for the hellbox.
There's no official word yet, but the Centre is reportedly shovel ready to give the $23-billion programme a quiet burial.
As we speak, the scheme is being substantially sanded down, and will neither be expanded to more industries, nor undergo any deadline extensions for the 14 sectors that are currently under its fold.
In the absence of a meaningful overhaul, the highly anticipated and ambitious PLI programme will likely end up as just another intervention that didn't work. Put another way, the government has once again rolled the dice and lost.
While the department's drummers initially dubbed the scheme as a band-aid for fixing everything that has gone wrong with India's manufacturing sector, critics and the opposition were vehement right from day one and remain the scheme's ardent anti-fans even four years after its launch.
There have been multiple attempts to stir the manufacturing pot, but none delivered a knockout success. Launched in 2020-21, the PLI scheme had an ambitious target of increasing the share of manufacturing output to 25% of the GDP by 2025. Five years later, the sector is still stuck exactly where it was -- around 15-17% of the GDP.
In contrast, production powerhouses like China and Vietnam have a share of 26% and 24% respectively, as per the World Bank data.
India's feeble attempts to jump on the manufacturing train, which has already left the station, come at a time when a global trade war is being unleashed by US President Donald Trump. Once a champion of free markets, the US has decidedly turned protectionist, and is now encouraging domestic and foreign investments to step up its manufacturing sector. Under Trump 1.0 too, the US made conscious efforts to reduce its economic reliance on China, and following the Covid pandemic, which exposed the shortfalls of global supply chains, advanced nations began pursuing a China plus one strategy to diversify production lines.
It's against this backdrop that PLI was introduced to compete with the world's factory floor -- China -- and also as the primary plank of the Aatmanirbhar Bharat initiative to boost domestic manufacturing and reduce import reliance. As for exports, the scheme was expected to help India take a flying leap to the first spot. To do so, it offered financial incentives to manufacturers based on their incremental sales, while the incentives were designed both to make Indian products competitive on a global scale, and also to encourage large-scale manufacturing to facilitate big-ticket exports.
Sectors with a potential to emerge as global leaders besides their ability to create jobs were carefully chosen for the programme's pilot launch. Based on the initial success, more strategic sectors were added and to date, 14 key sectors including electronics, pharmaceuticals, textiles, and white goods were covered.
Since its launch, investments worth Rs 1.61 lakh crore, or $18.72 billion, have been reported till November 2024, while production and sales worth some Rs 14 lakh crore, or $162.84 billion, were reported. PLI exports surpassed Rs 5.31 lakh crore, or $61.76 billion, with significant contributions from sectors like large-scale electronics manufacturing, pharmaceuticals, food processing and telecom & networking products.
In reality though, these numbers pound no drum, blow no bugle. As critics point out, there are significant lags in investments in several sectors such as automobiles, advance chemistry cell batteries, specialty steel and textiles. In all, the scheme offered Rs 1.95 lakh crore worth of incentives by FY30, but just Rs 14,020 crore, or 7% of Rs 1.95 lakh crore incentives linked to investments, sales, turnover and value addition, has been disbursed as on November 2024. Participating firms also produced $151.93 billion worth of goods, or 37% of the government target as on October 2024, according to an analysis by the Ministry of Commerce.
Pre-election polish failed to restore shine
The assault troops also pounce on the fact that firms, which were promised cash payouts upon meeting production targets and deadlines, suffered massive delays. Some sector-specific companies couldn't even lay their hands on subsidies due to non-compliance with stringent investment thresholds and stipulated production targets. If some firms felt stringent documentation and steep eligibility requirements cut them off from the incentive structure, other eligible firms faced troubles with production deadlines and incentive payouts.
Facing a backlash and following a lukewarm response to PLI 1.0, the government did change its mind and incorporated changes in a pre-election polish. To date, some 750-odd companies including global majors like Foxconn, Apple, and Reliance Industries have subscribed to the scheme. Still, except for the two key sectors namely pharmaceuticals and mobile phone manufacturing, overall, the scheme's not much chop.
Take, for instance, the auto sector. Despite the government's Rs 25,938 crore incentive package to automotive manufacturers focusing on advanced automotive technology (AAT) that powers self-driven cars, besides cutting-edge technologies such as 3-D printing, the scheme didn't stack a great deal of export flesh. It attracted Rs 67,690 crore worth of investments since its launch, but has achieved only Rs 20,715 crore and incremental sales of Rs 10,472 crore as on September 2024, according to the Ministry of Heavy Industries.
Likewise, in the solar industry, eight of the 12 companies that signed up for PLI were unlikely to meet their targets as on December 2024, an analysis by the Ministry of Renewable Energy showed. The steel sector too is lagging behind investment and production targets with 14 of the 58 projects approved for PLIs either withdrawn or removed due to lack of progress, according to official data.
On the other hand, the IT hardware sector saw promising results with a budget of Rs 7,350 crore and incentives of approximately 2% on incremental sales of locally manufactured electronic products, including laptops, tablets, all-in-one PCs, servers, and other devices. Mobile phone exports too increased to $11 billion in FY23 from $334 million in FY18, while imports fell to $1.6 billion from $3.6 billion. Electronics behemoths like Apple are now manufacturing their newest and sophisticated products in India, contributing to the success of the PLI scheme.
Cold reality
But critics and the opposition aren't impressed.
For instance, former RBI Governor Raghuram Rajan has been vocal, claiming that the scheme was actually encouraging hardware imports rather than increasing domestic exports. He pointed to data showing a substantial rise in imports of electronic components like semiconductors, PCBAs, displays, cameras and batteries and questioned whether India was genuinely manufacturing finished products in its factories or merely assembling them.
The government dismissed Rajan's claims, but dutifully updated the scheme by offering incentives of approximately 5% for electronic goods manufactured in India over six years. Importantly, it made changes to the scheme such that the focus was on developing supply chains for components and sub-assemblies within the country to encourage exports.
The government has claimed that PLI has proven to be a game-changer. Further reaffirming its commitment to strengthening domestic manufacturing, it had raised allocations significantly in the FY26 budget, which also rolled out another strategic intervention -- the National Manufacturing Mission supporting MSMEs as well as larger enterprises.
The focus areas included footwear and leather sector covering support for design capacity, component manufacturing, besides others, cleantech manufacturing, building an ecosystem for green industries including solar photovoltaic cells, electric vehicle batteries, electrolysers among others. It also rolled out a National Action Plan for toys that will focus on cluster development, skills and the manufacturing ecosystem.
But now we have the cold reality that paints a different picture of where it is all headed.
