PRODUCTION-LINKED INCENTIVE (PLI) SCHEME: FEATURES, SUCCESS, CHALLENGES, WAY FORWARD

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Context

The Ministry of Commerce and Industry announced that the government has approved 806 applications under the Production Linked Incentive (PLI) schemes, resulting in Rs 1.90 lakh crore in investments across the 14 PLI sectors.

What is Production-Linked Incentive (PLI) Scheme?

It is a performance-driven manufacturing boost strategy, launched in 2020, under the Atmanirbhar Bharat initiative, to incentivize domestic production and reduce import dependency.

It was initially targeted three sectors—mobile manufacturing, pharmaceutical ingredients, and medical devices, latter expanded to covers 14 strategic sectors with a committed outlay of ₹1.97 lakh crore.  

Companies must meet specific criteria: minimum investment thresholds, incremental sales targets over a base year, and manufacturing within India.

The incentive rates range between 4% to 6% of incremental sales, though some sectors receive higher rates based on strategic importance.

Each sector’s PLI runs five years from a defined base year.  

The scheme is a whole-of-government approach, but the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry acts as the nodal agency.

Features of the PLI Scheme

Sector Coverage: Covers 14 priority sectors, including electronics (mobiles, IT hardware), auto/auto-components, pharmaceuticals (APIs, drugs), medical devices, specialty steel, food processing, textiles (MMF and technical), white goods (ACs, LEDs), solar PV modules, ACC batteries, drones, telecom equipment, and chemical APIs.

Incentive Structure: Incentives are performance-linked – a fixed percentage of incremental sales beyond a base year.

• Firms must meet year-on-year Compound Annual Growth Rate (CAGR) targets to qualify.
• Each sector’s guidelines specify exact rates, target growth and investment norms.

Eligibility Criteria: Firms must invest in new capacity and meet sales targets.

• For MSMEs, PLI rules mandate at least ₹10 crore incremental capital expenditure (and ₹100 crore for larger firms) in the scheme period.
• They sign a Programme Agreement and furnish a performance bank guarantee to secure obligations.

Monitoring & Compliance: Participants file periodic reports and claims, backed by audited accounts.

• Authorities verify production and sales claims before releasing incentives.
• Regular audits and documentation ensure sales are genuine; false claims require repayment with interest.  

Government Oversight: Ministries approve applicants based on sector-specific criteria (e.g. local value addition, technology standards).

• So far about 800+ applications have been approved across sectors (e.g. 182 food processing, 109 specialty steel, 95 auto).
• This selective approach aims to create “global champions” in each industry.

Success of the PLI Scheme

Investment and Production: By August 2025, 14 PLIs attracted ₹1.90 lakh crore in firm commitments.

• These investments generated an incremental production/sales of over ₹17 lakh crore.
• Export sales from PLI industries exceeded ₹7.5 lakh crore.

Job Creation: The scheme has already created over 12.3 lakh jobs nationwide (both direct and indirect)."

• By supporting factories and supply chains, PLI is fueling employment mainly in labor-intensive sectors like electronics, food processing and textiles.

Electronics (Mobiles & IT Hardware): Mobile Production value jumped from ₹2.14 lakh crore in 2020–21 to about ₹5.25 lakh crore in 2024–25.

• Mobile exports surged from ₹22,870 crore (2020–21) to ₹200,000 crore in 2024–25. This turnaround made India the 2nd largest mobile phone manufacturing.

Pharmaceuticals: Under PLI (APIs and drugs), domestic bulk drug sales reached ₹2.66 lakh crore with exports of ₹1.70 lakh crore in the first three scheme years.

• India shifted from being a net importer of bulk drugs (–₹1,930 crore) in FY21 to a net exporter (+₹2,280 crore).  

Textiles (MMF & Tech Textiles): The Textile PLI (launched 2021) attracted 74 applications committing ₹28,711 crore of investments.

• These projects are expected to generate ₹2.17 lakh crore in turnover and 259,000 jobs.
• Government has reopened the textiles PLI portal (2025) for new applications, reflecting strong demand.

White Goods & Steel: India’s appliance and steel sectors have also grown. White goods (AC/LED) PLI saw 66 approvals; specialty steel had 109 approvals.

• Increased domestic capacity for air conditioners, refrigerators, and stainless steel products, reducing import dependence.

Challenges and Concerns Related to PLI Scheme

Slow Uptake in High-Tech Sectors: Some “sunrise” areas lag. Only 4 applications for ACC batteries and 14 for high-efficiency solar modules have cleared so far.

• In the ACC battery PLI (₹18,100 cr), no firm has yet started production and zero incentives have been released.

Low Incentive Disbursement: Overall PLI payouts remain a small fraction of the budgeted amount.

• By mid-2025 only ₹21,689 cr was disbursed out of an outlay of ₹1.97 lakh cr.
• Officials explain that many companies haven’t met targets (citing weak market demand or global price pressures).  

Global Competition: Cheaper imports or more advanced Chinese production (especially in EV batteries and solar cells) make it hard for Indian plants to compete, even with incentives.

Complex Requirements: Firms face a heavy compliance burden.

• PLI agreements require large capital commitments and strict reporting.
• If companies miss growth targets, they lose incentives and even face penalties (e.g. per-day fines).
• Such red tape can deter participation, especially by smaller companies.

Sectoral Imbalance: Benefits have skewed toward sectors India was already strong in (food, auto, mobiles) rather than strategic new industries.

• Food processing (182 apps) and specialty steel (109) dominated approvals, while high-tech areas lag.
• This imbalance raises concern that PLI is not yet creating as many “new” global champions as intended.

Legal and Policy Uncertainty:  Frequent guideline changes (even if legal) can create mistrust.

Funding and Administrative Delays: Some PLIs still await final guidelines or implementation. Delays in issuing notifications or evaluating applications hold up actual investment decisions.

Way Forward

Review and Adjust Incentives: Authorities are revisiting lagging schemes. For example, the ACC battery PLI is under review to modify targets and extend timelines. Government should consider similar reviews for solar and other tough sectors.

Extend Timelines: Some projects (like batteries and solar) have very long gestation. Extending PLI durations beyond the current 5 years give firms breathing room.  

Enhance Demand Support: Encourage demand for PLI products. For example, Government could tie domestic procurement (e.g. for public transport EVs, solar plants, medical equipment) to PLI manufacturers, to assure companies of a market and justify their investments.

Simplify Procedures: Streamlining the application and verification process would attract more applicants. A single-window clearance system, faster approvals, and digital compliance checks can reduce friction.  

Focus on Linkages: Encourage development of upstream and downstream industries. E.g. ensure MSMEs supply components to PLI firms (subsidize tooling or skilling for cluster units). By creating ecosystems (electronics hubs, auto parks), PLI’s impact will multiply across the supply chain.

Align with Global Trends: Learn from other incentive programs. For example, the U.S. CHIPS Act offers subsidies plus research support for semiconductors, and Japan targets green tech with tax breaks.

• India can expand PLI-like support to design, R&D, or new sectors (like batteries beyond ACC, or aerospace).
• International partnerships or joint ventures be encouraged to transfer technology.

Legal Certainty: Publish all scheme amendments transparently and before application windows. Clear guidelines will reduce litigation risk.  

Periodic Evaluation: Continuously monitor PLI outcomes with an independent panel. Track metrics (investments, production, exports) and get industry feedback.

• If a sector consistently underperforms, the scheme parameters should be recalibrated or redesigned.

Conclusion

The PLI scheme has stimulated growth in manufacturing – attracting large investments and boosting exports in sectors like mobile phones, drugs and textiles. To maintain momentum, policymakers must address the execution gaps (as seen in batteries and solar) and streamline processes. With fine-tuning and sustained support, PLI can help India move closer to its Make-in-India and self-reliance goals. 

Source: INDIAN EXPRESS