PLI, a mixed bag: Why sectoral wins aren’t enough to fuel India’s manufacturing ambitions

TOWARDS END-MARCH, American consumer electronics giant Apple wanted the 30-hour customs clearance time at Chennai airport reduced to six hours. The company was racing against time as chartered flights to the U.S., loaded with iPhones, had to be flown out before April 9, the deadline U.S. President Donald Trump had set for levying a 26% additional tariff (as part of his global ‘reciprocal tariff’ agenda) on products made in India and exported to that country.

By the time Trump decided to exempt mobile phones and some electronics items from additional tax on April 12, Apple is estimated to have shipped about 1.5 million made-in-India iPhones to the U.S.

India’s transformation from a net importer of mobile phones to a net exporter has been phenomenal, largely because of a Central government programme called the Production Linked Incentive (PLI) Scheme. Global contract electronic device manufacturers, including Foxconn and Wistron (now Tata Electronics), and home-grown Dixon Technologies were among the PLI beneficiaries that scaled up their domestic mobile phone production capabilities in recent years. In fact, India’s mobile phone production capacity grew from 58 million units in 2014-15 to 330 million units in 2023-24, with exports alone accounting for 50 million units. Imports decreased substantially while foreign direct investment (FDI) into the sector increased 254% during the period.

“Apple and Samsung alone accounted for around 94% of India’s smartphone exports. Both brands have significantly expanded their manufacturing in India to align with the country’s objective of reducing reliance on imports and strengthening its presence in the global supply chains. The Indian government’s PLI scheme has encouraged global manufacturers to set up/expand their production facilities in the country. All this has resulted in increase in local manufacturing,” says a recent report by market research firm Counterpoint.

How and why

Launched in 2020, the PLI scheme was envisaged to reduce India’s import dependence by enhancing manufacturing capabilities in 14 key product segments, including large-scale electronics manufacturing (LSEM) which covers mobile phones. It has an outlay — the total amount the government expects to disburse as incentives during the tenure of the scheme — of ₹1.97 lakh crore. The scheme also covers sectors such as drugs, pharmaceuticals and medical devices, automobiles and auto components, specialty steel, telecom and networking products, electronic products and white goods, food products, textile products, high-efficiency solar PV modules, advanced chemistry cell (ACC) batteries, and drones and drone components. Companies have to stick to their investment commitments within the stipulated time frame, manufacture the additional quantity of products that were agreed upon, and depending on the scheme, source raw materials within the country or export certain quantity of the produce. Most of these schemes are still under implementation and continuing according to their respective tenures (a five to six year time frame from the rollout of each scheme). And though the LSEM scheme ends this year (2025-26), India has already created a mark in mobile phone manufacturing.

PLI schemes have seen actual investment of over ₹1.61 lakh crore till December 2024 across 14 sectors, resulting in incremental production of over ₹14 lakh crore and employment generation of over 11.5 lakh (1.15 million), says Jitin Prasada, minister of state, ministry of commerce & industry. “Cumulative incentive amount of ₹18,788 crore has been disbursed under PLI schemes for 11 sectors (as on March 26, 2025).”

Clearly, the PLI scheme has aided the growth of manufacturing in India. The question is whether it has been significant enough to take on global competition, or if it has been successful across all 14 sectors.

Mixed bag

The Cabinet has approved an overall incentive outlay of ₹1.97 lakh crore for 14 PLI schemes, but each sector gets an annual budgetary allocation based on the expected addition in incremental production and sales of companies from their PLI-approved manufacturing facilities. While an increase in allocation indicates pick-up and utilisation of the scheme, a downward revision (in the Revised Estimate or RE for the current year) may be seen as lack of enthusiasm among approved beneficiaries, or at least a delay in its progress. For instance, in the case of the PLI scheme for specialty steel, Budget 2025-26 has revised the government’s original allocation in the 2024-25 Budget of ₹245.82 crore to ₹55 crore. Similarly, the 2024-25 budgetary allocation of ₹1,444 crore under the scheme for the food-processing industry saw a sharp reduction to ₹700 crore in the RE for the year. Even a seemingly well-performing automobile and auto-components PLI scheme also saw the 2024-25 budgetary allocation of ₹3,500 crore getting revised to ₹346.87 crore in the current Budget. In the case of PLI for ACC battery storage, too, the 2024-25 BE of ₹250 crore was revised to ₹15.42 crore in the 2024-25 RE, indicating a slower-than-expected progress in its uptake.

On the other hand, an increase in budgetary allocation, while signalling the progress of the scheme, may not be an indication of India’s reduced import dependence. For instance, the budgetary allocation for the PLI scheme for pharmaceuticals was ₹2,000 crore for 2024-25, which was revised to ₹2,046.5 crore in the RE. It can be taken as a positive development considering the objective of the scheme is to enhance India’s manufacturing capabilities by increasing investment and production in pharma and contributing to product diversification of high-value goods.

However, in a recent study, Reji K. Joseph, a faculty member at the Institute for Studies in Industrial Development (ISID), New Delhi, found that the scheme has not resulted in any major reduction in India’s overall dependence on China, at least for pharmaceutical ingredients. His study, which analysed the UN Comtrade database to understand the reliance of countries on China for key ingredients (active pharmaceutical ingredients or APIs) that go into the manufacturing of life-saving drugs found that even after the pandemic, a time when every country got exposed to vulnerabilities of global API supply chains, China’s share in global import of API increased. India’s import of APIs also increased during the post-pandemic period, despite the government having one PLI scheme specifically for the problem — import dependence on materials/drug intermediaries and active pharmaceutical ingredients. Around 41 products are covered under this scheme, and production had begun in 2022-23.

Though the larger impact may not be visible, pharma companies that are part of different PLI schemes are upbeat about the same. The management of Aarti Drugs identifies strong demand in the domestic market, cost-effective manufacturing at 30-35% lower than those in the U.S. and Europe, and government initiatives such as PLI as major growth drivers. According to Sun Pharma’s 2023-24 annual report, the “government’s robust support and attractive incentives, such as the PLI scheme, are pivotal in bolstering the pharmaceutical industry”.

Advantage mobility

Korean auto major Hyundai Motor Company’s Indian subsidiary, Hyundai Motor India Ltd (HMIL), has the advantage of having access to its parent’s proprietary electric vehicle (EV) and battery technology. Given the government’s EV push and increasing acceptance of electric vehicles in the domestic market, Hyundai, like every other automobile company present in India, jumped on the bandwagon. However, what influenced its decision to develop an EV ecosystem in the country was also government support through PLI schemes for electric cars and battery production.

“We are planning to launch four EV models, including the Creta. We are localising the EV supply chain like the battery pack, drive train and the battery cell, and we are investing in EV infrastructure,” Unsoo Kim, MD, HMIL, said during an analyst call soon after the recent public listing of the company. According to Kim, the government’s strong incentive for customers, the PLI scheme for OEMs, Hyundai’s localisation effort and its four EV models will lead the enormous volume growth anticipated by the company in the near future and drive profitability.

Maruti Suzuki, India’s largest carmaker, has also aligned its EV growth plans with the government’s PLI offer, though the company has not disclosed if its production from the manufacturing facility set up under the scheme has attained the required scale. During the Q3FY25 results announcement, Maruti’s chief investor relations officer Rahul Bharti said the company is evaluating if its EV production is eligible for the incentive at the moment.

Compared to the PLI ambitions of its competition, India’s EV leader Tata Motors has a clear story to tell. P.B. Balaji, group CEO, Tata Motors says the company has received ₹142 crore already as PLI. “When we did the TPG deal (stake dilution to raise $1 billion in the passenger EV business), we talked about investments of almost $2 billion in the EV space. About $1 billion of it came from TPG, and I have always maintained, close to about $800 million would come from the PLI benefits.” According to Balaji, PLI is an important part of the investment plan for the company’s EV business.

Ola Electric Mobility Ltd is another pure-play EV player, which has built its entire manufacturing plan around the PLI scheme. In an analyst call on February 7, Harish Abichandani, chief financial officer (CFO), Ola Electric, said the third quarter of FY25 was the first quarter where all products of the electric two-wheeler manufacturing company got covered under the PLI scheme. “We had the X series getting PLI certified in the preceding quarter. This quarter, we had the entire range getting PLI approvals. The total quantum of PLI accrued in this quarter was around `120 crore for all the range, both Pro, Air and the entire X series.”

Drone maker Ideaforge is another company that has made PLI an integral part of its business plan. It has seen 4% of its operating revenue coming from the PLI scheme for drones and drone components last year.

Eye on the future

Of late, there has been a lot of talk about the future of PLI schemes. Since all such schemes come with a specific time frame, the only question one can ask is whether there will be an extension of existing schemes or fresh announcements of new ones. The government is contemplating both.

As far as new sectors are concerned, toys, footwear, and leather sectors are reported to be the front-runners. Tweaks in existing schemes are taking place as well. For instance, Pemmasani Chandra Sekhar, minister of state for communications, points out that the Department of Telecommunications (DoT) recently amended the guidelines of a PLI scheme originally notified in 2021 to boost domestic manufacturing of telecom and networking products in India. The current changes ensure an additional 1% incentive for products designed, developed, and manufactured in India to promote design-led manufacturing. Also, 11 products have been added in the approved list based on industry requirements, with flexibility for companies to add one or more products at any time during the tenure of the scheme. An option to apply for incentive claims on a quarterly basis is another change.

A second instance of changes in an existing scheme, to ensure wider industry participation, has been in the case of specialty steel. According to Bhupathiraju Srinivasa Varma, Minister of State for Steel, the scheme, launched on January 6, 2025, now allows 50% investment in cases where companies invest in augmentation of existing facilities to participate in the notified sub-categories under the existing scheme.

The future of government schemes to strengthen India’s manufacturing prowess should not be linked to the existence of PLI schemes alone. Any scheme that builds on PLI schemes also moves in that direction. The Electronics Components Manufacturing Scheme, notified by the Ministry of Electronics and Information Technology (MeitY) on April 8, is one such example. Designed as a horizontal initiative with benefits spanning multiple sectors such as consumer electronics, medical devices, automobiles, power electronics, etc., where PLI schemes are already under implementation, it can be considered as PLI 2.0.

Announcing the new scheme, Ashwini Vaishnaw, Union Minister for Electronics & Information Technology, had said it reflects the evolving needs of electronics manufacturing. “India’s journey in electronics manufacturing has evolved through distinct phases: Beginning with finished goods, progressing to sub-assemblies, and now entering the critical phase of deep component manufacturing. The sector is steadily advancing into this third phase, which marks a significant leap in value addition, self-reliance, and ecosystem depth.” In addition to a turnover-linked incentive, beneficiaries can opt for capex-linked incentive or a hybrid incentive model as electronic component manufacturing requires a higher investment and has a longer gestation period compared to finished goods.

The future of PLI should not be a worry as long as the focus remains on strengthening India’s manufacturing.