How PLI and tariff can work in tandem to boost manufacturing exports

The US threat of reciprocal tariffs is a good time to re-assess and re-orient the production-linked incentive (PLI) schemes to make manufacturing exports competitive and navigate the fast-changing global trade order. This is particularly in key high export sectors like pharmaceuticals, electronics, automobiles, chemicals and textiles—which generate maximum value for Indian exports to the US but face the highest tariff differentials, making them vulnerable, according to research group, the Global Trade Research Initiative (GTRI). Incidentally, these are also the sectors that are subsidised by the PLI schemes.

Currently, inter-ministerial discussions are on to launch PLI 2.0 with the focus shifting from incremental sales to value addition and incremental exports. Two other factors bring urgency to it: Willingness of industry sectors benefiting from PLIs to elimination or cut tariffs on US products and a 90% hike in the PLI allocations for electronics, automobiles, pharmaceuticals, textiles, white goods, speciality steel and ACC (EV) battery storage in Budget 2026 (BE), over FY25 (RE).

GTRI adds another urgency: Low value addition in PLI-supported sectors. It says: “India’s exports to the US often have low local value addition. For instance, each iPhone with a US retail price of $1,000 has an export value of $500 from India, but India’s share is just $30. Component suppliers get $450, Apple takes $450 in licensing and other fees, and US retailers earn $50. This means that out of $5.6 billion worth of smartphones exported from India to the U.S., India's actual earnings are only $33.6 million. After accounting for PLI incentives and other concessions, the real earnings are close to zero.

That is, “high-value exports like iPhones contribute far less to India’s economy than their headline figures suggest,” it says, and adds: “The same pattern applies to exports of solar panels, diamonds, petrochemicals, and other products, where India’s value addition is under 10% of the export value.”

This shouldn’t come as a surprise.

Former RBI Governor Raghuram Rajan had co-authored a paper in May 2023 pointing out that for the Apple iPhone 12 Pro Max, India’s value addition was “about 4%” of the manufacturing cost—below the “6% subsidy” India gives (5% PLI subsidy and 1% subsidy by states) on “finished mobile phones”—not on actual value addition. Their trade data analysis said that India is assembling mobile phones after importing key inputs (semiconductors, PCBs, batteries, display boards), and cautioned about competitiveness once the PLI is withdrawn.

Trade data shows that net deficits in electronics goods (components of mobiles phones and others) increased from $58 billion in FY22 to $60.5 billion in FY24 and is $51.5 billion in FY25 (Apr-Jan)—that is, imports of electronics goods are rising, not falling. No other PLI-supported sector data provided by the commerce and industry ministry can be as easily analysed due to classification differences8

The relevance of all the above would become clear soon.

PLIs’s support and achievements

Many of these PLI-supported sectors face very high tariff differentials with the US: 23.1% higher in automobiles, bikes and parts; 13.32% higher in pharmaceuticals; 7.24% higher in electrical, telecom and electronics; and 6.59% higher in textiles, fabric, yarn, fibre and carpets.

Under the PLIs, subsidies range from 4-6% on incremental sales in 13 of the 14 subsectors and 20% on value addition for drones and drone components. An additional 1% subsidy is also given for design-led manufacturing on telecom and networking products (for 5G) and 4-6% of design-linked incentive (DLI) for semiconductors on net sales, in addition to 50% fiscal support to set up a plant by the Centre and additional fiscal support from states. Incidentally, the DLIs for semiconductors (chips) is not officially counted as PLI, though both are manufacturing subsidies.

What have PLIs achieved so far?

The last update from the Ministry of Commerce and Industry (March 3, 2025), says: “As of August 2024, actual investments totalling ₹1.46 lakh crore have been realised…These investments have already led to a remarkable boost in production and sales, amounting to ₹12.50 lakh crore, while directly and indirectly generating approximately 9.5 lakh jobs.” The ministry also detailed sector-wise achievements:

· Electronics manufacturing: Domestic production grew from 5.8 crore units in 2014-15 to 33 crore units in 2023-24; imports dropped significantly; exports reached 5 crore units and FDI increased by 254%.

· Pharmaceuticals, medical devices and bulk drugs: Strengthened India’s position in global trade in pharmaceuticals, making it the third-largest player by volume.

· Automotive: Attracted $8.15 billion in investments.

· RE and Solar PV: Established manufacturing capacity and aims to build 65 GW of RE capacity.

· Telecom and Networking Products: Achieved 60% import substitution; global tech companies set up manufacturing units, making India a major exporter of 4G and 5G equipment.

· Drones and Drone Components: Rapid growth with turnover increasing sevenfold, attracting significant investments and job creation and making India a global leader in drone manufacturing.

Note that all the sectors listed are capital-, tech- and skill-intensive, which produce very little jobs. The only labour-intensive and low-skills sector, textiles—that works to India’s advantage (given the surplus of low-skilled workers, need to boost such manufacturing, exports and jobs)—is missing. The FM had explained the reason a day after her July 2024 Budget: “As and when the proposals come to me, that window is still open.”

A World Bank report of September 2024 (“India Development Update”) said India’s exports in low-skill sectors of apparel, leather, textiles and footwear saw a “decline” from 4.5% in 2013 to 3.5% in 2022. It attributed this to tariff and non-tariff barriers and asked India, among others, to “re-evaluate its approach to trade integration” and put “more emphasis on plurilateral multilateral cooperation”—the China-led RCEP in particular.

A 2022 study by the OP Jindal University had flagged “significant slowdown” in the apparel sector after 2014 to “stiff anti-dumping duties”, followed by “high tariff” on imports of PTA, a key intermediary for producing polyester and fibre. Former NITI Aayog CEO Amitabh Kant wrote on March 10, 2025, that Quality Control Orders (QCOs)—non-tariff barriers—have the same impact as tariff barriers like high tariff and anti-dumping duties “restricting the import of cheaper, critical raw materials” like polyester, viscose and man-made fibres (MMF). He sought “zero-duty imports” of such inputs to boost textile exports.

This loss of exports would have caused massive job losses, and makes the case for reorienting PLIs towards labour- and low-skill sectors.

Rajan and Rohit Lamba had flagged, in 2024, Micron’s chips plants in Gujarat. They said that India was giving about $1.9 billion fiscal support to it (50% by the Centre and 20% by Gujarat) of its total installation cost of $2.75 billion, which would create 5,000 jobs (Micron). That is, each job would cost India ₹3.2 crore or $400,000.

For outsiders, it is not possible to calculate how much boost the PLIs have actually given to manufacturing output, private capex, FDIs, exports and jobs, because no such disaggregate data is given and classification differences (between PLIs and trade data).

But here is what broader data shows. (Note, the “first-ever disbursement” under the PLI came on September 9, 2022).

· Manufacturing jobs: PLFS report of 2023-24 shows that jobs are shifting away from manufacturing—falling from 12.1% in 2017-18 to 11.6% in 2021-22 to 11.4% in 2023-24.

· Manufacturing GVA: MoSPI data shows that manufacturing GVA fell to 17.2% in FY25 from 18.1% in FY16 (when ‘Make in India’ was launched) and 18.5% in FY22 (before PLI disbursal).

· Merchandise exports (manufacturing and others): MoSPI data shows that it remains flat at 13.4% of GDP in FY23 (up to which data is available), against 13.3% of GDP in FY16 and 13.8% in F22. Merchandise deficits remain high at 5.1% of GDP in FY23 – against 4.1% in FY16 and 4.7% in FY22. The commerce and industry ministry’s data for subsequent fiscals are not compatible, except for electronics goods.

· Equity FDI inflows to manufacturing: Though no causal relation is known between the PLI and FDI, DIPPT data up to December 2024 shows that overall equity FDI inflows fell by 2.3% in FY22, 20.2% in FY23 and 3.7% in FY24. In FY25 (April-December), overall equity FDI is 90% of FY24. Equity FDI to manufacturing saw a fall in FY24 in all PLI-supported sectors: computer software and hardware by 15.1%, telecom by 60.5%, automobile by 19.9%, drugs and pharmaceuticals by 48.3% and chemicals by 50.6%. In FY25 (Apr-Dec), FDI inflows into these sectors are 79.8% of FY24.

· Private corporate investment: MoSPI data shows that private corporate capex (GFCF) fell from the peaks of 16.8% of GDP in FY08 and 11.9% in FY18 to below 11% during FY19- FY23 (current prices). It remained below 12% in the entire 2011-12 GDP series.

The above data paints a dismal picture.

Past PLI reviews

Three known reviews of the PLIs have taken place so far, but none of the reports are in the public domain. Some reports said that the first one of June 2023 had no takers for eight sectors, including textiles; nothing was known about the second one of January 2024; while the third on of June 2024 showed continued delay in PLI payments due to which DPIIT was tasked to streamline disbursement and handhold companies in filing correct claims.

Synchronising PLIs and tariffs

All the facts and evidence presented so far suggest a few key course corrections:

1. Data on value addition through PLIs should be made public, before PLI 2.0 is launched. The NITI Aayog was tasked to launch a “PLI dashboard” to track real-time progress of all PLI schemes (announced in its 2021-22 annual report) but there is no sign of it. This is important to know if PLI-supported goods are globally competitive without subsidies. The GTRI report says: “To stay competitive, businesses should invest in cost reduction strategies, enhance

production efficiencies, and explore local sourcing to offset potential tariff hikes” and also, expand to low-tariff markets of Europe, Southeast Asia, and Africa.

2. Focus of PLIs should shift from capital-, tech- and skill-intensive sectors (13 of the 14 sectors) to labour- and low-skill ones (textiles, apparel, footwear, leather etc. where India can take advantage of China’s withdrawal) for better results in manufacturing, exports and jobs.

3. Quality Control Orders (QCOs) are non-tariff barriers hurting Indian manufacturing, exports and jobs. Apart from Kant, former CEA Arvind Subramanian and his colleagues wrote on March 4, 2025 that these QCOs “further complicate trade” and recommended that “all the announced QCOs must be eliminated”.

4. New metrics for PLI 2.0 must be oriented to create value addition, exports and jobs and should be linked to tariff and non-tariff moves for better result, and not work in isolation.

5. PLIs should actively promote manufacturing, and not assembling through import barriers.