Introduction
Launched with an outlay of ₹1.97 lakh crore across 14 critical sectors, the Production Linked Incentive (PLI) scheme marks a structural shift in India's industrial policy from input-based, tariff-led protectionism to outcome-based, performance-linked incremental scale. Designed to integrate domestic industry into global value chains (GVCs) under emerging 'China+1' supply strategies, it acts as a principal vehicle for realizing the vision of Aatmnirbhar Bharat.
Reshaping the Industrial Architecture
The PLI scheme fundamentally altered the operational paradigm of Indian manufacturing by rewarding finished output rather than subsidizing inputs. By tying fiscal outlays to verifiable sales thresholds, it has spurred economies of scale, invited multinational manufacturing anchors, and encouraged local ecosystem clustering.
Key Achievements of the Scheme
- Global Value Chain Integration in Electronics: Mobile phone production surged 146% to reach ₹5.25 lakh crore in FY25, positioning India as the world's second-largest smartphone manufacturer. Domestic assembly now covers over 99% of locally sold handsets, while annual smartphone exports exceeded $15 billion.
- Capital Formation and Job Creation: Realized capital investments under the scheme crossed ₹1.61 lakh crore, generating over ₹14 lakh crore in cumulative production and sales, more than ₹5.3 lakh crore in exports, and establishing 11.5+ lakh direct and indirect employment opportunities.
- Strategic De-risking and Import Substitution: The scheme revived domestic synthesis of over 30 critical fermentation-based bulk drugs and active pharmaceutical ingredients (such as Penicillin-G), reversing extreme import dependency. Similarly, the white goods PLI raised domestic value addition in air conditioners and LED lighting components to 50–70%.
Key Challenges in Achieving Aatmnirbhar Bharat
- Low Domestic Value Addition (DVA): Despite dramatic export volumes, manufacturing in key segments remains largely confined to final-stage assembly ('screwdriver industrialization'). Electronics domestic value addition hovers around 15–20%, while raw semiconductor and sub-assembly imports continue to outpace domestic intermediate manufacturing.
- Sectoral Skew and Concentration: Incentive uptake is heavily asymmetric, with mobile electronics and pharmaceuticals accounting for roughly 70% of total fund disbursements. Sunrise sectors critical for green transitions, such as Advanced Chemistry Cell (ACC) battery storage, solar photovoltaics, and specialty textiles, face slower operational momentum.
- Exclusion of MSMEs: High minimum investment and turnover eligibility thresholds naturally favor large industrial conglomerates. As a result, Tier-2 and Tier-3 domestic component suppliers remain largely decoupled from fiscal support.
- Administrative and Disbursement Bottlenecks: Complex compliance frameworks, stringent verification criteria, and bureaucratic audit lags have kept cumulative incentive disbursements under 20% of the allocated budget.
Way Forward towards PLI 2.0
- Component-Level Incentivisation: Expand support specifically to Tier-2 and Tier-3 component vendors and MSMEs to deepen local supply chains beyond assembly.
- Progressive Value Addition Mandates: Tie phased incentive payouts to demonstrable thresholds of domestic value addition and domestic research and development (R&D) expenditure.
- Reducing Structural Cost Disabilities: Complement targeted fiscal incentives with macro-infrastructure improvements under PM Gati Shakti, multimodal logistics corridors, and reduced industrial electricity tariffs to foster sustainable global competitiveness.
Conclusion
The PLI scheme has successfully established manufacturing scale and export credibility for India in globally contested sectors. To translate these preliminary gains into true self-reliance, India must transition to a component-centric PLI 2.0 framework that anchors MSMEs into the domestic value chain and overcomes baseline infrastructure and logistics bottlenecks.