Discuss the rationale of the Production Linked Incentive (PLI) scheme. What are its achievements? In what way can the functioning and outcomes of the scheme be improved?

Rationale of the PLI Scheme

The PLI scheme's rationale is deeply rooted in India's aspiration to strengthen its manufacturing sector and integrate it more robustly into global supply chains. Key objectives include:

• Boosting Domestic Manufacturing and Self-Reliance: To reduce reliance on imports in critical sectors like electronics, pharmaceuticals, and solar modules by incentivizing local production and building domestic capacity.
• Enhancing Export Competitiveness: To position Indian manufacturers competitively in the global market, thereby increasing exports and improving India's share in global trade.
• Attracting Investments: To draw both domestic and foreign direct investment (FDI) into high-tech and labour-intensive manufacturing sectors, facilitating technology transfer and capital infusion.
• Generating Employment: To create a significant number of direct and indirect jobs across various skill levels, contributing to economic development and demographic dividend utilization.
• Promoting Economies of Scale and Efficiency: By linking incentives to incremental production, the scheme encourages firms to expand operations, achieve economies of scale, and improve efficiency.
• Fostering Innovation and Technology Adoption: To encourage R&D and the adoption of advanced manufacturing technologies, pushing India up the value chain.

Achievements of the PLI Scheme

Since its inception, the PLI scheme has demonstrated notable progress in several sectors, although with varying degrees of success:

• Investments and Output: By March 2025, the scheme has attracted committed investments of approximately ₹1.76 lakh crore. Total production and sales by PLI participants exceeded ₹16.5 lakh crore, with electronics production alone surging by 146% from ₹2.13 lakh crore in FY 2020-21 to ₹5.25 lakh crore in FY 2024-25.
• Employment Generation: The scheme has created over 12 lakh (1.2 million) jobs, both direct and indirect, by March 2025. For instance, the solar PV module PLI scheme has created about 43,000 jobs by October 2025.
• Export Growth: Exports powered by these schemes surpassed ₹4 lakh crore by August 2024, with significant contributions from large-scale electronics manufacturing (mobile phones), pharmaceuticals, and food processing. Mobile phone exports reached ₹1.2 lakh crore in FY24, a sharp rise from ₹1,566 crore in FY14.
• Reduced Import Dependence: In the telecom sector, import substitution of 60% has been achieved. In pharmaceuticals, India transitioned from a net importer to a net exporter of bulk drugs, with a ₹2,280 crore surplus in FY 2024-25.
• Sector-Specific Successes:
  • Electronics: The mobile manufacturing sector has been a flagship success, with global giants establishing production units and India becoming a major mobile phone manufacturing nation.
  • Pharmaceuticals: The scheme has revived bulk drug and API manufacturing, creating capacities for 26 KSMs/DIs/APIs that were previously imported.
  • Automobile and Auto Components: Over 85 companies have been approved, attracting substantial investments and fostering a shift towards clean mobility.
  • Solar PV Modules: Efforts are underway to create nearly 48 GW of integrated manufacturing capacity with an outlay of ₹24,000 crore, significantly reducing import dependence.

Ways to Improve Functioning and Outcomes of the Scheme

Despite its achievements, the PLI scheme faces certain challenges that need to be addressed for enhanced effectiveness:

• Addressing Sectoral Imbalances: While electronics and pharmaceuticals have performed well, sectors like textiles, white goods, and specialty steel have lagged. The government should analyze reasons for slower uptake in these sectors, such as stringent eligibility norms, market competition, or setup challenges.
• Enhancing Domestic Value Addition: Many sectors, including mobile manufacturing, still have low domestic value addition (around 20-25%). Future iterations (PLI 2.0) should link incentives more strongly to the percentage of domestic value addition and indigenous R&D to move beyond mere assembly operations.
• Faster Disbursement and Transparency: Delays in incentive disbursement can weaken industry confidence and create cash flow issues for participating companies. Streamlining bureaucratic processes and ensuring timely, transparent payouts are crucial.
• Support for MSMEs: High investment thresholds and complex application processes often exclude Micro, Small, and Medium Enterprises (MSMEs). Introducing lower thresholds, simplified procedures, and dedicated support mechanisms for MSMEs can foster a more inclusive manufacturing ecosystem.
• Focus on R&D and Design: The current scheme primarily rewards scale. Greater allocation and incentives for research, indigenous design, and technology development are needed to foster innovation and long-term competitiveness, especially in high-tech sectors like semiconductors.
• Strengthening Local Component Ecosystem: To truly reduce import dependence, India needs a robust ecosystem for sub-components and critical inputs. Incentivizing joint ventures for technology transfer and promoting local component manufacturing are vital.
• Policy Consistency and Regulatory Stability: Frequent changes or uncertainties in policy can deter long-term investments. Ensuring a stable and predictable regulatory environment is essential for attracting and retaining manufacturing players.