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?

Q.12: 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? (15 Marks,250 Words)

PLI Scheme was launched in 2020 to boost domestic manufacturing through performance-based incentives. Total outlay is ₹1.97 lakh crore, covering 14 strategic sectors (electronics, pharma, automobiles, textiles, steel, drones, etc.).

Rationale of the PLI scheme

• Boost Domestic Manufacturing – India’s economy was overly service-driven (50%+ GDP), with weak manufacturing share (~16–17%). PLI aims to raise manufacturing to 25% of GDP.
• Reduce Import Dependence – Especially in critical areas like APIs (pharma), electronics, semiconductors.
• Attract Global Investments – Position India as a competitive alternative to China in global value chains.
• Job Creation – Manufacturing provides large-scale, semi-skilled employment, crucial for India’s demographic dividend.
• Export Competitiveness – Incentives linked to incremental sales encourage firms to scale production and penetrate global markets.
• Self-Reliance & Strategic Security – Aligned with Atmanirbhar Bharat and national security goals (e.g., electronics, defense, semiconductors).

Achievements of the PLI Scheme:

• Investment Mobilization: By March 2025, realized investments touched ₹1.76 lakh crore, reflecting strong industry confidence and faster movement of projects from approval to execution.
• Production & Sales Impact: Cumulative sales of firms under PLI have exceeded ₹16.5 lakh crore, underscoring its role in expanding domestic production capacities.
  • E.g. Electronics, pharmaceuticals, automotive, and textiles have witnessed notable scale-up in output, with India emerging as the second-largest mobile phone manufacturer globally.
• Employment Generation: The scheme has created more than 12 lakh direct and indirect jobs, with significant spillover in Tier-2 and Tier-3 cities. This is crucial for regional development and for absorbing India’s growing workforce.
• Boost to FDI and Global Value Chains: India is increasingly being seen as a credible alternative manufacturing hub in the global supply chain reconfiguration post-COVID and amid China+1 strategies.
  • E.g. The policy has attracted a fresh wave of foreign direct investment (FDI) into high-value manufacturing.
• Government’s Continued Push: In the 2025–26 Union Budget, allocations for key sectors under PLI were increased, reaffirming commitment to scaling up domestic manufacturing and sustaining momentum.
• Linkages with MSMEs: Large anchor units under PLI are creating supplier and vendor networks, strengthening India’s MSME ecosystem.
  • E.g. This ripple effect ensures technology diffusion, skill enhancement, and better integration of small enterprises into global supply chains.

• Cluster Development: The scheme is driving the creation of sector-specific industrial clusters, e.g.:

• • Semiconductor parks & display fabs in Gujarat.
  • MMF (man-made fiber) textile clusters in Surat.
  • Medical device parks in Andhra Pradesh and Tamil Nadu.

Such clustering is fostering regional specialization and competitiveness.

• Export Growth

Issue in PLI scheme functioning:

• Uneven Sectoral Success: Electronics (esp. mobile manufacturing) has thrived, but other sectors like textiles, solar modules, white goods show slower uptake and delays.
• Implementation Delays: Several projects are still at the approval stage or face land, environmental, and regulatory clearances bottlenecks.
  • E.g. Disbursement of incentives has been slower than expected, creating liquidity issues for firms.
• Limited MSME Participation: Large corporates dominate approvals.MSMEs struggle to meet scale and compliance requirements, limiting the scheme’s inclusiveness and wider economic impact.
• Focus on Assembly, not Value Addition: In electronics, much of the activity is in assembly operations, with low domestic value addition (imported components dominate).
• Insufficient R&D and Innovation Linkage: Current model incentivizes production volumes, not research, design, or IP creation. Without R&D push, India may not move up the technology ladder.
• Global Competition & Trade Rules: India faces competition from nations with stronger ecosystems (China, Vietnam, Mexico).
  • E.g. PLI incentives may face scrutiny under WTO rules as “trade-distorting subsidies.”

Ways to improve functioning and outcomes of the scheme

• Balanced Uptake Across Sectors: Success concentrated in electronics; some sectors (textiles, solar modules) show slower results. Thus there is a need for tailored incentives per sector.
• Strengthening Ecosystem: Incentives alone insufficient; need infrastructure, logistics, and skill development alongside.
• Focus on MSMEs: Scheme largely benefits large corporates; include incentives for MSMEs to widen participation.
• Monitoring & Transparency: Independent third-party audits to ensure incentives are linked to real outcomes. There is a need to address risk of “subsidy capture” by a few big firms.

• Structural Reforms Needed
• • GST Rationalization: Move to a uniform ~10% GST rate → lower costs across sectors, simplify tax system (“one nation, one tax”).
  • Power Sector Reforms: Privatize discoms, liberalize fuel market, adopt DBT for farm subsidies → reduce cost & improve quality of electricity.
• R&D Support: India spends barely 0.7% of GDP on R&D, far below global peers like China (2.4%) or South Korea (4.5%). Without innovation, Indian manufacturing risks being locked into low-value assembly operations
• Link incentives to product quality, sustainability, and patent creation, so that firms move up the value chain rather than competing only on cost..

The PLI scheme has emerged as a transformational industrial policy tool, mobilizing large investments and reviving India’s manufacturing ecosystem. While achievements in electronics and pharma are notable, the next phase must focus on broad-based sectoral success, innovation, MSME integration, and export competitiveness to make India a true global manufacturing hub.

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