-
CENTRES
Progammes & Centres
Location
India must expand the PLI scheme as a nation-building strategy that drives exports, high-skill jobs, and global manufacturing competitiveness
Despite being the fourth-largest economy and the fastest-growing large economy, India’s export story paints a wanting picture. In 2024, India exported merchandise goods worth US$442 billion, ranking 17th in the world and accounting for merely 12 percent of China’s merchandise exports. The export growth during this period was a measly 0.08 percent compared to the previous year. However, during this period, world trade grew by 3.7 percent, and India’s imports grew by 6.85 percent. Clearly, India’s merchandise exports have not kept pace with its promises, expectations, or potential. It is in this context that the Production-Linked Incentive (PLI) was launched.
The PLI scheme was launched to transform the country’s manufacturing landscape. While the discourse has largely focused on its economic metrics such as investment inflows, export growth, and incentive disbursals, the scheme’s deeper impact lies elsewhere.
India’s merchandise exports have not kept pace with its promises, expectations, or potential. It is in this context that the Production-Linked Incentive (PLI) was launched.
PLI must not be assessed solely through a narrow financial lens, but rather it should be viewed as a strategic lever that strengthens national capacity, generates high-skill employment, enhances technological capability, and positions India as a global manufacturing alternative in a rapidly changing geopolitical order.
The mobile phone and electronics sectors stand out as clear beneficiaries. At US$ 927 billion, electrical and electronics manufacturing accounts for 26 percent of China’s merchandise exports. So it was prudent policy to introduce the PLI scheme for mobile phone manufacturing. Samsung, having completed its five-year PLI cycle, has claimed incentives worth INR 1,000–1,200 crore in FY25, with incremental production estimated between INR 25,000–30,000 crore. Apple’s contract manufacturers—Foxconn, Pegatron, and Wistron—have built robust export capabilities from India. Despite initial scepticism, these firms now contribute significantly to India’s smartphone exports, crossing over US$18 in 2024.
More importantly, domestic value addition in Apple’s production chain has increased significantly, underscoring that the PLI scheme is generating embedded domestic capacity—not just low-value assembly jobs.
While export growth and FDI inflows are important, PLI’s real victory lies in its ability to create large-scale, high-skill employment. Thousands of young Indians are now entering electronics and component manufacturing roles, often with backgrounds in mechanical, electrical, and materials engineering.
This is not low-wage, low-skill work—it is aspirational, future-oriented employment. Additionally, every new manufacturing facility generates a positive spillover effect. Tooling units, logistics hubs, testing labs, and component suppliers emerge around these factories, building a dense industrial ecosystem that lifts productivity across sectors.
The recent dip in Samsung’s exports, down nearly 20 percent in Q1 FY26 after completing its PLI cycle, should not be read as a failure of the policy.
PLI is not just an economic intervention, but it is a nation-building strategy. Its success should not be judged merely by short-term return on investment but by its long-term contribution to India’s industrial self-sufficiency and economic complexity.
Unlike earlier state-led industrial policies marked by bureaucratic inefficiency, PLI is outcome-oriented. It rewards production, scale, and investment. Companies must first produce, sell, and report incremental gains before claiming any incentive. This ensures alignment between public outlay and private performance—turning taxpayer money into tangible national capability.
The recent dip in Samsung’s exports, down nearly 20 percent in Q1 FY26 after completing its PLI cycle, should not be read as a failure of the policy. Instead, it highlights the need for continuity. This would also send the right signal into the boardrooms of companies such as Apple, whose PLI cycle is nearing completion. For early entrants who have proven their scale and intent, the government should consider second-phase PLI programmes focused on R&D, component manufacturing, and upstream value addition.
To stop now would be to plateau just as the industrial flywheel begins to spin. PLI’s goal is not just to attract FDI, but to entrench India within global supply chains and upgrade domestic capabilities in the process.
India spends over INR5 lakh crore (US$60 billion) annually on a mix of subsidies—free electricity, fertiliser support, food grain distribution, and farm loan waivers. While some of these are necessary for social protection, a significant share, INR2–3 lakh crore, is politically motivated, economically inefficient, and developmentally regressive.
In contrast, the entire five-year outlay for PLI across 14 sectors stands at just INR1.97 lakh crore (US$24 billion). And yet, it has: a) attracted INR1.2 lakh crore in private investment; b) created lakhs of formal jobs in advanced manufacturing; c) raised India’s electronics and pharmaceutical exports to record highs. The multiplier effects of the PLI scheme are significant. A UNIDO policy brief posits that every direct job in manufacturing creates 2.2 indirect jobs. Studies based on the Leontief input-output economic model in the context of PLI suggest that it increases demand for downstream inputs and triggers indirect and induced output across allied industries.
Studies based on the Leontief input-output economic model in the context of PLI suggest that it increases demand for downstream inputs and triggers indirect and induced output across allied industries.
PLI is time-bound, performance-based, and ROI-driven. It aligns with national interests and industrial priorities. If fiscal rationalisation is needed, India must revisit consumption-heavy, politically expedient subsidies, not capital-creating platforms like PLI.
This is not about austerity. It’s about intelligent reallocation—redirecting finite public funds from populist giveaways toward long-term productive capacity.
China’s rise as the world’s factory was not accidental. For decades, it deliberately extended low-cost working capital and even capex funding to its manufacturing sector through state-owned banks, local governments, and development zones. Chinese manufacturers have been beneficiaries of heavily subsidised land, power, logistics, and credit, tools Beijing used not as economic giveaways, but as geostrategic investments.
While this came at a significant economic cost—accumulated debt, overcapacity, and shadow banking—it paid off handsomely in geopolitical terms. China is now indispensable to global supply chains, commands bargaining power in trade, and has lifted hundreds of millions out of poverty through industrial employment.
India cannot and should not copy China’s model. But it must learn the central lesson: productive state support to manufacturing—when tied to accountability and competitiveness—builds long-term national power. PLI is India’s version of that doctrine. It must be seen not as fiscal outflow, but as national capacity building. PLI must now move beyond the original 14 sectors. Several under-leveraged industries could benefit from PLI support—particularly heavy equipment manufacturing.
With the right policy nudge, India could also become a major global hub for the production of cranes, excavators, and industrial vehicles—serving not just domestic infrastructure needs but also exporting to Southeast Asia, Africa, and the Middle East. Other future-ready sectors like green hydrogen components, EV batteries, aerospace parts, and precision tooling also warrant inclusion under a restructured, second-generation PLI framework.
The PLI scheme for MSMEs must provide them with additional benefits such as interest subvention, higher Remission of Duties and Taxes on Exported Products (RoDTEP), and concessional corporate tax rate.
While the positive spin-offs of PLI would enable the growth of India’s MSME sector, the sector needs a more specialised PLI scheme. A separate PLI scheme must be launched aimed at enhancing the export orientation of India’s MSME sector. India’s MSME sector, though accounting for about 30 percent of India’s GDP, faces several challenges, such as high capital cost and low labour productivity. The PLI scheme for MSMEs must provide them with additional benefits such as interest subvention, higher Remission of Duties and Taxes on Exported Products (RoDTEP), and concessional corporate tax rate. Such policy provisions are aimed at enhancing the export orientation of India’s MSME sector.
PLI scheme is not just an economic lever—it is a geopolitical tool. As global supply chains realign in the wake of COVID-19, the Ukraine war, and strategic decoupling from China, countries are seeking reliable manufacturing alternatives. India stands at the crossroads of this moment, and the PLI scheme provides the policy architecture for India to fill that vacuum. It enhances India’s leverage in trade negotiations, strengthens self-reliance in critical sectors, and offers global firms a credible, scalable, rule-of-law-driven production destination.
It is one of the most transparent and outcome-driven policies ever implemented by the Indian state. Unless ‘Make in India’ is powered by PLI, it would remain merely a slogan and not a strategy. To dilute it now—due to political distractions or narrow budgetary interpretations—would be a strategic misstep.
Instead, India must: a) deepen PLI for firms that have delivered; b) expand it to underleveraged sectors; c) align it more closely with R&D, design, and upstream value chains; d) launch a dedicated PLI scheme for exports by MSMES; e) reallocate fiscal space from wasteful subsidies to productive, performance-linked incentives
Just as the 1991 reforms unlocked India’s services revolution, PLI can be the catalyst for our manufacturing moment. But only if we approach it with the scale, urgency, and long-term commitment it deserves. This is not about quarterly ROI. It is about jobs, dignity, technological power, and national resilience. The global need for an alternative to China is a unique economic opportunity at a global scale. For India, it should seize the moment; it should see PLI not as a cost but as a strategic investment.
Prasanna Karthik is a strategy consultant and public policy professional based in New Delhi.
The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.
Prasanna Karthik is a strategy consultant and public policy professional based out of New Delhi. He is a Fulbright as well as Clinton Global Initiative ...
Read More +
PREV
