Challenges in Implementing PLI Scheme

March 24, 2025

India’s government has recently decided to discontinue $23 billion initiative aimed at boosting domestic manufacturing. Launched four years ago, the Production-Linked Initiative (PLI) sought to attract firms away from China. However, the scheme struggled to meet its ambitious targets. This decision marks a very important moment in India’s manufacturing landscape.

Production-Linked Initiative

The PLI was designed to incentivise domestic manufacturing by offering cash payouts to firms meeting production targets. Approximately 750 companies, including major players like Foxconn and Reliance Industries, participated. The programme aimed to increase manufacturing’s contribution to the economy from 15.4% to 25% by 2025.

Challenges Faced by the PLI

Despite the initial enthusiasm, many firms failed to commence production. Others that met targets experienced delays in subsidy payments. By October 2024, participating firms produced goods worth $151.93 billion, only 37% of the target. The government disbursed just $1.73 billion in incentives, less than 8% of the allocated funds.

Sector-Specific Performance

While the PLI showed promise in pharmaceuticals and mobile manufacturing, other sectors lagged. The pharmaceutical sector received 94% of the incentives disbursed, reflecting its rapid growth. Conversely, sectors such as steel, textiles, and solar panel manufacturing struggled to meet targets, facing stiff competition from China.

Government Response and Future Plans

The government acknowledged the shortcomings of the PLI and has indicated that alternatives are being considered. These include a plan to reimburse investments in certain sectors, allowing quicker recovery of costs. Officials noted that bureaucratic hurdles and excessive red tape hindered the programme’s effectiveness.

Impact on India’s Manufacturing Sector

The discontinuation of the PLI raises concerns about India’s manufacturing ambitions. Experts suggest that India may have missed important opportunity to revive its manufacturing sector. The current landscape poses challenges, especially amid global trade tensions and competition from cheaper alternatives.

Global Context and Competitiveness

The PLI was initiated during a time when global dynamics were shifting. China’s production capabilities were under strain due to its strict COVID-19 policies. However, India has not fully capitalised on this opportunity. The country needs to enhance its competitiveness to attract foreign investment and sustain growth in manufacturing.

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