India Discontinues $23 Billion Production-Linked Incentive (PLI) Scheme – Here’s Why

Introduction

The Indian government has officially decided not to extend the Production-Linked Incentive (PLI) scheme, a flagship initiative aimed at boosting domestic manufacturing and reducing reliance on imports, particularly from China. The program, which was initially introduced in 2020 with a massive budget of $23 billion, faced several challenges in achieving its intended targets.

What Was the PLI Scheme?

Launched under the “Make in India” initiative, the PLI scheme was designed to incentivize companies across various sectors, including electronics, pharmaceuticals, automotive, and textiles, by offering financial benefits linked to their production output. The primary goals were:

• Encouraging large-scale manufacturing in India
• Attracting foreign direct investment (FDI)
• Reducing imports and strengthening India’s self-reliance
• Creating job opportunities

Why Has the PLI Scheme Been Discontinued?

Despite its ambitious goals, the scheme fell short of expectations. The government cited several key reasons for discontinuing the program:

1. Low Production Achievement

• According to official data, by October 2024, only 37% of the production targets were met across all sectors.
• The manufacturing output in crucial industries like semiconductors, automobile components, and specialty steel remained below the anticipated levels.

2. Slow Fund Disbursement

• A significant portion of the allocated $23 billion remained unused due to bureaucratic delays.
• Many companies reported difficulties in accessing incentives due to stringent eligibility criteria and compliance requirements.

3. Limited Participation from Small and Medium Enterprises (SMEs)

• The scheme was initially expected to benefit SMEs, but many smaller businesses found it challenging to meet the investment and production criteria.
• Larger corporations, including multinational firms, benefited more than domestic startups and MSMEs.

4. Global Economic Uncertainties

• Post-pandemic supply chain disruptions and geopolitical tensions with China led to unpredictable market conditions.
• Many global companies that planned investments under the PLI scheme reconsidered or delayed their commitments.

5. Shift in Government Priorities

• The Indian government is now focusing on sector-specific incentives rather than a broad-based subsidy model.
• New initiatives are expected to target emerging technologies like green hydrogen, electric mobility, and AI-driven industries.

Impact on Businesses and the Economy

• Domestic manufacturers who relied on the PLI benefits will need to adjust their investment plans.
• Some companies may shift their operations to other countries offering similar incentives, such as Vietnam and Indonesia.
• The Indian government is expected to introduce alternative policies that are more flexible and sector-focused.

What’s Next?

With the discontinuation of the PLI scheme, India is likely to introduce new, more targeted manufacturing incentives focusing on sustainable industries, digital transformation, and deep-tech innovations. The government has hinted at customized schemes for:

• Semiconductor manufacturing
• Renewable energy solutions
• AI-driven automation industries
• Advanced electronics and software development

Conclusion

The PLI scheme played a crucial role in strengthening India’s manufacturing capabilities over the past four years. However, due to low production targets, slow fund utilization, and shifting economic conditions, the government has decided to discontinue the program. Moving forward, India’s industrial policy will likely focus on targeted incentives for specific sectors, ensuring more efficient fund utilization and better economic outcomes.