The Indian government has decided to end a $23 billion program aimed at boosting domestic manufacturing, just four years after its launch. The plan, known as the Production-Linked Incentive (PLI) scheme, was designed to attract companies away from China and increase India’s manufacturing sector to 25% of the economy by 2025. However, it did not achieve its goals.
Why Is the Program Ending?
The government will not expand the scheme beyond the 14 pilot sectors, and it will not extend production deadlines despite requests from some companies. About 750 companies, including Apple supplier Foxconn and Indian giant Reliance Industries, joined the program, hoping to receive cash incentives for meeting production targets.
However, many companies struggled to start production, and others that met targets faced delays in receiving their promised payments. As of October 2024, the companies had produced goods worth $151.93 billion—only 37% of the target set by the government. Meanwhile, India had issued just $1.73 billion in incentives, which is less than 8% of the total allocated funds.
Read More: Government Questions Ola Electric Over ‘Missing’ 16,400 Vehicle Registrations
Challenges and Issues
Manufacturing’s share of India’s economy has actually declined from 15.4% to 14.3% since the scheme started. While the program helped boost industries like mobile phones and pharmaceuticals, other sectors such as steel, textiles, and solar panel manufacturing struggled to compete with cheaper production in China.
In the solar industry, eight out of 12 companies under the scheme are unlikely to meet their targets. Companies like Reliance, Adani, and JSW faced setbacks. For example:
- Reliance is expected to achieve only 50% of its production goal by 2027.
- Adani has not yet ordered essential manufacturing equipment.
- JSW has made little to no progress.
Similarly, in the steel sector, 14 out of 58 approved projects have been canceled due to lack of progress.
What’s Next for India’s Manufacturing?
The government insists that it has not given up on boosting manufacturing. Instead of PLI, officials are considering a new plan that would partially reimburse companies for their investments in setting up factories. This method would help businesses recover costs faster without waiting for production targets to be met.
Experts believe that India might have lost a big opportunity to strengthen its manufacturing sector. Trade expert Biswajit Dhar said, “If this kind of mega-scheme fails, do you think anything else will succeed?”
The failure of the PLI scheme comes as India faces global trade challenges. The U.S. government has criticized India’s trade policies, and there are concerns that tariffs on Indian exports could make things worse.
Successes and Failures
The PLI scheme worked well in some sectors:
- Mobile Phone Manufacturing: India became a global leader, producing $49 billion worth of phones in 2023-24, a 63% increase from 2020-21. Apple now manufactures its latest models in India.
- Pharmaceutical Industry: Exports nearly doubled to $27.85 billion in 2023-24 compared to a decade ago.
However, other industries like solar panels and steel failed to take off. The government refused to extend deadlines for struggling sectors, arguing that it would be unfair to companies that met their targets.
Final Thoughts
While the PLI scheme helped in some areas, excessive bureaucracy and slow payment processing hurt its overall effectiveness. The government is now looking at alternative ways to support manufacturing, but whether these will succeed remains to be seen.
For now, India’s goal of becoming a major global manufacturing hub remains uncertain.
