India’s grand ambition to transform itself into a global manufacturing powerhouse, rivaling the likes of China, is facing a significant crossroads. The Production-Linked Incentive (PLI) scheme, a cornerstone of this vision, is slated to lapse, leaving behind a mixed legacy of successes and unmet expectations. Launched in 2020 with a hefty $23 billion war chest, the PLI scheme aimed to incentivize domestic production across various sectors, attract foreign investment, and ultimately boost the manufacturing sector’s contribution to the national economy. However, as the scheme approaches its expiration date, a critical assessment of its impact reveals a more nuanced picture than initially envisioned.

The PLI scheme was conceived as a bold and strategic intervention to address several critical challenges plaguing India’s manufacturing landscape. Firstly, it sought to reduce the country’s dependence on imports, particularly from China, by fostering self-reliance and building domestic capabilities. Secondly, it aimed to attract large-scale investments in key sectors, creating jobs and stimulating economic growth. Finally, the scheme aimed to enhance India’s competitiveness in the global market by encouraging companies to adopt advanced technologies and improve their production efficiencies.

The scheme’s design was centered around providing financial incentives to companies that met specific production targets. These incentives were linked to incremental sales, meaning that companies would receive subsidies based on the increase in their production output. The government identified a range of strategic sectors for inclusion in the PLI scheme, including electronics, pharmaceuticals, automobiles, textiles, food processing, and telecommunications. These sectors were chosen based on their potential for growth, employment generation, and contribution to the overall economy.

The initial response to the PLI scheme was largely positive, with several major companies expressing interest in participating. Global giants like Foxconn, a key Apple supplier, and domestic behemoths like Reliance Industries pledged to invest heavily in India’s manufacturing sector under the scheme. These commitments were seen as a major vote of confidence in India’s economic potential and its ability to attract foreign investment.

However, as the scheme progressed, it became increasingly clear that achieving the ambitious targets set by the government would be a challenging task. Several factors contributed to the scheme’s underperformance. Firstly, the COVID-19 pandemic disrupted global supply chains, making it difficult for companies to source raw materials and components. This led to delays in production and hindered their ability to meet the targets set by the government.

Secondly, bureaucratic hurdles and regulatory complexities further hampered the scheme’s progress. Companies faced challenges in obtaining necessary clearances and approvals, which slowed down the implementation of their investment plans. The lack of a streamlined and efficient regulatory environment proved to be a significant obstacle for many companies.

Thirdly, the scheme’s design itself came under scrutiny. Some critics argued that the production targets were too ambitious and unrealistic, given the challenges faced by the manufacturing sector. Others pointed out that the scheme was too focused on large companies and did not adequately address the needs of small and medium-sized enterprises (SMEs), which form the backbone of India’s manufacturing ecosystem.

By October 2024, only a fraction of the allocated funds, a mere $1.73 billion, had been disbursed under the PLI scheme. This stark figure highlighted the scheme’s shortcomings and raised concerns about its overall effectiveness. The lackluster performance of the PLI scheme has had a tangible impact on India’s manufacturing sector. The sector’s share in the country’s economy has declined from 15.4% to 14.3%, a worrying trend that underscores the need for a comprehensive review of the government’s manufacturing strategy.

The impending expiration of the PLI scheme has prompted the government to explore alternative approaches to support the manufacturing sector. One option under consideration is to reimburse companies for their investments in setting up plants. This approach would provide a more direct and targeted form of support, reducing the dependence on meeting specific production targets.

However, the government faces a tough balancing act. On the one hand, it needs to provide adequate support to the manufacturing sector to ensure its continued growth and competitiveness. On the other hand, it needs to ensure that public funds are used efficiently and effectively, avoiding the pitfalls of the PLI scheme.

The future of India’s manufacturing ambition hinges on the government’s ability to learn from the experiences of the PLI scheme and design a more effective and sustainable strategy. This strategy must address the key challenges facing the manufacturing sector, including infrastructure bottlenecks, regulatory complexities, and skill gaps. It must also promote innovation, encourage the adoption of advanced technologies, and foster a more conducive environment for SMEs.

The expiration of the PLI scheme marks not an end, but a new beginning for India’s manufacturing journey. It is an opportunity to reassess the country’s strengths and weaknesses, learn from past mistakes, and chart a new course towards becoming a global manufacturing powerhouse. The road ahead may be challenging, but with a clear vision, strategic planning, and effective implementation, India can still realize its manufacturing dream. The key lies in creating a holistic ecosystem that supports innovation, fosters competitiveness, and empowers businesses of all sizes to thrive in the global market. Only then can India truly unlock its manufacturing potential and secure its place as a leading player in the global economy.