The Government has decided to allow the US$ 23 billion Production-Linked Incentive (PLI) programme to lapse, four years after its introduction to encourage firms to shift production from China, according to four government officials.

The scheme will not be expanded beyond the 14 pilot sectors, and production deadlines will not be extended despite requests from some participating companies, two officials confirmed. Public records indicate that approximately 750 firms, including Apple supplier Foxconn and Indian conglomerate Reliance Industries, enrolled in the PLI programme.

The initiative offered cash incentives to companies that met individual production targets and deadlines, with the objective of increasing the manufacturing sector's share of the economy to 25% by 2025.

Government documents and correspondence reviewed by media sources indicate that many companies failed to initiate production, while others that met targets encountered delays in receiving subsidies. As of October 2024, participating firms had produced goods worth US$ 151.93 billion under the scheme - only 37% of the target set by the Government - according to an undated analysis by the Ministry of Commerce. The document also revealed that only US$ 1.73 billion, or less than 8% of the allocated funds, had been disbursed.

The Government's decision not to extend the programme and the details of the delays in pay-outs are being reported by media sources for the first time.

Neither the Prime Minister's Office nor the Ministry of Commerce, which oversees the PLI scheme, responded to requests for comment. Since the scheme's introduction, manufacturing's share of the economy has declined from 15.4% to 14.3%.

In a separate statement issued on Saturday, the Ministry of Commerce reported that participating firms had produced goods worth US$ 163 billion as of November 2024. While the ministry did not clarify whether the programme would be allowed to expire, it reiterated that the PLI schemes have delivered growth in some sectors.

Foxconn, which now employs thousands of contract workers in India, and Reliance Industries did not respond to requests for comment.

Two government officials indicated that the programme's conclusion does not signify the abandonment of the country's manufacturing ambitions. Alternatives are reportedly under consideration, including a scheme to partially reimburse companies for investments made to establish manufacturing facilities, which would expedite cost recovery compared to the existing model that relies on meeting production and sales targets.

The Government previously defended the PLI scheme's impact, highlighting growth in the pharmaceutical and mobile phone sectors. According to official data, 94% of the nearly US$ 620 million in incentives disbursed between April and October 2024 were allocated to these two sectors.

However, the programme faced challenges in other areas. According to the Ministry of Commerce's analysis, some food-sector companies failed to receive subsidies due to "non-compliance with investment thresholds" or "failure to achieve stipulated minimum growth." While the analysis indicated that production in the food sector exceeded targets, it did not provide specific company details.

The Government has previously acknowledged challenges within the scheme and had agreed to extend deadlines and increase payment frequency in response to participant concerns.

A senior government official, speaking anonymously, attributed the scheme's limited success to excessive bureaucratic caution and administrative delays. Another official indicated that the Government is exploring alternative approaches to support strategic sectors more effectively.

Missed opportunities and sectoral performance

Biswajit Dhar, a trade expert at the Delhi-based Council for Social Development, has criticised the Government's efforts to attract foreign investment. He remarked that the PLI scheme represented "possibly the last chance to revive the manufacturing sector" and questioned the feasibility of future initiatives following the scheme's underperformance.

The expiration of the PLI scheme comes as India seeks to navigate trade tensions instigated by former U.S. President Donald Trump, who criticised the country's protectionist policies. Dhar warned that the threat of reciprocal tariffs on countries with trade surpluses, including India, could further strain the export sector.

Performance across key sectors

The PLI programme was introduced when global conditions appeared conducive to attracting manufacturing investment. China, long regarded as the world's manufacturing hub, faced production disruptions due to Beijing's strict zero-COVID policies. Concurrently, the U.S. sought to reduce economic dependence on China, encouraging a "China plus one" strategy among multinational corporations.

The PLI scheme achieved growth in the pharmaceutical and mobile phone sectors. In the 2023-24 fiscal year, India produced US$ 49 billion worth of mobile phones - a 63% increase compared to 2020-21 - according to official data. Major industry players, including Apple, have shifted the production of their most advanced models to India. Pharmaceutical exports have also nearly doubled over the past decade, reaching US$ 27.85 billion in 2023-24.

However, progress in other key sectors - such as steel, textiles, and solar panel manufacturing - has been limited. These industries face strong competition from lower-cost producers, particularly China.

In the solar panel sector, a December 2024 analysis by the Ministry of New and Renewable Energy, reviewed by media sources, indicated that eight of the twelve participating companies were unlikely to meet their production targets. This group includes subsidiaries of Reliance Industries, the Adani Group, and JSW.

The analysis projected that the Reliance subsidiary would meet only 50% of its production target by the end of the 2027 fiscal year, when the solar PLI scheme is scheduled to expire. Furthermore, it indicated that Adani had not yet ordered the necessary manufacturing equipment, while JSW had made no significant progress.

JSW declined to comment, and Adani did not respond to inquiries.

In a January 2025 letter to the Ministry of New and Renewable Energy, the Ministry of Commerce rejected requests to extend the solar PLI scheme beyond 2027, arguing that such an extension would "result in unfair benefit for non-performers." In response to media sources' inquiries, the Ministry of New and Renewable Energy emphasised its commitment to "fairness and accountability" and stated that only companies meeting their targets would receive incentives.

The steel sector has similarly struggled to meet expectations. According to the undated programme-wide analysis, 14 of the 58 projects approved under the steel PLI scheme have been withdrawn or cancelled due to lack of progress.