NEW DELHI (Reuters) – India’s ambitious $23 billion plan to boost domestic manufacturing and reduce reliance on China will expire as scheduled, just four years after its inception, according to government sources. The program, aimed at attracting global companies and fostering local production, has faced significant setbacks, leaving many firms disappointed.
Despite early enthusiasm, with around 750 companies—including major players like Foxconn and Reliance Industries—signing up, the government has decided not to extend the scheme beyond its current 14 pilot sectors. Furthermore, the deadlines for production targets will not be adjusted, even after requests for flexibility from participating firms.
Introduced in 2020, the Production-Linked Incentive (PLI) program promised cash incentives to companies that met production goals in exchange for setting up manufacturing units in India. The scheme was designed to increase India’s manufacturing share of GDP to 25% by 2025, moving some production away from China, particularly as Beijing’s economy slowed during the pandemic.
However, the program’s results have fallen short of expectations. As of October 2024, firms had produced just $151.93 billion worth of goods under the initiative—37% of the target set by the government. Moreover, only $1.73 billion in incentives had been disbursed, less than 8% of the allocated funds.
Government documents and internal correspondence show that while some companies met their targets, delays in subsidy payouts have undermined the program’s effectiveness. The Commerce Ministry’s analysis revealed significant gaps between production and payout, and the program’s initial optimism has given way to frustration among manufacturers.
Despite the setback, government officials insist that India’s manufacturing ambitions have not been abandoned. Alternatives to the PLI are reportedly being explored, including plans to offer partial reimbursements for investments made to set up production facilities, allowing quicker returns on investment than waiting for production to meet targets.
In sectors such as mobile phones and pharmaceuticals, the scheme has seen some success, particularly in terms of production and export growth. India’s mobile phone production surged by 63% from 2020-2021, while pharmaceutical exports reached $27.85 billion in the 2023-2024 fiscal year. However, these successes have not been replicated in other sectors, such as steel, textiles, and solar panels, where India faces stiff competition from cheaper alternatives, particularly from China.
The solar industry, for example, has struggled to meet its targets, with eight of the twelve companies that joined the PLI program unlikely to hit their goals. A December 2024 analysis by India’s renewable energy ministry found that companies like Reliance and Adani Group had fallen behind on equipment procurement, while JSW had yet to make significant progress.
In the steel sector, production and investment have also lagged, with 14 of the 58 approved projects being canceled or withdrawn due to slow progress. The Commerce Ministry has been resistant to extending the deadlines for non-performing companies, citing concerns over fairness.
Trade experts like Biswajit Dhar from the Council for Social Development in New Delhi argue that India may have missed a crucial window to revitalize its manufacturing sector. “The PLI scheme was possibly our last chance to rejuvenate manufacturing in the country,” Dhar said. “If such a large-scale initiative fails, it raises doubts about whether future efforts will succeed.”
The program’s collapse is a blow to India’s efforts to reduce its dependency on China, especially as the U.S. has sought to decouple its economy from Beijing amid rising geopolitical tensions. India’s position as a manufacturing hub, bolstered by its large, youthful population and relatively lower labor costs, appeared promising in the wake of China’s COVID-related production disruptions. However, India’s manufacturing sector continues to struggle, especially in industries like solar panel production, where China remains a dominant player.
As India approaches the expiry of the PLI scheme, its manufacturing aspirations remain uncertain. While the government plans new approaches to incentivize growth, the challenges faced by the program highlight the difficulties in competing with low-cost manufacturing giants like China.
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