Production Linked Incentive (PLI) Scheme

The Production Linked Incentive (PLI) Scheme is a government plan that gives companies a cash reward for producing more in India. The reward is a small percentage of the extra sales a company makes from goods made in its Indian factories, compared to a starting year. So the more a company produces and sells, the more it earns. If it does not grow, it gets nothing.

Why does it exist?

Making things in India was often costlier than in countries like China or Vietnam. Reasons include costlier power and logistics, smaller factory size and weaker supply chains. This gap is called a "cost disability". The PLI scheme pays companies for a few years to cover part of this gap. The hope is that, during those years, companies build large factories, reach huge scale and bring suppliers along, so they can later compete without help.

The COVID-19 pandemic also showed the risk of depending on one country for key inputs like medicine ingredients and electronics. PLI tries to reduce that risk.

Where did it come from?

• April 2020: the first PLI schemes were notified. The scheme for Large Scale Electronics Manufacturing (mobile phones and specified electronic components) was notified by the Ministry of Electronics and Information Technology (MeitY) on 1 April 2020, with an outlay of about ₹40,995 crore. Schemes for pharmaceutical raw materials (Key Starting Materials and Active Pharmaceutical Ingredients) and medical devices came at the same time.
• 11 November 2020: the Union Cabinet approved PLI for 10 more sectors, with a combined outlay of ₹1,45,980 crore over five years.
• Union Budget 2021-22: the total outlay across the schemes was announced as about ₹1.97 lakh crore.
• September 2021: drones and drone components were added, making 14 sectors in all.

The 14 sectors

1. Mobile manufacturing and specified electronic components
2. Critical Key Starting Materials, Drug Intermediates and Active Pharmaceutical Ingredients
3. Medical devices
4. Automobiles and auto components
5. Pharmaceutical drugs
6. Specialty steel
7. Telecom and networking products
8. Electronic/technology products (IT hardware)
9. White goods (air conditioners and LED lights)
10. Food products
11. Textile products (man-made fibre segment and technical textiles)
12. High-efficiency solar PV modules
13. Advanced Chemistry Cell (ACC) batteries
14. Drones and drone components

Each sector's scheme is run by its own ministry. For example, electronics by MeitY, automobiles and ACC batteries by the Ministry of Heavy Industries, textiles by the Ministry of Textiles, and food by the Ministry of Food Processing Industries.

How does it work?

Let us take the mobile phone scheme as an example.

• The government fixes a base year. For the mobile scheme, it was 2019-20.
• A company first commits to a minimum investment and a minimum rise in sales.
• Each year, the government checks how much the company's sales of eligible Indian-made goods rose over the base year. This rise is called incremental sales.
• The company then gets a percentage of that rise as incentive. For mobile phones and components, it was 4% to 6% of incremental sales, for five years after the base year.

Simple example: a phone maker sold ₹1,000 crore of Indian-made phones in the base year. This year it sells ₹3,000 crore. The incremental sales are ₹2,000 crore. At 5%, it gets ₹100 crore from the government. Different sectors have different rates, thresholds and durations.

What has it achieved?

As of 31 December 2025, the government reported about ₹28,748 crore in incentives actually paid out across the 14 schemes. That is a small part of the ₹1.97 lakh crore outlay, because companies are paid only after they meet their targets. Reported results as of 31 March 2026 include about ₹2.4 lakh crore of actual investment, about ₹23.8 lakh crore of production and sales, and about 14.6 lakh direct and indirect jobs.

Mobile phones are the stand-out success: India became one of the world's largest phone makers and a big smartphone exporter. Pharmaceuticals and food products also reported progress. Some schemes, like ACC batteries, textiles and specialty steel, moved slowly.

India's position and related schemes

PLI is India's main tool of industrial policy today. Industrial policy means the government actively picks and supports certain sectors. Other countries do this too, for example the United States' CHIPS and Science Act (2022) for semiconductors. In India, semiconductors are supported separately under the Semicon India Programme (₹76,000 crore), which pays a share of project costs up front.

It is not a PLI scheme. In October 2025, China filed a complaint at the World Trade Organization (WTO) arguing that some Indian incentive schemes favour local inputs over imports.

Commonly confused concepts

• PLI vs a subsidy on investment: a normal investment subsidy pays when you build a factory. PLI pays only when you produce and sell more. It rewards output, not just spending.
• PLI vs Semicon India: PLI links payment to extra sales; Semicon India gives fiscal support covering part of the project cost for chip and display plants.
• Outlay vs disbursement: the outlay (₹1.97 lakh crore) is the maximum the government has set aside. Disbursement is what it has actually paid. The gap between the two is large.
• PLI vs Make in India: Make in India is the broad umbrella programme since 2014. PLI (since 2020) is one specific tool under it.

Issues, criticism and the way forward

• Concentration: most of the investment went to a few sectors. About 83% of PLI investment is in the top five sectors, so the benefits have not spread widely.
• Low job creation: many PLI sectors (solar, steel, electronics assembly) use more machines than workers. Jobs created are far fewer than hoped.
• Low value addition: critics say some firms mainly assemble imported parts. They get rewards on the full sales value while adding little value in India. Phased Manufacturing Programmes try to push firms to make more parts locally.
• Slow and small payouts: complex rules, delays in claims and missed targets meant that disbursement has stayed low.
• Benefits for big firms: large, often foreign, companies captured most of the benefit. MSMEs found the minimum investment levels hard to meet.
• Trade rules: incentives tied to local production can face challenges at the WTO.
• What after PLI ends? Once the five or six years are over, firms may shift if India's basic costs are still high.
• Way forward suggested by experts: redesign schemes for labour-intensive sectors (such as footwear, toys and garments), reward value addition rather than just sales, simplify claims, and fix basic costs like logistics, power and land so that firms stay competitive without subsidies.

Concepts to Know

• Incentive: a reward, usually money, given to encourage a certain action. Here, it encourages more production in India.
• Industrial policy: when the government actively supports chosen industries using money, tax breaks or rules, instead of leaving everything to the market.
• Active Pharmaceutical Ingredient (API): the main chemical in a medicine that makes it work. India imported a large share of its APIs from China.
• Advanced Chemistry Cell (ACC): a new generation of battery cell that stores electric energy, used in electric vehicles and in storing power from solar and wind.
• WTO (World Trade Organization): the global body, set up in 1995, that makes and enforces rules for trade between countries.