By – Gunika Razdan

Introduction

India, the world’s fifth-largest economy in nominal terms and the third-largest in purchasing power parity (PPP), stands at the junction of significant growth opportunities. Over the past three decades, the nation has undergone a profound transformation, transitioning from an agrarian-based economy to a global economic powerhouse. This evolution has been fueled by a thriving services sector, dynamic manufacturing industries, and a rapidly growing consumer market. Despite this progress, India continues to face structural challenges that impede its sustained growth, including inadequate infrastructure, complex regulatory frameworks, and skill development gaps. Moreover, regional disparities, low agricultural productivity, and a persistent trade deficit underscore the urgency for strategic interventions.

Addressing these challenges through focused reforms in infrastructure, taxation, innovation, and policy coherence will be critical in providing the impetus for inclusive and sustainable growth toward India’s ambitious aspiration of becoming a $5 trillion economy. Policies are the anchor for unlocking India’s full potential while finding solutions to its myriad economic challenges. Innovation and sustainable agriculture and industrial policies will also play a key role in bridging sectoral gaps. Strong governance frameworks that deliver openness and stability attract investors and ensure the economy provides long-term resilience. [1]

The Production Linked Incentive 1.1 (PLI) Scheme, launched by the Government of India in 2024, epitomizes a strategic policy intervention aimed at transforming India into a global manufacturing hub. Designed to boost domestic production, attract investments, and enhance global competitiveness, the PLI scheme provides financial incentives based on incremental sales to eligible companies across key sectors such as electronics, pharmaceuticals, automobiles, and textiles. These sectors have been identified for their critical role in economic growth and export potential.[2]

The rationale behind the scheme lies in addressing long-standing challenges, including a significant trade deficit and dependency on imports, while fostering self-reliance under the “Make in India” and “Atmanirbhar Bharat” initiatives. By incentivizing increased production capacities, encouraging the adoption of advanced technologies, and driving innovation, the  scheme seeks to position India as a leader in global manufacturing. Beyond its economic objectives, the scheme is also expected to generate employment opportunities, stimulate technological advancements, and contribute to a more balanced trade ecosystem, aligning with India’s vision of sustainable economic growth.[3]

Background of the PLI Scheme

The scheme was first launched with a focus on electronics, specifically targeting mobile phones, electrical components, and medical devices. At its inception, the scheme aimed to incentivize both foreign and domestic manufacturers to produce in India, thereby strengthening India’s manufacturing capabilities. By providing financial incentives based on production levels, the government aimed to create a self-sustaining ecosystem that would reduce the country’s dependence on imports, particularly in sectors such as electronics where India had been heavily reliant on foreign manufacturers.[4]

The scheme was, therefore, extended to cover 14 key sectors of diversified industrial growth such as textiles, pharmaceuticals, automotive components, and specialty steel, which have been strategically conceived for helping India become more self-reliant than ever, and provide a platform for the same to posture itself as a competitive player in global markets. The broadening of the PLI’s focus reflects the government’s ambition to nurture a diverse and robust manufacturing sector that spans beyond traditional industries and includes emerging sectors like drones and electric vehicles (EVs).

Core Objectives of the Scheme

The PLI scheme is anchored on three fundamental objectives aimed at strengthening India’s economic framework. Firstly, it seeks to boost domestic manufacturing by encouraging both foreign and domestic companies to establish production facilities within the country. By offering financial incentives tied to production levels, the scheme aspires to enhance manufacturing capacity across various sectors. This strategy not only aims to increase local production but also to reduce dependence on imported goods, particularly in critical sectors such as electronics and pharmaceuticals.

Secondly, The scheme also encourages the reduction of imports by enhancing domestic manufacturing, thus achieving higher self-sufficiency. The government realizes that the excessive dependence on imported goods, particularly in industries such as medical devices and electronics, weakens the resilience of the economy. The PLI scheme thus encourages local production, thereby enhancing the domestic output of essential goods, reducing import dependence, improving the trade balance, and contributing to economic stability.

Thirdly, the scheme focuses on employment generation through labor-intensive sectors like textiles, food processing, and pharmaceuticals. As these industries expand under the incentives offered by the framework, significant employment is likely to arise, thereby meeting the unemployment problem and propelling economic growth. The PLI scheme focuses on traditionally underdeveloped sectors, which require heavy human resources, thereby promoting inclusive economic development and eliminating regional disparities.

Sectors Covered by the Scheme

The PLI 1.1 scheme has driven significant sector-specific achievements, contributing to India’s economic growth and self-reliance. For the automotive sector, the focus on sustainable transportation and green automotive technologies, including electric vehicles, aligns with India’s commitment to environmental sustainability. India has transitioned from being a net importer to a net exporter of mobile phones, with production reaching 33 crore units in 2023-24 and exports accounting for 5 crore units. The pharmaceuticals and medical devices sector have established India as the third-largest producer by volume, exporting 50% of its production and significantly reducing import dependence on bulk drugs. It targets to promote domestic production of essential drugs and medical devices, positioning India as a global leader in pharmaceutical manufacturing while decreasing dependency on imports. In the automotive industry, the scheme has attracted $8 billion in investments and increased the production of high-tech automotive components, with a strong emphasis on electric vehicles and their components.

Renewable energy, too, made incredible strides – its solar photovoltaic module manufacturing increased from scratch to reach 65 GW of manufacturing capacity in the scheme’s second tranche. For telecom, India succeeded in replacing 60 percent imports and become one of the major exporters of 4G and 5G equipment while reinforcing its position within the global tech market. Growth has been multifold in drones as well – all driven through micro, small, and medium enterprises (MSMEs) and start-ups.

In electronics, it focuses on mobile phone, electrical component, and medical device manufacturing, thereby reducing the import dependence.  In textiles, the scheme focuses on the production of high-value and technical textiles to increase export potential and generate employment to make India a global textile manufacturing hub. In this way, the scheme has played a significant role in making India a global manufacturing hub by transforming sector-specific initiatives.

Assessing Priorities and Impact

There are several key priorities must be addressed to maximize its impact on India’s economic growth and global competitiveness. A central focus is increasing production and exports, as the scheme aims to reduce import dependency while enhancing India’s share in global trade through the creation of a robust manufacturing ecosystem. Significant emphasis is also placed on fostering investment and employment growth, as evidenced by the ₹1.46 lakh crore in investments realized by August 2024.

These investments have not only bolstered targeted sectors but have also led to the generation of approximately 9.5 lakh jobs, demonstrating the scheme’s potential to transform labour-intensive industries. Furthermore, skill development remains crucial, as emerging industries and advanced technologies require a workforce equipped to meet the demands of modern manufacturing processes. Another critical aspect is domestic value addition, where strengthening supply chains and increasing the use of locally sourced materials enhance economic self-sufficiency and value creation within India’s manufacturing sectors. Collectively, these efforts have resulted in a remarkable ₹12.50 lakh crore in production output and ₹4 lakh crore in exports, underscoring the scheme’s transformative role in driving sustainable industrial and economic development.

Strategic Importance of the Scheme

The scheme is a flagship initiative by the Indian government designed to invigorate the manufacturing sector, reduce import dependency, and position India as a global manufacturing hub. By offering financial incentives across multiple sectors, the scheme aligns with the vision of Atmanirbhar Bharat (self-reliant India) and aims to promote sustainable economic growth. Below is a cohesive exploration of its strategic significance:

1. Boosting Domestic Manufacturing and Production

The PLI scheme is instrumental in enhancing India’s manufacturing capabilities by incentivizing companies based on incremental production.[5] By encouraging domestic production of goods, particularly in sectors like electronics, pharmaceuticals, and medical devices, the scheme mitigates reliance on imports and strengthens supply chain resilience. The scheme underpins India’s ambition to emerge as a self-sufficient manufacturing hub, aligning with the Make in India campaign. By supporting domestic industries, it fosters indigenous innovation and production capabilities.

2. Attracting Foreign Direct Investment (FDI)

The scheme plays a pivotal role in positioning India as a preferred investment destination for global manufacturers. By offering financial incentives for establishing or expanding manufacturing bases, the scheme attracts substantial foreign direct investment (FDI), particularly in critical sectors such as mobile manufacturing, electronics, and automotive. This targeted approach not only bolsters domestic production but also enhances India’s integration into global value chains. Furthermore, the PLI framework promotes global competitiveness by fostering improved infrastructure and implementing streamlined policies that enhance the ease of doing business. These measures make India an attractive destination for multinational corporations seeking robust and efficient production ecosystems, thereby strengthening the country’s position in the global manufacturing landscape.

3. Promoting Export Growth

The PLI scheme directly contributes to strengthening India’s trade balance by fostering export-oriented growth. Sectors such as textiles, electronics, and automobiles, targeted under the scheme, are critical to boosting India’s export volumes. Encouraging quality and cost-efficient production, the scheme enhances India’s competitiveness in international markets, helping position the country as a key player in global value chains.[6]

4. Generating Employment and Skill Development

A critical pillar of the scheme is its significant contribution to job creation and workforce development. The expansion of manufacturing capacities across various sectors generates employment opportunities at all skill levels, effectively addressing unemployment challenges and promoting inclusive economic growth.

Additionally, the adoption of advanced technologies by incentivized industries under the scheme drives the need for workforce upskilling. This dual focus on job creation and skill enhancement ensures that India’s workforce is equipped to meet the demands of modern manufacturing, fostering long-term industrial competitiveness and economic resilience. This fosters a culture of innovation and productivity, crucial for long-term economic development.[7]

Broader Sectoral Coverage and Strategic Impact

The scheme marks a pivotal shift in India’s industrial and economic policy, taking a holistic and sector-agnostic approach to fostering sustained growth, competitiveness, and self-reliance. With a massive financial outlay of INR 1.97 lakh crore (US$ 26 billion) announced in the Union Budget 2021-22, the PLI scheme spans 13 critical manufacturing sectors, alongside an additional focus on drones and drone components. This initiative departs significantly from previous government policies such as the Modified Special Incentive Package Scheme (M-SIPS) or the Textile Upgradation Fund Scheme (TUFS), which were narrower in scope and primarily focused on specific industries or infrastructure development.

The scheme takes a production-focused approach and ties incentives solely to incremental production and performance for sustained growth in both traditional industries and new, high-growth sectors. The scheme encompasses a wide number of industries representing its multi-sectoral interest. Traditional areas have been focused on alongside new-age sectors including renewable energy, advanced battery technologies, medical devices, telecom products, and high-efficient solar PV modules along with automobiles, pharmaceuticals, textiles, and steel.

This strategic inclusion of both established and emerging industries not only strengthens India’s traditional manufacturing base but also positions the country as a key player in advanced global value chains. For instance, the mobile manufacturing sector has seen investments worth INR 3,000 crore since 2020, showcasing how targeted incentives can attract substantial private and foreign direct investment. Similarly, the pharmaceutical sector, under the scheme, has attracted committed investments of INR 4,347.26 crore, bolstering the production of critical starting materials and drug intermediates, which are vital for reducing import dependency and ensuring healthcare resilience.

The scheme’s emphasis on innovation and technology adoption further distinguishes it from previous initiatives. By encouraging industries to invest in research and development, adopt advanced manufacturing processes, and enhance productivity, the scheme promotes global competitiveness. The incentives are designed not only to increase production but also to elevate the quality of output to meet international standards, thereby expanding India’s export potential. For instance, the incentives for energy-efficient white goods like air conditioners and LEDs have attracted indicative investments of INR 4,614 crore, contributing to both domestic manufacturing growth and export competitiveness. Similarly, the inclusion of sectors such as advanced chemistry cell (ACC) batteries and high-efficiency solar PV modules aligns with India’s renewable energy goals and global environmental commitments.

The PLI scheme’s comprehensive and strategic approach not only addresses the immediate challenges of boosting domestic manufacturing but also lays the groundwork for long-term economic transformation. By fostering investment, promoting technology adoption, enhancing global competitiveness, and creating employment, the scheme positions India as a global manufacturing hub. Its alignment with the broader vision of Atmanirbhar Bharat ensures that India’s growth story is not only about economic expansion but also about achieving self-reliance and sustainable development. Through its multi-sectoral focus and production-linked incentives, the scheme is poised to redefine India’s industrial landscape, making it a critical pillar of the country’s journey towards becoming a globally competitive, self-sufficient economic powerhouse[8].

Impact Analysis

India’s economy continues to demonstrate remarkable resilience, even as global uncertainties and domestic challenges persist. This is reflected in the country’s steady growth, improving labor market conditions, and the government’s sustained focus on reforms and sectoral development. The first quarter of fiscal 2024-25 recorded a GDP growth of 6.7% year over year. Although this marked the slowest growth rate in five quarters, India remains one of the fastest-growing large economies. Deloitte projects the annual GDP growth to range between 7% and 7.2% for fiscal 2024-25, underscoring the economy’s strong fundamentals.

In the short term, India’s targeted measures have yielded positive outcomes in key sectors. For instance, consumer spending, particularly in rural India, has rebounded due to subsiding inflation and favourable monsoon conditions. This has boosted agricultural output, increased rural purchasing power, and strengthened demand during the festive season. Simultaneously, India’s manufacturing sector has seen capacity utilization reach a historic high of 76.4%, signalling a rise in private investment. The Production Linked Incentive (PLI) scheme, a critical policy tool, has further catalysed growth in emerging industries such as electronics, semiconductors, and renewable energy. Notable beneficiaries include multinational corporations like Foxconn, Dell, and HP, which have expanded operations under PLI initiatives. These measures have positioned India as an attractive destination for investments, even as global corporations seek to optimize costs and diversify supply chains.

India’s economic vision extends beyond immediate gains, focusing on establishing itself as a global manufacturing and innovation hub. The scheme, coupled with the government’s emphasis on infrastructure development and clean energy, is projected to drive India’s transformation into a $5 trillion economy by fiscal 2027-28. The sustained focus on boosting manufacturing and high-value services will create formal, high-quality jobs, particularly in green industries and advanced technology sectors.

By addressing structural issues such as informal employment and low skill levels in key sectors, India aims to strengthen income stability and productivity, enhancing its competitiveness on the global stage. In terms of regional development India’s growth story is not confined to its urban centres but is increasingly inclusive of rural and underdeveloped regions. Enhanced agricultural productivity, supported by improved rainfall and investments in rural infrastructure, has bolstered incomes in less-developed areas.

Challenges and Criticism

India’s economic growth strategies, exemplified by the schemes and welfare initiatives, hold transformative potential to reduce import dependency, boost manufacturing, and create employment opportunities. However, the implementation of these programs is not without challenges. Employment guarantee schemes like the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) face significant obstacles, including administrative inefficiencies, corruption, and a lack of local capacity, particularly in poorer regions. High administrative costs and delays in wage payments further dilute their impact. Similarly, welfare schemes often suffer from disproportionate resource allocation, with critical sectors such as health, education, and nutrition being overshadowed by short-term, politically driven distribution-based initiatives. These imbalances hinder the long-term developmental goals of such programs.

PLI schemes, introduced as part of the Atmanirbhar Bharat initiative, have successfully attracted investments exceeding ₹2 lakh crore and generated employment across key sectors such as electronics, pharmaceuticals, and renewable energy. Despite these achievements, challenges such as subsidy dependency, overcapacity, and execution inefficiencies raise concerns about their long-term sustainability. Industries relying heavily on subsidies may struggle to remain competitive once government support is withdrawn, as seen in the solar PV module sector. Overambitious production targets risk creating overcapacity in sectors like textiles and steel, while emerging industries like electronics and electric vehicles (EVs) may overshadow traditional sectors such as agro-industries and small-scale manufacturing. Delays in fund disbursement and bureaucratic hurdles further undermine the effectiveness of these schemes.

To address these challenges, India must prioritize comprehensive reforms and strategic measures. For welfare schemes, strengthening institutional capacity, enhancing social audits, and establishing robust grievance mechanisms can improve accountability and ensure equitable resource distribution. In the case of PLI schemes, phasing out subsidies while incentivizing innovation, building comprehensive value chains, and expanding funding for research and development in emerging technologies can foster sustainable growth. Complementary initiatives, such as the FAME (Faster Adoption and Manufacturing of Electric Vehicles) scheme, can address demand-side challenges and create a balanced ecosystem.

Ultimately, the success of India’s welfare and initiatives hinges on fostering innovation, aligning policies with long-term socio-economic objectives, and addressing systemic inefficiencies. By doing so, India can transform these programs into sustainable growth engines, achieving inclusive development and establishing itself as a global economic powerhouse. Balancing short-term gains with long-term strategic goals will be critical in realizing the nation’s aspirations of equitable and resilient growth.

Conclusion

In conclusion, the Production-Linked Incentive Scheme has emerged as a pivotal policy initiative driving India’s transition into a global manufacturing powerhouse. By providing targeted financial incentives to boost domestic manufacturing across critical sectors such as electronics, pharmaceuticals, textiles, and IT hardware, the scheme has not only attracted over $17 billion in investment but has also significantly reduced dependency on imports, particularly from China. The results have been impressive, with production valued at approximately ₹11 trillion and the creation of nearly one million jobs in just four years. India’s rapid emergence as the second-largest producer of mobile phones and its ambitions to expand domestic production of laptops, tablets, and servers highlight the scheme’s strategic role in strengthening the nation’s economic resilience and technological self-reliance.[9]

Looking to the future, India’s path to becoming a developed nation by 2047 is firmly rooted in its young, ambitious workforce and robust policy reforms. Investments in education, skill development, and initiatives such as paid internships are equipping the next generation with the tools to succeed in emerging high-growth industries. The government’s focus on clean energy, advanced manufacturing, and digitalization is poised to create a wave of formal, high-quality jobs while aligning with global sustainability goals. These efforts not only enhance India’s GDP growth trajectory but also contribute to the creation of a more equitable and inclusive labor market.

By integrating short-term policy gains with long-term strategies, India is not only addressing its current challenges but also creating a solid foundation for future economic prosperity. The vision of a ‘Viksit Bharat’ is steadily taking shape as the nation leverages its demographic dividend, embraces innovation, and strengthens its position in the global economy. This holistic approach positions India to achieve sustainable, inclusive growth and emerge as a key driver of global economic progress in the decades to come.

References

1. George, Dr. Shaji. View of Evaluating India’s Economic Growth: Challenges and Opportunities on the Path to 5 Trillion Dollars. Dec. 2023, https://puiij.com/index.php/research/article/view/108/80.
2. India – Growth, Challenges, and Opportunities – The India Center. 2024, https://theindiacenter.ucf.edu/india-growth-challenges-and-opportunities.
3. Press Information Bureau. (2024). HIGHLIGHTS OF UNION BUDGET. 
4. Agrawal, A. (2023, July 11). The PLI Scheme: A Game-Changer for India’s Manufacturing Sector. Retrieved from www.investindia.gov.in: https://www.investindia.gov.in/team-india-blogs/pli-scheme game-changer-indias-manufacturing-sector
5. Ahmed, I. (2023, September 2). PLI Scheme: Attracting Global Champions and Making Indian Companies Global. Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/small-biz/policy-trends/pli-scheme-attracting-global-champions and-making-indian-companies-global/articleshow/103270989.cms?from=mdr
6. Raju, Sunitha, and Charulika Sharma. “Making Production-Linked Incentive Scheme Work.” Economic and Political Weekly, 23 Aug. 2024, https://www.epw.in/journal/2024/34/indias-industrial-transformation/making-production-linked-incentive-scheme-work.
7. Bhargava, Y. (2023, January 30). Budget 2023: Govt should extend PLI scheme to new sectors to boost manufacturing, say experts. Retrieved from theprint.in: https://theprint.in/budget/budget-2023-govt should-extend-pli-scheme-to-new-sectors-to-boost-manufacturing-say-experts/1338211/
8. economictimes.indiatimes.com. (2023, June 27). India’s PLI scheme is up for review: What’s the status of mega manufacturing plan? Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/news/economy/policy/indias-pli-scheme-is-up-for-review-whats the-status-of-mega-manufacturing-plan/articleshow/101308267.cms?from=mdr
9. Economic Survey. https://www.indiabudget.gov.in/economicsurvey/index.php?q=pli. Accessed 15 Jan. 2025.
10. “Production Linked Incentive (PLI) Scheme: National Programme on High Efficiency Solar PV Modules.” India, https://mnre.gov.in/en/production-linked-incentive-pli. Accessed 17 Jan. 2025.
11. Dutta, A. (2023, February 12). Production Linked Incentive Scheme: How does it aim to drive India’s economic growth? Retrieved from mintgenie.livemint.com: https://mintgenie.livemint.com/news/personal-finance/production-linked-incentive-scheme-how-does-it aim-to-drive-india-s-economic-growth-151675686386505
12. PIB Delhi. PLI SCHEME. 2022, https://pib.gov.in/PressReleasePage.aspx?PRID=1776843.
13. Majumdar, Rumki. “India Economic Outlook, October 2024.” Deloitte, 21 Oct. 2024, https://www2.deloitte.com/us/en/insights/economy/asia-pacific/india-economic-outlook.
14. Sahoo, et al. “OBSERVER RESEARCH FOUNDATION.” Orfonline.Org, https://www.orfonline.org/research/-freebies-and-welfare-schemes-setting-a-framework-for-the-debate-in-india. Accessed 17 Jan. 2025.
15. Dhar, Biswajit. “PLI: On the Way to Another Failed Incentive Scheme?” TheIndiaForum, 10 Jan. 2024, https://www.theindiaforum.in/public-policy/pli-way-another-failed-incentive-scheme.
16. “Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.” Ministry of Electronics and Information Technology, Government of India, https://www.meity.gov.in/esdm/pli. Accessed 17 Jan. 2025.

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[1] George, Dr. Shaji. View of Evaluating India’s Economic Growth: Challenges and Opportunities on the Path to 5 Trillion Dollars. Dec. 2023, https://puiij.com/index.php/research/article/view/108/80.

[2] Ahmed, I. (2023, September 2). PLI Scheme: Attracting Global Champions and Making Indian Companies Global. Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/small-biz/policy-trends/pli-scheme-attracting-global-champions and-making-indian-companies-global/articleshow/103270989.cms?from=mdr

[3] Agrawal, A. (2023, July 11). The PLI Scheme: A Game-Changer for India’s Manufacturing Sector. Retrieved from www.investindia.gov.in: https://www.investindia.gov.in/team-india-blogs/pli-scheme game-changer-indias-manufacturing-sector

[4] Raju, Sunitha, and Charulika Sharma. “Making Production-Linked Incentive Scheme Work.” Economic and Political Weekly, 23 Aug. 2024, https://www.epw.in/journal/2024/34/indias-industrial-transformation/making-production-linked-incentive-scheme-work.html.

[5] Bhargava, Y. (2023, January 30). Budget 2023: Govt should extend PLI scheme to new sectors to boost manufacturing, say experts. Retrieved from theprint.in: https://theprint.in/budget/budget-2023-govt should-extend-pli-scheme-to-new-sectors-to-boost-manufacturing-say-experts/1338211/

[6] Dutta, A. (2023, February 12). Production Linked Incentive Scheme: How does it aim to drive India’s economic growth? Retrieved from mintgenie.livemint.com: https://mintgenie.livemint.com/news/personal-finance/production-linked-incentive-scheme-how-does-it aim-to-drive-india-s-economic-growth-151675686386505

[7] economictimes.indiatimes.com. (2023, June 27). India’s PLI scheme is up for review: What’s the status of mega manufacturing plan? Retrieved from economictimes.indiatimes.com: https://economictimes.indiatimes.com/news/economy/policy/indias-pli-scheme-is-up-for-review-whats the-status-of-mega-manufacturing-plan/articleshow/101308267.cms?from=mdr

[8] PIB Delhi. PLI SCHEME. 2022, https://pib.gov.in/PressReleasePage.aspx?PRID=1776843.

[9] “Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing.” Ministry of Electronics and Information Technology, Government of India, https://www.meity.gov.in/esdm/pli. Accessed 17 Jan. 2025.