Since 2019, the Indian government has implemented the Production Linked Incentive (PLI) scheme for 14 industries to attract foreign investment in local manufacturing. Although it has positioned India as a key player in smartphone production, its benefits for other sectors are limited. As a result, India may explore offering subsidies for factory construction instead of linking incentives to production and investment levels.
Reuters reported that the Indian government had decided to let a US$23 billion program boost domestic manufacturing lapse just four years after it was introduced to attract businesses from China. The initiative will not be extended beyond the 14 pilot sectors despite requests for longer production deadlines from some companies.
Instead, India is exploring partially reimbursing investments in specific sectors to help firms recover costs more quickly when setting up plants.
According to the report, approved applicants struggled to initiate production, while those who met targets faced delays in receiving subsidies. Despite acknowledging these challenges previously, the government's efforts to ease the situation through deadline extensions and more frequent payments were hampered by bureaucratic red tape.
Around 750 companies, including Apple supplier Foxconn and Reliance Industries, joined the PLI schemes for 14 sectors. As of October 2024, these firms produced goods worth US$151.93 billion, reaching only 37% of the target set by the Indian government, which issued just US$1.73 billion in incentives, amounting to under 8% of the allocated funds.
Samsung's case
Samsung's involvement in India's PLI scheme for smartphone manufacturing has seen a mix of approvals and challenges over recent fiscal years. The Financial Express reported that in fiscal 2021, the company initially claimed about INR9 billion (approx. US$104.14 million) in incentives. However, discrepancies in the submitted invoices led the government to approve a reduced amount of approximately INR5 billion.
In a report by the Economic Times in 2024, Samsung reportedly faced a setback as it did not achieve the production targets necessary to qualify for incentives for the fiscal year 2021, resulting in the decision not to file a claim for that period.
Notably, Counterpoint Research said in a March note that Samsung was the largest manufacturer of made-in-India smartphones in 2023 and 2024, followed by Vivo.
Mixed results
The results vary across sectors. In fiscal 2024, India produced US$49 billion in mobile phones, a 63% increase from fiscal 2021, with major players like Apple shifting production to the country. However, this success hasn't extended to other sectors such as steel, textiles, and solar panel manufacturing, where India struggles against cheaper competitors like China.
In the solar industry, eight out of twelve companies under the scheme, including Reliance, Adani Group, and JSW, are unlikely to meet their targets. Notably, Reliance aims to achieve only 50% of its production goal by the end of the 2027 fiscal year, while Adani has yet to order the necessary equipment, and JSW has not made significant progress.
Reuters is not alone in disclosing the investment and production gap. The Economic Times noted that the PLI for IT hardware faces challenges as major brands are reluctant to boost production and exports due to a lack of a robust local component ecosystem.
Harish Kohli, president of Acer India, stated the domestic market is limited to approximately 14 million units, hindering companies from justifying new operations. He indicated that growth in exports or domestic demand is necessary for improved interest.
Meanwhile, the PLI scheme for advanced chemistry cells, launched in 2021 to promote local lithium battery production amid the EV trend, has seen no approved applicants start production after nearly four years. Reliance Industries, Ola Cell Technologies, and Rajesh Exports reportedly did not meet the investment requirements. As a result, the scheme's allocation was sharply cut to INR154.2 million (approx. US$1.78 million) from an initial budget of INR2.5 billion for the fiscal year.
Article edited by Jack Wu
