The government has a ways to go before the production-linked incentives can be declared a success

Companies should take a holistic approach to assess India’s manufacturing potential beyond the production incentives

Companies across geographies and sectors considering options for expanding or diversifying their manufacturing footprint should consider and capitalize on the Indian government’s manufacturing incentives. Specifically, companies in the pharmaceuticals, electronics, food processing, and medical device sectors are most likely to see substantial benefit from these incentives. Aside from financial assessments, firms should also weigh other factors such as business-friendliness of land and labor laws, state-level variations in policies, and network effects, i.e., current and expected expansion of their customers’ and suppliers’ presence in India. Firms should also consider that while India vies for a stake in global manufacturing diversification, several other countries—such as Mexico, Vietnam, Thailand, and South Korea—are making similar bids, some of which are better positioned than India to win out in sectors such as semiconductors and automotive.


  • The Indian government announced US$ 26.4 billion in manufacturing incentives starting in 2021 until 2025–2028 across 13 sectors. The incentives, called Production Linked Incentives (PLI), are funds provided by the government based on a specified percentage of incremental sales by new manufacturing units in the country.
  • The announcement of the PLI program came at a pivotal moment in global geopolitics, with the Russia-Ukraine war and uncertainty on China’s policymaking triggering some companies to seek new locations for manufacturing investment, resulting in India emerging as a tenable option.
  • India’s manufacturing promise and PLI program have generated a lot of interest recently, with approvals granted to about 525 companies across nine sectors and about US$ 12 billion disbursed.

Our View

High degree of corporate interest, commencement of funding, and announcements of new manufacturing projects in the country indicate that the government’s production incentives hold substantial promise for India’s manufacturing sector. While the incentives cover a wide range of sectors, they are likely to benefit manufacturing in the pharmaceuticals, electronics, food processing, and medical device sectors the most. Most of these sectors have either already seen significant investment inflows and funds disbursed in India, or have the lowest likelihoods of being drawn to other potential manufacturing hubs in the region, such as the semiconductor and automotive sectors.

However, some factors are also likely to prevent a massive boom in manufacturing in India. Recent fiscal pressures have meant that the government has consistently fallen short of funds deployed under the PLI program compared to expectations. These fiscal pressures will likely continue through 2024, likely resulting in further shortfalls in funding. At the same time, companies will consider several factors beyond the production incentives in their manufacturing investment assessments. Land laws, labor policies, and legal processes will determine the degree to which India is able to capture its manufacturing moment. To be sure, the country is also seeing pockets of progress on this front. Some state governments, such as Rajasthan and Karnataka, have also implemented labor reforms to make them more business-friendly. The 2022 National Logistics Policy and expected development of 11 new industrial corridors across the country are aimed at reducing domestic logistics inefficiencies.

Note: Expected spending numbers in the above chart are based on government expectations until 2025–2028, based on the sector.

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