Guide to Production-Linked Incentive (PLI) Schemes: What are they, how they work

Following its meteoric 67% growth¹ in the last decade, India’s exports showcase a remarkable rise. Part of this success stems from Production-Linked Incentive (PLI) Schemes – government initiatives boosting domestic manufacturing and investment, positioning India competitively against international trade powerhouses.

PLI schemes offer significant potential for exporters to enhance competitiveness and access global markets more effectively. 

What are Production-Linked Incentive (PLI) Schemes?

So, what is a PLI scheme? Production-Linked Incentive Schemes are Indian government initiatives, introduced from March 2020, offering companies incentives on incremental sales from domestically manufactured products. Initially targeting sectors like mobile manufacturing, their core aims include several key objectives:

• Boosting domestic manufacturing: Incentivizing local production to reduce import reliance and build self-sufficiency.
• Creating employment opportunities: Driving job growth, especially in labour-intensive sectors, through expanded production.
• Enhancing export competitiveness: Enabling Indian manufacturers to produce high-quality goods that can compete effectively in global markets.
• Attracting foreign investment: Drawing foreign direct investment (FDI) by creating a stable and attractive investor-friendly environment in targeted industries.
• Strengthening national supply chains: Developing more resilient and self-reliant supply chains in key sectors by promoting domestic production capabilities.

A core principle of the Production-Linked Incentive Scheme design is its targeted focus on specific sectors. By identifying industries with high growth potential and strategic importance, the government aims to encourage domestic champions, reduce import dependence, and integrate India more deeply into global supply chains.

How PLI Schemes work

The core mechanism of how PLI schemes work revolves around rewarding incremental performance. 

Essentially, Production-Linked Incentives are output-oriented subsidies. Companies receive direct financial incentives calculated as a percentage of their increased sales of locally manufactured goods over a predetermined base year's performance. 

This encourages businesses to set up or expand manufacturing units in India and scale up their production volumes and sales figures progressively to receive the benefits. All this to achieve several strategic outcomes for the Indian economy:

1. Firstly, it drives the creation of large-scale manufacturing capacity. Incentives tied to output encourage significant investments, boosting production capabilities and often leading to improved industrial infrastructure and supply chain ecosystems.
2. Secondly, the schemes aim for import substitution and an increase in exports. By fostering domestic production, they address trade imbalances, aiming to reduce import dependency in the short term and systematically expand India's export volumes in the long term.
3. Thirdly, these schemes contribute significantly to employment generation. Expanded manufacturing creates substantial employment, leveraging India's human capital and often fostering vital upskilling and technical education in growing sectors.

Various government agencies and nodal ministries specific to each sector are responsible for designing, implementing, and monitoring these schemes. They set eligibility criteria, investment thresholds, and production targets and also oversee the disbursement of incentives to qualifying companies, ensuring compliance with the scheme's guidelines.

Key sectors covered by PLI Schemes

The Government of India has strategically rolled out PLI schemes across 14² sectors identified for their growth potential and ability to enhance India's manufacturing capabilities and export footprint. These sectors are pivotal for achieving self-reliance and global competitiveness.

Key sectors covered by PLI schemes with significant export potential include:

• Electronics (including mobile phones and components): As one of the country’s top exports³, this includes assembled mobile phones, specified electronic components like Printed Circuit Board Assemblies (PCBs), sensors, and IT hardware such as laptops, tablets, and servers.
• Pharmaceuticals & medical devices: Covering Active Pharmaceutical Ingredients (APIs), Key Starting Materials (KSMs), drug intermediates, and a range of medical devices, including cancer care equipment, radiology devices like CT scan machines, and MRI machines.
• Automobiles and auto components: Focusing on advanced technology in the auto sector, including Battery Electric Vehicles (BEVs), hydrogen fuel cell vehicles, and their related components like electronic power steering systems, and automatic transmission assemblies.
• Textiles (man-made fibers & technical textiles): This category targets items such as MMF apparel and fabrics and technical textiles used in specialized applications like medical, defense, and industrial safety.
• Food processing: Encouraging value addition with products like ready-to-eat/cook items, processed fruits and vegetables, marine products, and value-added dairy products like mozzarella cheese.
• Specialty steel: Aimed at increasing the production of value-added steel grades such as coated/plated steel products, high-strength/wear-resistant steel, and specialty rails.
• White goods (ACs & LEDs): Promoting domestic manufacturing of components for air conditioners (like compressors and copper tubes) and high-value LED lighting components.

Benefits of PLI Schemes for exporters

1. Enhanced competitiveness

PLI schemes provide direct financial incentives that help lower the cost of production for eligible units. This cost advantage, coupled with the scheme's emphasis on scale and quality manufacturing standards, allows Indian exporters to offer more competitively priced goods in international markets. 

The drive for higher output often encourages investment in innovation and better technologies.

2. Increased export capacity

The very structure of PLIs, which rewards incremental production and sales, inherently motivates businesses to expand their manufacturing capacities. 

This push for larger-scale operations not only meets domestic demand but also significantly boosts the volume of goods available for export, allowing businesses to more effectively cater to larger international orders and markets.

3. Access to new markets

PLI schemes can help Indian products meet the stringent requirements of developed markets by encouraging adherence to global manufacturing standards and quality benchmarks. 

This facilitates access to new geographies. Furthermore, the focus on export-oriented manufacturing attracts investment into these sectors, fostering a robust ecosystem for export growth and job creation within India.

How exporters can leverage PLI Schemes

1. Understanding key eligibility criteria

Exporters must first understand and meet specific eligibility criteria to leverage PLI schemes. These requirements ensure incentives are directed towards companies capable of achieving the scheme's objectives.

Key eligibility considerations generally include:

• Minimum investment requirements: Applicants often need to commit to a certain level of new capital investment in plant, machinery, research and development, or other specified areas as defined by the particular PLI scheme.
• Incremental production/sales targets: Eligibility is typically tied to achieving stipulated year-on-year growth in the manufacturing output or net sales of eligible products, measured against a predetermined base year's performance.
• Sector-specific conditions: Each PLI scheme usually has unique conditions related to the specific product categories covered, minimum value-addition norms, technology adoption, or localization levels that must be met.
• Application and approval process: This involves a formal application submitted to the relevant nodal government agency or an appointed Project Management Agency (PMA), which then evaluates the proposal against the scheme's guidelines before granting approval.

2. Navigating the PLI application process

Applying for a PLI scheme involves a structured process. Exporters should carefully prepare and submit all necessary information through the designated channels to ensure their application is considered.

A step-by-step approach usually involves:

• Gather Required Documentation: This often includes detailed company registration documents, audited financial statements from previous years, comprehensive project reports outlining the proposed investments, manufacturing scale-up plans, and projected employment generation.
• Adhere to Application Timelines: Each PLI scheme typically operates with specific, time-bound windows for application submission. It is essential to monitor official announcements and adhere strictly to these deadlines.
• Identify and Use Designated Portals/Agencies: Applications are generally submitted online through dedicated portals managed by the concerned nodal ministries (e.g., the Ministry of Electronics and Information Technology for IT hardware, the Department for Promotion of Industry and Internal Trade for others) or their PMAs.

3. Maintaining compliance for PLI Success

Securing PLI approval is just the start; ongoing compliance is essential for receiving and retaining benefits. Exporters must diligently adhere to all scheme mandates throughout the incentive period.

Key aspects of compliance include:

• Maintain accurate records: Businesses must keep meticulous and auditable records of all relevant parameters, such as investments made, production output, sales figures, value addition achieved, and employment numbers, as stipulated by the scheme.
• Consistently meet production targets: It is important to fulfil the committed incremental production or sales targets annually, as failure to do so can impact the disbursal of incentives.
• Adhere to quality and other standards: Comply with any specified quality benchmarks, localization norms, value-addition requirements, or other operational guidelines outlined in the PLI scheme documents.

Unlock export growth: PLI Schemes and DHL Express

India's Production-Linked Incentive schemes offer substantial opportunities for exporters to boost their global competitiveness, drive growth, and achieve greater success in international markets.

Explore the PLI schemes relevant to your operations and strategically leverage the available incentives to scale up and enhance your export capabilities. DHL Express can help you navigate complexities, including managing essential customs clearance documents and understanding the documents required for export customs clearance in India, taking your business to the next level with reliable global reach. 

Open a DHL Express business account to streamline your entire export logistics journey.