Samsung's PLI journey ends. Will India's production incentive boom hold?

Business Standard

3 days ago

Samsung has officially completed its five-year term under India's Production-Linked Incentive (PLI) scheme, filing a final incentive claim of ₹1,000–1,200 crore for the financial year 2024-25 (FY25), according to a report by The Economic Times. The company reported incremental production of ₹25,000–30,000 crore in its final year, making it the first smartphone maker to wrap up the full PLI cycle.
The journey began in FY2021, when Samsung was the only global firm to meet the first-year targets, earning ₹500 crore after government review (against an initial claim of ₹900 crore). It missed the second year but stayed largely on course afterwards.
The question now is: What happens after the money stops?
Samsung's exit is a test case for the PLI model. With benefits ending, the spotlight shifts to whether companies will maintain capacity and output, or quietly scale down. Industry watchers are already tracking Apple's contract manufacturers and domestic firms such as Dixon, whose PLI terms will phase out in the next 1-2 years.
The stakes are high. PLI disbursements for electronics manufacturing and IT hardware are projected to reach ₹9,000 crore in FY26, with overall disbursements increasing to ₹16,000 crore, marking the largest annual outlay thus far. In comparison, in FY25, the government disbursed a total of ₹10,114 crore. PLI firms in the electronics sector received ₹5,732 crore, while the pharmaceutical sector received ₹2,328 crore.
Why it matters
The PLI scheme is India's most ambitious industrial policy since the Special Economic Zone (SEZ) boom. Launched in 2020, it covers 14 critical sectors, with a total outlay of nearly ₹2 trillion.
The idea: reward companies that grow production in India with direct cash incentives tied to incremental output.
The early signs have been promising. In mobile phones alone, exports jumped to over ₹1.2 trillion in FY24 from ₹27,000 crore in FY20. The scheme has drawn marquee names including Apple, Samsung, and Foxconn deeper into India's supply chain.
But as the incentive window closes for the first wave of applicants, a risk looms.
What if firms front-load investment just to qualify for payouts, and reduce output, lay off workers, or even exit once the rewards stop?
In 2023, former Reserve Bank of India Governor Raghuram Rajan argued that the PLI scheme for mobile phone manufacturing is not yielding real benefits. He said most components are still imported, so actual value addition in India is low. He questioned whether the subsidies and tax breaks outweigh the economic gains, pointing out that net imports have risen, making India more dependent on foreign parts. Effectively comparing the scheme to a bad loan.
Then IT Minister Rajeev Chandrasekhar rebuked criticism, stating that value addition takes time, and early signs—including rising exports, job growth, and investments by major companies—showed the strategy was paying off.
Flashback: SEZs, M-SIPS, and other incentive highs that faded
India has been here before.
M-SIPS (2012–2018)
Before PLI, the Modified Special Incentive Package Scheme (M-SIPS) offered capital subsidies of 20–25 per cent to electronics firms setting up manufacturing units. The goal was similar: to make India self-reliant in electronics.
By the time it shut in December 2018, the scheme had approved over ₹10,000 crore in incentives. But much of that investment remained on paper. Companies like Havells, Daikin, Orient Cable, Nidec, and Genus Power set up units, especially in Rajasthan, where ₹143 crore was disbursed.
The 2000s saw a wave of SEZs, boosted by tax holidays and easy land. But after the Minimum Alternate Tax (MAT) and Goods and Services Tax reforms eroded benefits, interest dried up. Many SEZs today are underutilised, repurposed, or idle.
Power subsidies: UMPPs and stranded assets
Ultra Mega Power Projects once promised 4,000+ MW each. Many were delayed, overleveraged, or abandoned, leaving banks and states with stranded assets.
Textile incentives and industrial parks
Multiple states launched textile parks with land, power, and capex subsidies. Many of them failed to attract tenants or ran below capacity, often due to poor logistics or a lack of skilled labour.
The recurring theme seems to be one of generous incentives that promote short-term activity but don't often create lasting ecosystems.
The fiscal risk: Can the Centre keep footing the bill?
PLI disbursals are just beginning to peak. In FY26 alone, government estimates suggest that up to ₹16,000 crore could be paid out, with ₹9,000 crore allocated towards electronics.
The fiscal questions raised now:
Is India getting value for money?
In some sectors, imported components still dominate. In other words, job creation has not met expectations.
What's the output-to-subsidy ratio?
For every ₹1,000 crore disbursed, how much actual value is added in India?
Are clawbacks being enforced?
If firms miss targets—as Samsung did in Year 2—do they return incentives? Are penalties applied uniformly?
Can India afford to sustain this?
With rising welfare outlays, defence spending, and weak private capex, the Centre's fiscal room is shrinking. As more PLI sectors mature, annual payouts will grow, possibly testing the limits of political and fiscal tolerance.
The big picture
As Samsung's PLI wraps up, India is at a critical juncture on how it wants to proceed with its incentive scheme. The next two years will be crucial. If companies scale up without further payouts, the model works. If they stall, the scheme risks becoming yet another high-cost gamble with low long-term returns.