Four years after starting the campaign to lure companies away from China, Indian Prime Minister Narendra Modi's administration has chosen to let a $23 billion program to encourage domestic manufacturing lapse, according government officials.
Despite requests from some participating firms, two officials stated that the program will not be extended beyond the 14 pilot sectors and that production deadlines will not be extended. According to public records, about 750 businesses joined the Production-Linked Initiative program, including Foxconn, an Apple supplier, and Reliance Industries, an Indian conglomerate.
Businesses were assured of financial rewards if they fulfilled specific production goals and due dates. By 2025, it was hoped that manufacturing would account for 25% of the economy.
Instead, many of the program's participants failed to begin production, while others that met manufacturing targets found India slow to pay out subsidies, according to government documents.
According to an undated analysis of the program compiled by the commerce ministry, participating firms had produced $151.93 billion in goods under the program as of October 2024, accounting for 37% of the target set by Delhi. According to the document, India had issued only $1.73 billion in incentives, accounting for less than 8% of the allocated funds.
Neither Modi's office nor the commerce ministry, which oversees the program, responded to requests for comment. Since the plan's implementation, manufacturing's share of the economy has fallen from 15.4% to 14.3%.
According to government officials, the end of the program does not imply that Delhi has abandoned its manufacturing ambitions, and alternatives are being planned. Last year, the government defended the program's effectiveness, particularly in pharmaceuticals and mobile phone manufacturing, which have experienced explosive growth. Approximately 94% of the nearly $620 million in incentives distributed between April and October 2024 went to those two sectors.
According to the analysis, some food-sector companies that applied for subsidies were denied them due to factors such as "noncompliance with investment thresholds" and "failure to achieve stipulated minimum growth."
The document did not provide specifics, but it did report that production in the sector had exceeded targets. Reuters could not identify the companies mentioned in the analysis. However, in response to PLI participants' complaints, Delhi acknowledged the problems and agreed to extend some deadlines and increase payment frequency.
One of the Indian officials, who spoke on the condition of anonymity to discuss sensitive matters, stated that excessive red tape and bureaucratic caution hampered the scheme's effectiveness. As an alternative, India is considering supporting certain sectors by partially reimbursing investments made to establish plants, allowing firms to recover costs more quickly than waiting for production and sale, according to another official.
Biswajit Dhar, a trade expert at the Delhi-based Council for Social Development think tank, said Modi's government should do more to attract foreign investment and that the country may have missed its opportunity.
The incentives program was "possibly the last chance we had to revive our manufacturing sector," he said. "If this kind of mega-scheme fails, do you have any expectation that anything is going to succeed?"
The manufacturing halt comes as India attempts to avoid the trade war sparked by US President Donald Trump, who has criticized Delhi's protectionist policies.
According to Dhar, Trump's threat of reciprocal tariffs on countries like India that have a trade surplus with the United States puts the export sector under threat. "There was some tariff protection... but that is going to be reduced."
