PLI scheme fuels iPhone exports, but gaps remain in manufacturing

In the first 10 months of 2024-25, iPhone export from India surged past Rs 1 trillion, indicating India’s production capabilities, augmenting manufacturing competitiveness, and bolstering its ascent as a global export hub for smartphones and electronics. Estimates suggest India’s iPhone production volumes could catch up with China’s over five years, with domestic manufacturing set to contribute close to 30 per cent of output by 2027. Clearly, India’s production-linked incentive (PLI) scheme, particularly in electronics and smartphones, has proved successful in boosting domestic manufacturing and seamlessly aligning with the country’s export ambitions. However, despite the laudable achievements, a closer look reveals that, aside from iPhones, nearly half of India’s mobile phone manufacturing capacity, established under the PLI scheme, remains underutilised or is being repurposed owing to weak global and domestic demand. Smaller players in the smartphone sector, catering mainly to the domestic market, are struggling, with many shifting production away from smartphones to telecom equipment and wearables or even shutting down operations.

In other sectors such as IT (information technology) hardware, textile products, medical devices, automobiles, and specialty steel, the progress of the scheme remained significantly slow in terms of investment in 2023-24. In this context, a comprehensive impact evaluation of the PLI scheme is needed to better understand the merits and failures. Even though, according to reports, no new PLI schemes are expected to be launched, the budgetary outlay for existing schemes increased from Rs 9,360.36 crore in 2024-25 (Revised Estimate) to Rs 19,482.58 crore in 2025-26 (Budget Estimate), registering a staggering growth rate of 108 per cent. The largest increase in allocation was seen in the PLI schemes for textiles, battery cell and storage technology, and automobiles. Budgetary support for PLI for textiles increased nearly 25 times from Rs 45 crore to Rs 1,148 crore in the same period.

Nevertheless, increasing allocation will not be sufficient to boost manufacturing and export. Notably, the share of manufacturing in gross value added (GVA) remains low. The Annual Survey of Industries data also reveals the skewed nature of productivity in the manufacturing sector, with six of 29 major industries contributing more than half of India’s formal manufacturing sector GVA in 2022-23. The manufacturing sector requires structural reforms. This includes improvement in physical infrastructure and logistics, a reliable trade policy with low tariffs on inputs, a skilled workforce, and investor-friendly regulations. This is also necessary because there is no viable alternative for India to have growth led by labour-intensive manufacturing to absorb its rising workforce. However, barring a few sectors like textiles or food products, most of the sectors covered under the PLI scheme are not labour-intensive. The newfound focus on toys, apparel, footwear, and leather in this year’s Budget will hopefully help to scale up productive employment, especially in low-skill manufacturing. As global trade becomes more uncertain, with supply chains recalibrating in the wake of geopolitical tensions, India will have to proactively adjust to take advantage of the emerging opportunities. Business Standard