India can’t let PLI momentum fade away

Five years ago, India made a deliberate bet on manufacturing. The production-linked incentive (PLI) scheme was not conceived as a subsidy programme — it was conceived as a transformation instrument. The results, particularly in electronics, have validated that ambition. Production in the mobile handset sector has scaled to approximately $70 billion in FY26. Exports have crossed $30 billion. Apple now assembles roughly one in four of its iPhones in India, with exports touching $21 billion — figures that would have seemed implausible a decade ago. Smartphones account for 21% of India’s total merchandise exports to the US, making electronics one of the principal drivers of the bilateral trade relationship.

This is exactly what industrial policy is supposed to achieve. But the policy environment that enabled this success is changing, and the government must now address: what comes next?

Macro-context has shifted

India’s manufacturing imperative is no longer just about industrial ambition. It is a macroeconomic necessity. The global economy is slowing. Trade is fragmenting. AI is creating structural uncertainty around employment, particularly for younger workers entering the labour force in large numbers. In this environment, manufacturing remains one of the few levers capable of simultaneously generating jobs at scale, attracting FDI, boosting exports, and strengthening foreign exchange earnings. India needs all four.

The domestic smartphone market offers a clear lesson about where growth cannot come from. It has been largely flat for five years. Pandemic-era distortions aside, domestic demand has been insufficient to drive the kind of scale that defines a globally competitive manufacturing base. Every economy that has successfully built export manufacturing — South Korea, Taiwan, China, Vietnam — has done so by serving global markets, not local consumers. India’s next phase of electronics growth must be export-led. There is no credible alternative.

Global window is narrowing

The challenge is that the environment which made the first phase of PLI-led growth possible is becoming less favourable. India’s tariff advantage over China has effectively disappeared. Following a US Supreme Court ruling in February that invalidated fentanyl-related tariffs on Chinese exports, the residual cost differential that had benefitted Indian smartphone exporters has been removed. Simultaneously, China is actively working to prevent supply chains from relocating. Regulatory measures have extended state oversight over supply chain decisions, while industry continues to report restrictions on talent mobility, machinery transfers, and critical material access. These are not frictions — they are deliberate retention mechanisms.

More fundamentally, commercial logic still favours China. Despite geopolitical tensions, China’s supplier networks, logistics depth, and manufacturing scale remain unmatched. For most multinational corporations making production allocation decisions, China remains the most efficient option. The China+1 diversification strategy that benefitted India and Vietnam was driven significantly by geopolitical risk perception. If US-China commercial relations improve — and there are signals pointing in that direction — the incentive to diversify weakens. India cannot assume that geopolitics will continue to work in its favour.

In short, India can no longer rely on external tailwinds. It must compete on competitiveness.

Data is sending a signal

Recent export performance is already reflecting the transition challenge. When PLI support ends, manufacturing economics change. One company that benefitted significantly from PLI saw exports fall from approximately $3.98 billion in FY25 to $3.59 billion in FY26 — a decline of around 10%. That is not a coincidence. It is a signal.

Companies do not allocate production on the basis of goodwill, bilateral warmth, or geopolitical narrative. They allocate production based on costs, incentives, policy certainty, and long-term competitiveness. Retaining existing investment is often harder than attracting new investment in the first place. A manufacturing base built over five years can erode faster than it was created if the policy environment becomes uncertain or less competitive.

Vietnam, Malaysia, and Mexico are not passive observers. They are actively competing for the same investment flows, with aggressive incentive frameworks and improving infrastructure.

What govt must do

The immediate task is to resolve the unfinished business of PLI phase 1. Industry continues to flag unresolved tax-related disputes and uncertainties that have been pending long enough to affect business planning. These are not minor compliance irritants. They affect investment confidence and production decisions in real time. They must be resolved without further delay.

Beyond that, a clear successor framework to PLI is needed — one that maintains the logic of performance-linked support while addressing the limitations of the first iteration. The successor framework should prioritise export competitiveness explicitly, extend support duration where it is warranted by investment cycles, and provide the kind of long-horizon policy certainty that capital-intensive manufacturing requires.

The government shouldn’t wait for investment decisions to be reversed before acting. By the time reversals show up in data, the decisions that caused them have already been made. The right time to act is before the momentum fades, not after.

India has demonstrated that it can build a globally competitive electronics manufacturing ecosystem. The Apple supply chain story is real. The jobs created are real. The export revenues are real. What is needed now is the policy resolve to defend and extend what has been built — recognising that in a more competitive and uncertain global environment, standing still is not a neutral option. It is a retreat.

Disclaimer: The views expressed are the author’s own and do not reflect the official policy or position of Financial Express.