PLI scheme: production-linked incentives explained

How a PLI scheme pays

A production-linked incentive pays for output, not for investment. An approved firm receives a percentage of its incremental sales of goods made in India, measured against a base year, for a fixed term, typically four to six years, with the percentage usually stepping down each year. To qualify a firm must be selected under the sector’s scheme, commit to a threshold of investment, and then meet each year’s sales threshold; missing the threshold forfeits that year’s payment.

The Union Cabinet approved production-linked incentives for ten sectors on 11 November 2020, adding to the three already running, for a combined outlay the government put at about ₹1.97 lakh crore across fourteen sectors. The sectors include mobile phones and electronics, pharmaceuticals, telecom equipment, white goods, solar modules, advanced chemistry cell batteries, automobiles and auto components, speciality steel, textiles and drones.

What it means for a supplier

The incentive is paid to the approved manufacturer. A supplier to that firm receives nothing from the scheme directly; what it receives is the demand the scheme creates, and sometimes a domestic-value-addition requirement that pushes the beneficiary to buy locally. For a small firm the route into a PLI plant is that plant’s procurement, not the scheme’s application window. The battery-industry hiring forecast reported on this site is an example: the ₹18,100 crore cell PLI pays the cell maker; the jobs and orders around it are indirect.

A firm in a PLI sector that is itself an MSME should read the sector scheme’s guidelines for an MSME investment tier; several schemes have one, with a lower investment threshold.

One scheme that pays for buying Indian

Not every production-linked incentive is paid on sales alone. Under the Machines and Materials pillar of Semicon 2.0, notified on 31 August 2026, a firm making or assembling semiconductor equipment receives a production-linked incentive calculated on the bill-of-materials value it sources from domestic manufacturers, for five years from FY 2028-29 and capped at half its eligible capital expenditure. The incentive still goes to the approved firm rather than to its suppliers, but its size moves with how much of the machine is bought in India, which is the closest thing in the schemes to a payment for local procurement. That pillar and its four investment thresholds are reported separately on this site.