India’s Production Linked Incentive (PLI) programme has emerged as a major driver of manufacturing expansion, investment inflows and export growth, with tangible gains recorded across priority sectors. According to official data reviewed up to end 2025, the PLI schemes have led to actual investments of nearly Rs 2 lakh crore across 14 sectors. These investments have translated into incremental production and sales worth over Rs 18.7 lakh crore and have generated more than 12.6 lakh jobs, both direct and indirect. Recent data released in January 2026 suggests thanks to the PLI scheme India’s export profile is shifting from low-value commodities toward high-value engineering and electronics, with smartphones and automobiles emerging as a top-two export category. 

While the initial results are laudable, there is further scope for improvement. Take, for example, the PLI scheme for automobiles, which carries a substantial outlay of Rs 25,938 crore, signalling strong fiscal intent to build a globally competitive electric vehicle ecosystem. Yet, despite its scale, the scheme is falling short of its most strategic objective – fostering innovation in electric mobility. The issue is not the availability of funds, but the design of eligibility rules that continue to favor scale over substance. By prioritising volume over technical breakthroughs, the current framework inadvertently suppresses the very innovation it seeks to catalyse. In its current form, the policy acts as a barrier to entry for domestic ingenuity, effectively stifling the birth of indigenous technological solutions.

At the heart of the Auto PLI is a production-linked framework that treats all manufacturers alike, triggering incentives primarily by incremental sales over a base year. However, it fails deep-tech electric vehicle (EV) manufacturers that invest heavily upfront in battery management systems, power electronics, and motor design long before volumes materialise. For these EV innovators, early output is measured in intellectual property and engineering capability rather than revenue. By requiring high sales thresholds, the policy effectively forces these startup companies to self-finance the most capital-intensive phase of innovation, acting as an implicit “innovation tax” where original technology faces a longer wait for support.

A recent impact assessment by the Centre for Digital Economy Policy Research (C-DEP) reveals mixed outcomes from India’s PLI scheme for the automobile sector, particularly in the electric two-wheeler (E2W) industry. While E2W sales surged 40-fold since FY2019 to over 11 lakh units in FY2025, PLI beneficiaries like Ola Electric, TVS, Bajaj, and Hero captured 75% market share by FY2025, up from negligible levels. Non-PLI OEMs saw growth plummet from 407% in FY22 to -11% in FY25, due to 13-16% cost edges enjoyed by PLI players.​

Critically, exports – 77% from non-PLI models – lag despite incentives, risking loss of markets to Chinese rivals like Yadea. Innovation thrives outside PLI: non-beneficiaries lead patents, e-motorcycles (6+ models from firms like Ultraviolette), and localisation (e.g., Ather’s 90% DVA). Inactive PLI approvals (e.g., Hop Electric’s 289 sales) lock fiscal space.​

This distortion has tangible cost implications, with industry estimates suggesting a 13-16% disadvantage for EV-first startups that localize design compared to legacy players who have deep pockets and thousands of crores to sustain themselves without support, eventually killing innovation led by startups. Despite this, the policy treats both equally because it measures only units sold, not value created within India. High-IP electric vehicles compete against lower-risk products without recognition for the difference.

Furthermore, the requirement of Rs 10,000 crore in turnover effectively excludes deep-tech EV startups by design. These companies prioritize product maturity and safety before chasing scale, yet Domestic Value Addition (DVA) norms demand high localization upfront while withholding the support that would make such localization viable. Notably, despite receiving no support under PLI, most non-PLI innovators are already complying with these stringent DVA requirements. They require no additional efforts to meet eligibility requirements and are performing exactly what PLI beneficiaries are doing, but without the benefit of the incentive. Together, these criteria operate as domestic non-tariff barriers that constrain Indian innovators.

The scheme’s execution further highlights a widening gap. To date, the government has managed to disburse around Rs 2,300 crore out of Rs 3,800 crore due to certain non-performing champion OEMs, thereby limiting startups’ participation and sufficient manufacturing activity to utilise the allotted amount. Despite this, not allowing more players to participate is leaving a significant underutilised budget. Looking at utilisation, the first-year rate was hardly 30%, and the second year has remained near 60%.

While the government recently doubled the auto and component PLI allocation to Rs 5,940 crore, utilization of earlier allocations has hovered in single digits against the full outlay. More money is flowing into a framework that structurally excludes firms capable of indigenous technology creation. Close to 40% of the budget is underutilised, and the scheme is bound to fail if the primary objective is not reassessed. 

The failure also impacts employment. While the government targeted 1.5 lakh jobs, official data shows only 48,000 have been created. Currently, investments made without increasing manpower are being framed as success stories, which is misleading. The PLI scheme is not a success story unless more players, especially leading EV startups, are included. A reset is necessary, moving from a one-size-fits-all model to a tiered structure. One tier can continue rewarding high-volume manufacturers on sales metrics, while a parallel deep-tech window should assess firms on R&D intensity, IP creation, and engineering depth. An inclusive PLI scheme shall ensure equal participation of new age EV companies as well as legacy players.

India’s EV ambitions cannot be realized through assembly alone, as an industry built only on scale struggles once global cost curves shift. An industry built on owned technology competes on design and reliability. India spends around 0.7% of GDP, against 3.75% of GDP spent by China on R&D, explaining the latter prowess in global manufacturing capability. There is a need to incentivize R&D spending and support startups (as the EV industry case shows) to reward innovation as much as volume, for India to emerge as a global manufacturing hub.

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