Make In India – Challenges in Manufacturing Growth

The Make in India initiative, launched in 2014, aimed to transform India into a global manufacturing hub. It targeted raising manufacturing’s GDP share to 25 per cent by focusing on 25 key sectors. Complementary schemes like Design in India, Production Linked Incentive (PLI), Design Linked Incentive (DLI), and the India Semiconductor Mission (ISM) were introduced to boost domestic manufacturing, innovation, and semiconductor development. However, by 2025, these programmes face challenges limiting their impact.

Make in India and Initial Goals

Make in India sought to attract domestic and foreign companies to manufacture in India. The goal was to create jobs and increase manufacturing’s GDP share. Design in India encouraged innovation and indigenous product development. PLI and DLI were launched to provide financial incentives for manufacturing and semiconductor design respectively. ISM was created to develop the semiconductor ecosystem comprehensively.

Production Linked Incentive (PLI) Scheme

PLI offers 4-6 per cent incentives on incremental sales to boost manufacturing. It mainly attracted mobile phone manufacturers like Foxconn and Pegatron. Smartphone exports rose from $3 billion in 2020 to over $15 billion in 2025. Yet, value addition remains low at 18-20 per cent, far below the 35-40 per cent target. India remains a low-value assembly base with key components like chips and sensors imported. Most PLI funds are concentrated in mobile phones, with poor uptake in other sectors.

Design Linked Incentive (DLI) and India Semiconductor Mission (ISM)

DLI provides financial support for semiconductor design and innovation but has limited impact due to small budget (₹1,000 crore). ISM, with ₹76,000 crore outlay, aims to develop the semiconductor ecosystem but lacks scale compared to global rivals. The US and China spend billions on semiconductor support, dwarfing India’s efforts. Institutional support for scaling, commercialisation, and venture capital access remains weak.

Structural and Institutional Challenges

PLI, DLI, and ISM operate in silos with poor synergy. Only 23 semiconductor projects have been sanctioned by 2025 with minimal disbursement. Manufacturing constraints like high electricity costs, regulatory delays, and logistics inefficiencies persist. India’s R&D spending is only 0.6 per cent of GDP, far below South Korea, the US, and China. Subsidy spending is low and poorly targeted. The schemes lack integration with broader policies like PM Gati Shakti and National Logistics Policy.

Employment and Sectoral Impact

PLI aimed to generate 16.2 lakh direct jobs but achieved only 5.84 lakh by mid-2024. Incentives were not linked to wages, limiting job quality. Key sectors such as IT hardware, telecom, solar, and auto components show slow progress. MSMEs remain largely excluded from these schemes, restricting broader industrial growth and innovation.

Recommendations for Improvement

To succeed, schemes need better coordination and integration with infrastructure and skill development policies. R&D expenditure must be increased. Support mechanisms for MSMEs and startups should be strengthened. Enhanced linkages between design, manufacturing, and financing are crucial. Addressing structural issues like land, labour, and logistics is essential for competitiveness.

Questions for UPSC:

1. Discuss in the light of India’s manufacturing sector, the challenges and opportunities presented by the Production Linked Incentive (PLI) scheme.
2. Critically examine the role of government incentives in promoting semiconductor manufacturing. How do India’s efforts compare with global leaders like the US and China?
3. Explain the importance of synergy between industrial policy, infrastructure development, and skill enhancement in boosting manufacturing growth in India.
4. With suitable examples, discuss the impact of low R&D expenditure on India’s technological advancement and economic competitiveness.

Answer Hints:

1. Discuss in the light of India’s manufacturing sector, the challenges and opportunities presented by the Production Linked Incentive (PLI) scheme.

1. PLI offers 4-6% incentives on incremental sales to boost manufacturing and exports.
2. It attracted global mobile manufacturers, increasing smartphone exports from $3B (2020) to $15B (2025).
3. Challenges include low value addition (~18-20% vs target 35-40%), making India a low-value assembly hub.
4. Most PLI benefits concentrated in mobile phones; other sectors (IT hardware, solar, auto components) underperform.
5. Employment generation (5.84 lakh jobs) far below target (16.2 lakh), partly due to incentives not linked to wages.
6. Disbursement of funds is low (~11% of total outlay by 2025), reflecting underutilization and implementation gaps.

2. Critically examine the role of government incentives in promoting semiconductor manufacturing. How do India’s efforts compare with global leaders like the US and China?

1. India’s semiconductor initiatives include DLI (₹1,000 crore) and ISM (₹76,000 crore) to promote design and ecosystem development.
2. DLI budget is small and impact minimal; ISM lacks scale and synergy with PLI and other schemes.
3. US CHIPS Act allocates $52 billion over 5 years; China spent $150+ billion since 2014, dwarfing India’s investment.
4. India’s weak institutional support, lack of venture capital access, and skill gaps hinder semiconductor growth.
5. Fragmented implementation and poor vertical integration limit development of a complete semiconductor value chain.
6. India’s R&D spending (0.6% GDP) is far lower than US (~4%), China (~3%), and South Korea (~5%), affecting competitiveness.

3. Explain the importance of synergy between industrial policy, infrastructure development, and skill enhancement in boosting manufacturing growth in India.

1. Manufacturing growth requires integration of policies like PLI with infrastructure initiatives (PM Gati Shakti, National Logistics Policy).
2. Infrastructure bottlenecks (electricity costs, port delays, regulatory compliance) hamper competitiveness despite incentives.
3. Skill gaps, especially in advanced chip design and testing, limit ability to innovate and scale manufacturing.
4. Coordination across agencies and linking MSMEs/startups with large manufacturers are essential for ecosystem development.
5. Without synergy, schemes operate in silos, reducing efficiency and impact of government interventions.
6. Holistic approach improves value addition, employment quality, and sustainable industrial growth.

4. With suitable examples, discuss the impact of low R&D expenditure on India’s technological advancement and economic competitiveness.

1. India’s R&D spending is only 0.6% of GDP, much lower than South Korea (5%), US (4%), and China (3%).
2. Low R&D limits indigenous innovation, product development, and high-value manufacturing capabilities.
3. For example, India remains dependent on imported chips, displays, and sensors despite PLI and DLI schemes.
4. Symbolic investments in AI and semiconductors lack scale to be transformative or globally competitive.
5. Insufficient R&D funding restricts commercialization, venture capital access, and startup ecosystem growth.
6. Consequently, India struggles to move beyond low-value assembly to a technology-driven manufacturing hub.