The Production-Linked Incentive (PLI) Scheme is a government scheme that offers direct financial incentives to manufacturers based on their incremental sales from products manufactured in domestic units. It was first introduced in March 2020 for the Large Scale Electronics Manufacturing sector, and later expanded to cover 14 strategic sectors with a total outlay of approximately ₹1.97 lakh crore. The scheme's genesis lies in the need to boost India's manufacturing capabilities, reduce import dependence, and integrate Indian firms into global supply chains, aligning with the 'Atmanirbhar Bharat' (Self-Reliant India) initiative.
The mechanism is performance-based, rewarding output rather than just investment. Companies must first meet minimum investment thresholds and other sector-specific eligibility criteria. The incentive is calculated as a percentage, typically ranging from 4% to 6% or more depending on the sector, applied to the net incremental sales of manufactured goods over a defined base year, such as FY 2019-20. The incentive is disbursed over a fixed duration, usually four to six years, and is managed by the respective nodal ministries for each sector.
The PLI Scheme is a key component of the broader 'Make in India' and 'Atmanirbhar Bharat' frameworks, marking a shift from input-based subsidies to outcome-linked incentives. A recent change involves the automotive PLI scheme, where the Automotive Research Association of India (ARAI) agreed in June 2026 to adopt a single reference exchange rate for the entire Financial Year 2026-27 for calculating Domestic Value Addition (DVA), dropping an earlier proposal for two different rates. This change was made to simplify compliance for automakers, who must generally achieve at least 50% DVA to qualify for incentives under the auto PLI scheme.