By – Gurram Sai Ruchitha

Abstract

India’s Production Linked Schemes (PLI) are designed to revolutionize India’s manufacturing sector by increasing domestic production, attracting investment, and promoting exports. This article analyses the economic, trade, and competition law implications of PLI, questioning its exemption from WTO scrutiny and how its high investment thresholds and selective criteria may deter new entrants and intensify market concentration.

Introduction

India’s manufacturing sector is in the midst of a significant transformation, driven by the government’s bid to increase competitiveness and foster sustainable growth. To strengthen domestic manufacturing and reduce dependency on imports, the Union Government rolled out Production-Linked Incentive (PLI) schemes. These programmes provide companies with incentives for incremental sales from products manufactured within India. With a combined incentive budget of ₹1.97 lakh crore, the schemes now cover 14 priority sectors, ranging from electronics and pharma to drones and speciality steel, with the twin aims of growing production capacity and employment, increasing exports bolstering trade internationally. But in 2018 US challenged several of India’s export-linked incentive schemes at the World Trade Organisation(WTO) as “prohibited subsidies”, prompting India to replace them with the Remission of Duties and Taxes on Export Products Scheme (RoDTEP). However, the current PLI model, launched in 2020, circumvents WTO scrutiny by linking incentives to ‘production’ and ‘investment’ rather than to export performance. But the question arises whether the PLI schemes are really immune from any potential challenge at the WTO in the future. Even if we assume PLI schemes are very protected from the trade restraints of the WTO, it might raise competition-law concerns. Five years into its implementation, the government is also now considering modifications for PLI 2.0, linking incentives to additional metrics such as domestic value addition and incremental exports. This raises high investment thresholds, and selective complex eligibility criteria could favour large incumbents over smaller firms, potentially creating entry barriers and accelerating market concentration.

Navigating WTO Rules: How PLI Schemes Align with International Subsidy Norms

Under the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), Article 3.1(a) forbids subsidies contingent on export performance, and Article 3.1(b) forbids subsidies contingent on using domestic over imported goods. Based on these WTO rules, the US challenged India’s earlier export-promotion schemes (such as MEIS, DFIS, SEZ exemptions and EPCG) as they violated these provisions. The panel ruled that export duty exemptions and scrip-based incentives were “prohibited subsidies” under Article 3. (India had argued special and differential rights under Article 27, but the panel noted India’s GNP per capita had passed the $1,000 threshold, ending its transition period. In response, India replaced MEIS with the WTO-friendly RoDTEP scheme (a refund of embedded taxes) and redesigned incentives around production. India has learned from its mistakes, and by contrast, the PLI, which was launched in 20202 along with the recent PLI 2.0 schemes, were explicitly tied to incentives to domestic production, investment and incremental sales, not to exports. A company does not have to export a certain percentage of output to earn PLI rewards. Instead, it receives a cash subsidy (typically 4–10% of incremental turnover) once it meets investment and local-sales thresholds. Since the subsidy is activated by incremental domestic production rather than export volume, it falls outside the WTO’s definition of a prohibited export subsidy. 

Nevertheless, India should still take precautions by proactively notifying and clarifying its policies. For example, a formal government circular could state explicitly that PLI incentives are not contingent on exports but are only linked to incremental investment and production within India. By design, the PLI avoids export triggers, but an official clarification would solidify that interpretation and remove ambiguity. Also, in future, even non-prohibited (i.e. “actionable”) subsidies can draw countervailing duty (CVD) actions if they disadvantage foreign producers. However, as long as PLI is not a prohibited subsidy under WTO rules, its eligibility is not tied to exports or domestic content. Even if CVDs are ever imposed, the PLI scheme will remain valid in India, but it’s just that exporters benefiting from PLI (for example, smartphone makers or electronics firms) could face trade remedies abroad if their subsidised exports injure competitors. 

Competition Law Implications and Risks of PLI Schemes

The PLI program’s design also raises questions under India’s Competition Act, 2002, which prohibits anti-competitive practices and abuse of market power. While PLIs are government incentives (not private contracts), their selective nature can indirectly affect competition. Under Section 4 (Abuse of Dominance ) where if a firm becomes dominant in its market, the Act forbids it from imposing unfair conditions or limiting production to harm competitors or consumers. PLI’s high entry barriers and scale prerequisites tend to favour large incumbents and capital-rich entrants such as global OEMs or diversified conglomerates.  In theory, a beneficiary could leverage its increased scale to squeeze rivals (e.g., by exclusive supply arrangements or predatory pricing). If that happened, the Competition Commission of India (CCI) could intervene under Section 4. Indeed, recent CCI practice shows strict scrutiny of big firms like Apple, which was drawn by India’s market and PLI scheme and doubled its iPhone assembly in India from 7% in FY23 to 14% in FY24 and plans to shift a third of production there by 2027. Meanwhile, CCI viewed Apple’s market power with suspicion, pursuing a multi-year probe into its App Store policies, partly on the theory that success (supported by PLI incentives) confers dominance. While the scheme of PLI itself doesn’t run afoul of section 4,it does underline that firms growing rapidly (with state support) must stay vigilant not abuse any emerging market power.

However, there is also a theoretical risk that beneficiary firms could tacitly coordinate by not competing aggressively on price because both enjoy subsidies. Although this might explicitly not violate Section 3 of the Competition Act (Anti-Competitive Agreements) unless explicit ‘collusion’ is found. Also, over the past five years, PLI schemes have not triggered any formal investigations or findings of Competition Act violations, but the concern is that the government is also considering linking incentives to additional metrics such as domestic value addition and incremental exports, which could still increase the potential for market concentration, favouring large incumbents and well-capitalized entrants. In practice, firms benefiting from PLI 2.0 must avoid exclusivity or predatory tactics, refrain from tying subsidies to supplier lock-ins, and ensure large-scale acquisitions are notified to the CCI. 

India’s PLI Scheme: Challenges and the path forward

If India aims to position itself as a leading player in global trade, it must first address the structural challenges inherent in the PLI framework.  Around the world, governments are offering production subsidies to secure supply chains, making it a near-universal trend rather than India acting alone. Economic risks remain, as a Reuters report highlighted that by late 2024, companies had achieved only about 37% of collective production targets, and only 8% of the planned ₹1.97 lakh crore in incentives had been disbursed, showing implementation delays. Moreover, high investment thresholds and selective eligibility may inadvertently favour large firms, creating barriers for small and medium-sized enterprises. Despite its achievements in many sectors, the PLI scheme suffered from systemic shortcomings as a uniform incentive structure does not account for sector-specific needs. We should take inspiration from  Vietnam’s SME support program, which is proof of how targeted sector-specific interventions like business development support, tax breaks, and matching companies with real estate in business parks can transform traditional sectors. Through this model, unorganised SME’s and even MSMEs’ unorganised nature, technological backwardness, lack of quality standards, and poor market linkages can be easily dealt with, making sure that there is no unfair process of just large firms with high domestic value addition or means of doing incremental exports getting the incentives to make India a global leader in the International Trade Market.

Conclusion

India’s PLI schemes are a conscious effort to merge industrial policy with trade-law conformity and competition protection. By linking incentives to domestic production instead of exports, they so far escape the WTO rules against prohibited subsidies, though clarification from the government regarding domestic-value goals would make it more robust. No significant antitrust challenges have emerged so far, but caution under the Competition Act continues to be necessary. Economically, outcomes are uneven in terms of sectors, and payments fall behind in some areas, leading to adjustments like PLI 2.0 with outcome-driven benchmarks. Ultimately, the success of the PLI scheme will depend on its long-term sustainability and on whether India can foster large-scale manufacturing without igniting trade conflicts or stifling competition. 

About the Author

Gurram Sai Ruchitha is a second-year law student pursuing BBA LLB (Hons.) at O.P. Jindal Global University. Her academic work explores the intersection of trade law and competition law.

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