Making it big with PLI 2.0 scheme: Scale and cost still a hurdle

A new incentive scheme for smartphone manufacturing may help India get a bigger global market share, but there are barriers to cross

Will the ₹62,500-crore bonanza from the government help India meet its ambitious target of  grabbing a hefty share of the global smartphone manufacturing market, which is dominated by China? Officials point out that the recently announced mobile phone manufacturing scheme (MPMS), with financial incentives across a five-year window, would ensure that India is firmly entrenched in the universe. 

 

Currently, India is estimated to have around 14 per cent of the global smartphone manufacturing pie.

 

The bullishness about MPMS, cleared by the Union Cabinet earlier this week, flows from the success of the previous version of the scheme. After a five-year run, surpassing most government targets, the production-linked incentive (PLI) scheme for mobiles closed in FY26.       

 

Despite the optimism around the new avatar of the PLI scheme, analysts argue that India needs to build more scale and be globally cost-competitive vis-a-vis China. While India crossed the first hurdle by overtaking Vietnam in production value last financial year, it has to work on building  scale, which in turn reduces costs and brings in more component makers to manufacture in the country rather than import parts. 

 

The transition

 

The new scheme has more than doubled the outlay for incentives compared to the earlier PLI scheme for mobiles. The earlier scheme was estimated at ₹30,000 crore, but the government disbursed only ₹19,090 crore. That’s only 63 per cent of the budgeted amount.

 

Even so, the eligible players, dominated by Apple vendors and Samsung, invested three-fold more cumulatively in the five years of the PLI than what was committed under the scheme. In the same period, the government target was overshot by 42 per cent for mobile production value and by 32 per cent for exports.  Apple Inc, which had planned to shift only 10 per cent of its global production base from China to India with respect to iPhones at the end of FY26, is currently churning out one out of every four iPhones in the world from India.

 

While the finer details of the new scheme are still being worked out, the incentive support on eligible sales for manufacturing mobile phones will be between 2.5 and 5 per cent, compared to 4 to 6 per cent in the PLI scheme. 

 

Eligibility for incentives in the earlier scheme was based on the companies’ incremental production (exports and domestic) and investment targets fixed yearly by the government.   

 

This time, incentives will be linked to the performance of companies in exports. Also, an additional incentive of 1.5 per cent will be linked to domestic sourcing of key components like sub-assemblies and components, to push value addition. The new scheme also provides support for home-grown companies to build India brands.

 

The next level

 

Explaining the logic of the new scheme, Electronics and Information Technology Minister Ashwini Vaishnaw said: “Our aim is to take the mobile eco system to the next level.’’ Pointing out that India is already making modules, components, materials as well as capital goods for mobile phones in India, the focus of the new scheme will be on enhancing and incentivising exports. ‘’That will improve our balance of payments issue as we earn more foreign exchange.”

 

Even during the PLI scheme, the government monitored the companies on their export performance as well as value addition. But, it was not a mandatorily linked to getting incentives.

 

Responding to criticism from the Opposition that India had failed to achieve its target of hitting 35-40 per cent value addition on mobile phones, Vaishnaw, while conceding that the domestic value add (DVA) was at 24 per cent till now in India, made comparisons with China. Vaishnaw said that China had taken 35 years to reach 38 per cent DVA in iPhones, and that India had only five years to touch 24 per cent.    

 

Industry play

 

Even as the value add, which describes the increase in a product’s local economic worth, has to pick up in mobile manufacturing, the action in this space can’t be missed. Apple Inc has tied up with five companies, representing over 73 per cent of the total investment cleared by the government under the third phase of the electronic component and manufacturing scheme, for anchor vendors. The companies are Tata Electronics, Motherson Electronic Components, Hindalco, Yuzhan Technology (part of Foxconn) and ATL for lithium ion cells batteries.

 

In 2025, India Cellular and Electronics Association, along with Bain & Co, had charted out an ambitious target for the mobile manufacturing (PLI and non-PLI players) sector for FY31 as part of its roadmap to achieve $500 billion in production value in electronics. The expectation of the Ministry of Electronics and Information Technology (MeitY) is in sync with the industry roadmap. So, under the MPMS scheme, the government hopes that those eligible will be able to cumulatively, in five years, double exports to ₹15 trillion ($155 billion) compared to the PLI scheme numbers. And it hopes that production value cumulatively will hit ₹39 trillion ($405 billion) compared to ₹22 trillion ($228 billion) achieved under five years of PLI cumulatively.

 

Reality check

 

The reality is that India still faces substantial cost disability when compared to China despite the PLI success and Apple Inc’s big bet.  But the gap is narrowing. When the first study was undertaken by ICEA in 2019 for the government, the cost disability to make an iPhone vis-a-vis China was a substantial 19.2-21.7 per cent, primarily due to high logistics and power cost, high customs duties on inputs, high interest costs, among other reasons. When the PLI scheme ended in FY26, the disability gap went down to an average of 12-14  per cent.

 

A senior executive of a company, which has participated in the mobile PLI, said: “We don’t expect government support beyond FY31. We think that the additional five years through the new scheme will give us time to build scale, increase exports and localisation as well as substantially reduce the cost disability against China. But the government also has to make fundamental changes beyond incentives, like improving ease of doing business.”

 

A top MeitY official is cautious on whether the cost disability between China and India will go away completely. “The cost disability with China ranges from 12 to 18 per cent, so it will remain even after the new scheme, but will substantially come down,”he said.

 

The Apple factor is important here. It came to India primarily to hedge against its over-dependence on China. Bridging the cost gap with China is key for Apple’s next phase of expansion in India.

 

For context, smartphone exports, led mostly by iPhone to the US, zoomed a record 86 per cent in FY26 to $19.6 billion from $10.5 billion in FY25. It shored up the overall iPhone exports from India,  with FY26 accounting for nearly 40 per cent of the total the company undertook during the entire PLI period. 

 

Road ahead

 

Against the backdrop of the PLI success and the Apple story, there are doubts on whether the new scheme will be able to help build home-grown mobile brands for the world.

 

The PLI scheme tried to build home-grown mobile phone champions, but most eligible players, except a few like Dixon, were unable to meet the criteria for incentives. And many home-grown brands like Micromax, Karbonn, Intex, Spice and Lava, which once dominated the scene. have either closed shop or are struggling. 

 

According to a senior executive of a prominent home-grown mobile phone company, the new scheme, by linking incentives to export, will now make it difficult for Indian players, which largely manufacture for Chinese companies in the domestic market and have very little exports.  

 

In contrast, MPMS is just what the big players wanted to push mobile manufacturing in India.