India’s manufacturing revolution is entering its second, more ambitious chapter. The PLI 2.0 scheme — the next phase of India’s landmark Production-Linked Incentive programme — represents the government’s most decisive push yet to transform the country from a low-cost assembly hub into a globally competitive, high-value manufacturing powerhouse. With the original PLI scheme having already delivered ₹2.16 lakh crore in investments, ₹20.41 lakh crore in incremental production, and over 14.39 lakh direct and indirect jobs, the stage is set for a second wave that goes deeper, wider, and smarter.
What Is the PLI Scheme?
The Production-Linked Incentive (PLI) scheme is one of India’s most consequential industrial policy instruments since liberalisation in 1991. Introduced in 2020 and expanded in 2021, the scheme provides financial incentives of 4% to 18% on incremental sales above a defined base year benchmark of FY 2019–20, for a period of five to six years. The total outlay stands at ₹1.97 lakh crore across 14 sectors, and the scheme aims to generate ₹30 lakh crore in additional production and create 6 lakh direct jobs by 2030.
The original 14 sectors covered under PLI 1.0 include large-scale electronics manufacturing, IT hardware, bulk drugs, medical devices, pharmaceuticals, telecom and networking products, food processing, white goods (air conditioners and LED lights), automobiles and auto components, advanced chemistry cell batteries, high-efficiency solar PV modules, speciality steel, textiles (MMF), and drones. By 2026, the results have been transformative. Actual investments surpassed ₹2.16 lakh crore, incremental production and sales crossed ₹20.41 lakh crore, and over 14.39 lakh direct and indirect jobs have been created.
PLI 2.0 Next Phase
PLI 2.0 refers collectively to the expanded, revised, and extended versions of the original Production-Linked Incentive framework being rolled out across multiple sectors in 2025–2026. It is not a single uniform programme but a family of sector-specific upgrades that address the gaps, underperformance, and new strategic priorities identified during the first phase.
The PLI 2.0 framework has three key dimensions:
Extension: High-performing sectors — particularly mobile manufacturing and electronics — are receiving PLI 2.0 extensions beyond the initial 5-year window, offering incentives to companies that continue scaling production after the original scheme’s conclusion. The government is considering PLI 2.0 extensions for high-performing sectors, particularly mobile manufacturing and electronics, to offer incentives beyond the initial 5-year window for companies that continue scaling production.
Expansion: Underperforming sectors are being redesigned with revised eligibility thresholds, broader product coverage, and more MSME-friendly terms to attract a wider range of applicants.
New Sectors: Industry bodies and government advisories have recommended extending PLI incentives to semiconductor packaging and testing, toys manufacturing, furniture and home décor, leather goods, and defence electronics — sectors that were absent from PLI 1.0 but are critical to India’s import substitution and export diversification goals.
PLI 2.0 for IT Hardware
The clearest example of PLI 2.0 in action is the PLI Scheme 2.0 for IT Hardware, which was notified in May 2023 with a budgetary outlay of ₹17,000 crore — significantly higher than the ₹7,350 crore allocated under the original IT Hardware PLI. This scheme is specifically designed to broaden and deepen India’s IT hardware manufacturing ecosystem, covering laptops, tablets, all-in-one PCs, servers, and ultra-small form factor devices.
The PLI IT Hardware 2.0 scheme introduced important structural improvements over its predecessor: a longer incentive period, a revised hybrid incentive model combining value-addition and sales-linked rewards, and a more inclusive eligibility structure that allows both domestic manufacturers and global OEMs with Indian manufacturing operations to participate. The application window was extended in August 2023 to ensure maximum participation, reflecting the government’s determination to populate the scheme with credible, high-commitment applicants.
Electronics and IT hardware led with high growth rates, and mobile phone exports have surged, positioning India as the second-largest smartphone producer globally. PLI 2.0 for IT hardware is designed to replicate this success for the broader computing hardware ecosystem.
PLI 2.0 for Textiles
The textiles PLI 2.0 expansion is one of the most significant sector-level updates underway in 2026. The government will expand the coverage of the ₹10,683-crore PLI scheme for textiles covering man-made fibre (MMF) apparel, fabrics, and technical textiles, with the addition of products to the list of eligible items aimed at supporting industry, enhancing ease of doing business, encouraging fresh investments, and accelerating growth in the textiles sector.
The PLI scheme for MMF textiles and technical textiles was originally criticised for setting investment thresholds too high for most Indian textile manufacturers, resulting in limited uptake. The PLI 2.0 revision addresses this by broadening eligible product categories and reconsidering minimum investment requirements to bring more mid-sized manufacturers into the fold.
Technical textiles — high-performance fabrics used in medical, defence, infrastructure, and industrial applications — are a particular focus of the expansion, as India currently imports a significant volume of these products. The PLI 2.0 textiles push is expected to catalyse investments from both domestic conglomerates and global technical textile manufacturers seeking an Indian production base.
PLI 2.0 for Automobiles and EVs
The automobile PLI scheme is undergoing a PLI 2.0 recalibration with a sharper focus on electric vehicles (EVs) and advanced automotive technologies. The scheme has catalysed investments in electric mobility, power electronics, and advanced safety systems, with reported sales of ₹32,879 crore in FY 2025–26, indicating early momentum in technology-led automotive manufacturing and supplier ecosystem development.
However, a significant finding from a Centre for Development of Economic Policy (C-DEP) report flagged an important structural flaw: scale-based eligibility under Auto PLI favoured incumbents, with 77% of electric two-wheeler exports driven by non-PLI models. The PLI 2.0 automobile revision is expected to address this distortion by recalibrating eligibility to favour new-technology EV manufacturers rather than incumbents who have scaled existing internal combustion engine platforms.
For India’s ambition to become a global EV manufacturing hub — particularly given the opportunity created by shifting global supply chains — Auto PLI 2.0 represents a critical policy correction.
PLI 2.0 and Pharmaceuticals
In pharmaceuticals, the PLI scheme has already delivered a landmark outcome: the scheme has enabled first-time domestic manufacturing of 191 bulk drugs, resulting in import substitution of approximately ₹1,785 crore and increasing domestic value addition to 83.7%.
PLI 2.0 for pharmaceuticals is expected to build on this foundation by extending incentives for complex generics, biopharmaceuticals, and biosimilars — the next frontier of India’s pharmaceutical export ambition. As global demand for affordable biologics grows and geopolitical supply chain concerns push importing countries to diversify sourcing, India’s pharma PLI 2.0 positions the country to capture a disproportionate share of this opportunity.
New Sectors Under Consideration for PLI 2.0
Beyond extensions and revisions, the PLI 2.0 framework is expected to incorporate entirely new sectors that were absent from the original programme. Industry bodies have recommended PLI extension to semiconductor packaging and testing, toys manufacturing, furniture and home décor, leather goods, and defence electronics.
The most strategically significant of these is semiconductor packaging and testing (ATMP). While the India Semiconductor Mission with a ₹76,000 crore outlay follows a PLI-like incentive structure, formal integration of ATMP units into the PLI 2.0 framework would signal India’s seriousness about building an end-to-end domestic chip ecosystem — a goal that has taken on urgent strategic importance given global semiconductor supply chain vulnerabilities.
Toys manufacturing is another high-priority candidate, given India’s stated ambition to replace China as a global toy supplier. Leather goods and furniture address the immense employment potential in these labour-intensive sectors, where India currently underperforms relative to its demographic and resource advantages.
Eligibility Criteria for PLI 2.0: Who Can Apply?
PLI 2.0 eligibility follows the fundamental structure of PLI 1.0 but with important modifications:
Domestic Indian companies registered under the Companies Act must meet sector-specific minimum investment thresholds and demonstrate capacity to achieve incremental sales targets. For instance, in the electronics sector, companies may need to invest ₹250 crore or more, while in the textile sector, the threshold is lower.
Foreign companies operating in India are fully eligible. The scheme aims to attract foreign investments and encourage global players to establish manufacturing facilities in India. This has been demonstrated by the participation of Apple’s contract manufacturers Foxconn and Pegatron, Samsung, and global pharma companies in PLI 1.0.
MSMEs are a particular focus of PLI 2.0’s inclusivity drive. Around 176 MSMEs have benefited under PLI schemes, especially in sectors such as bulk drugs, medical devices, pharma, telecom, white goods, food processing, textiles, and drones. PLI 2.0 aims to significantly expand MSME participation through lower entry thresholds and dedicated MSME sub-categories within each sectoral scheme.
PLI 2.0 Incentive Structure
The PLI 2.0 incentive disbursement mechanism remains performance-linked at its core: companies receive financial rewards only after achieving verified incremental sales targets, not upfront as grants or subsidies. This structure eliminates the risk of subsidy farming and ensures that only genuinely productive manufacturers benefit.
Key features of the PLI 2.0 incentive structure:
- Incentive rate: 4% to 18% on incremental sales above base year, varying by sector and technology tier
- Incentive period: Typically 5 to 6 years, with PLI 2.0 extensions offering additional years for qualifying beneficiaries
- Value addition requirements: Several PLI 2.0 schemes introduce minimum domestic value addition (DVA) thresholds to prevent pure assembly operations from gaming the incentive
- Export linkage: Some PLI 2.0 revisions tie a portion of incentive to export performance, addressing criticism that PLI 1.0 primarily boosted domestic sales without proportionately growing exports
- Each ₹1 crore of PLI incentive disbursed has created approximately 4.3 jobs on average — a multiplier that underscores the employment efficiency of the programme
Challenges PLI 2.0
Despite its achievements, the PLI framework has faced documented challenges that PLI 2.0 must resolve:
Uneven sector performance: In certain sectors like IT hardware, advanced chemicals, textiles, and specialty steel, progress has been slower than expected. PLI 2.0 must diagnose and fix the specific barriers — whether regulatory, logistical, or structural — that have held these sectors back.
MSME exclusion: The high minimum investment thresholds in several PLI 1.0 sectors effectively excluded small and medium manufacturers. PLI 2.0 must genuinely democratise access.
Domestic component gap: India’s electronics PLI succeeded in driving final assembly but has not yet built a deep domestic component ecosystem. PLI 2.0 must incentivise component localisation — PCBs, displays, batteries, and semiconductors — rather than stopping at device assembly.
Export orientation: A portion of PLI 1.0 production was absorbed by India’s large domestic market rather than contributing to export growth. PLI 2.0’s export-linkage provisions aim to address this, ensuring India builds globally competitive manufacturing capacity, not just domestically oriented capacity.
Why PLI 2.0 Matters for India’s $5 Trillion Economy
India’s ambition to reach a $5 trillion economy — and ultimately a developed nation by 2047 under Viksit Bharat — rests heavily on manufacturing’s share of GDP rising from the current ~17% to 25% or more. The PLI 2.0 scheme is the most direct policy instrument in service of this goal.
PLI has accelerated scale, deepened localisation, expanded exports, and integrated India into global value chains. The sustained policy continuity, faster approvals, and focus on component ecosystems will be critical to moving India from volume-led manufacturing to high-value, innovation-driven production.
For businesses — domestic manufacturers, global OEMs, MSMEs, and foreign investors — PLI 2.0 represents one of the most financially compelling manufacturing incentive frameworks available anywhere in the world today. Understanding its structure, eligibility, and sector-specific mechanics is no longer optional for any serious industrial player with India in their growth strategy.
