Production Linked Incentive (PLI) Scheme for Telecom and Networking (2025)

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Policy Update
Rashi Kothari

 Background

The Production Linked Incentive (PLI) scheme for Telecom and Networking Products was launched by the Ministry of Communications, Department of Telecommunications (DoT), on February 24, 2021, with an aggregate fiscal outlay of ₹12,195 crore over a five-year implementation horizon. The scheme provides financial incentives ranging from 4% to 7% on the net incremental sales of domestically manufactured telecom equipment over a baseline year. Historically, however, India operated as a heavy net importer of core network intelligence, running massive trade deficits with global manufacturing hubs such as China and the European Union.

The strategic rationale behind this structural intervention was to break India’s legacy pattern of acting merely as a consumer-end electronic assembler and pivot toward becoming a self-sustaining, industrial-grade hardware manufacturing hub. This sectoral intervention is explicitly anchored to India’s broader macroeconomic policy frameworks, notably the National Digital Communications Policy (NDCP), which mandates robust digital infrastructure security and domestic manufacturing and the Aatmanirbhar Bharat Abhiyan (Self-Reliant India Campaign).

The target beneficiaries encompass both large-scale global manufacturers (including leading Original Equipment Manufacturers, or OEMs) and domestic Micro, Small, and Medium Enterprises (MSMEs) specializing in telecom gear. By systematically addressing the deep-seated disability costs of manufacturing in India—such as high power tariffs, logistical infrastructure gaps, and an underdeveloped component ecosystem—the scheme aims to attract core capital investments, build supply chain resilience, and achieve domestic self-reliance in high-value, secure network components.

Functioning

The Telecom PLI operates on a performance-linked incentive mechanism administered via a designated Project Management Agency (PMA)—specifically, the Small Industries Development Bank of India (SIDBI). The institutional framework sets strict eligibility bars indexed against a baseline year (FY 2019-20). Selected firms must meet minimum cumulative incremental investment and incremental sales targets over a designated five-year period to unlock financial payouts.

The funding structure distinguishes explicitly between corporate categories to foster a domestic tier-2 supplier base:

  • MSMEs: Minimum incremental investment threshold of ₹10 crore, with incentive rates scaling from 7% down to 4% over the five-year tenure.
  • Non-MSMEs (Global/Domestic Champions): Minimum incremental investment threshold of ₹100 crore, with incentive payouts ranging between 6% and 4%.

The fiscal incentives are disbursed directly as a percentage of the net incremental sales value of goods manufactured domestically. In June 2022, the DoT implemented a significant operational pivot by amending the guidelines to roll out a “design-led manufacturing“ framework. This amendment carved out ₹4,000 crore from the original fund pool to provide an additional 1% incentive kicker over the standard rates for design-led applications. This operational shift explicitly rewards indigenous design capabilities, anchoring the subsidy to local intellectual property (IP) creation rather than simple contract assembly.

Empirical Performance

An empirical trend analysis of the scheme reveals an impressive growth trajectory in aggregate export and output metrics, contrasted by a stark lag in horizontal fund utilization among individual market players. Data compiled from the Ministry of Communications and the Economic Survey 2025–26 outlines the current state of play:

Table 1: Core Performance Metrics Dashboard (As of Q1 2026)

Performance Indicator ParameterRealized Performance Metric ValueCore Product Segments Impacted
Realized Capital Investment₹4,700+ CroreProduction plant commissioning & machinery
Cumulative Production/Sales Turnover₹1,00,000+ CroreAdvanced network hardware and carrier gear
Aggregate Export Revenue Driven₹21,000+ CroreGlobal network supply chain integration
Core Import Substitution Rate60%Base Station Antennae, GPON, and CPE
Direct Employment Opportunities~30,000 IndividualsAssembly floor and technical operations

Source: Compiled by author from Press Information Bureau (PIB) Disclosures, Department of Telecommunications (DoT) Dashboard Metrics, and Parliamentary Standing Committee on Communications and Information Technology Reports (2025–2026).

While the aggregate export revenue and a 60% import substitution rate indicate robust localized value addition, the generation of ~30,000 direct employment opportunities requires nuanced contextualization. Evaluated against the scheme’s original multi-year policy projection of creating over 40,000 to 50,000 direct jobs, the current employment realization stands at roughly 60–75% of its long-term target. This indicates that while manufacturing capacities have scaled rapidly in turnover, job creation has progressed at a more conservative pace.

Furthermore, analyzing the employment-to-investment elasticity reveals that for every ₹1 Crore of realized capital investment, the scheme has generated approximately 6.3 direct jobs. This ratio reflects the highly automated, capital-intensive nature of advanced telecom hardware manufacturing (such as GPON and Base Station Antennae assembly) compared to more traditional, labor-absorptive electronics manufacturing sectors like smartphones. Thus, the 30,000 figure represents a highly skilled but structurally concentrated workforce addition, rather than a broad-based mass employment engine.

A state-wise spatial analysis shows that manufacturing clusters are highly concentrated within established industrial belts in Tamil Nadu, Karnataka, and Uttar Pradesh (Noida region). These regions offer baseline ecosystem externalities, such as pre-existing logistics hubs and skilled labour availability, which accelerate plant commissioning.

However, parliamentary panel disclosures show that out of the 42 corporate entities approved under the scheme, sixteen companies missed their mandatory baseline investment targets for consecutive years, leading to a visible underutilization of the budgeted fiscal capital[1].

[1] Note: Performance shortfalls for the 16 underutilizing firms are primarily attributed to delayed upstream supply chain setups and high entry barriers within the carrier procurement ecosystem, as highlighted in the Parliamentary Standing Committee review of departmental outlays.

Policy Impact Assessment

The performance-linked architecture has delivered tangible, high-impact results in localized production, but independent industry reviews present a more nuanced picture. The policy’s initial success is most visible in final equipment assembly and domestic deployment volumes. The reported 60% import substitution rate accurately reflects the rapid domestic deployment of complex base station antennae and radio units. Consequently, India has successfully decoupled a significant portion of its core telecommunication procurement from foreign supply chains, enhancing national security and data sovereignty metrics.

Crucially, to fully assess the long-term impact of this policy, this volume-based metric must be analyzed alongside the depth of domestic value addition. Sector experts and academic literature note that while these high-level aggregate numbers correctly reflect a reduction in the import of finished, fully-assembled equipment, they skip over a deeper structural reality. While manufacturing output values are breaking records, the realization of this growth remains heavily concentrated among a few global players who possess pre-existing supply lines and capital buffers.

Independent studies indicate that true deep value addition, moving beyond assembling imported sub-assemblies to full silicon and component fabrication, remains in its nascent stages. The initial rounds of the scheme primarily drove the localized assembly of foreign intellectual property. This means that while employment numbers grew by approximately 30,000 jobs, these positions remain largely on the assembly floor rather than in advanced R&D engineering roles. True domestic value addition, particularly regarding core intellectual property (IP), semiconductors, and advanced components remains a distinct developmental milestone. Therefore, the 60% substitution achieved so far marks a critical baseline for final assembly self-reliance, while setting the stage for deeper component-level integration. 

Emerging Issues

Despite hitting significant production and export targets, the long-term success of the Telecom PLI is constrained by several specific design flaws and implementation gaps:

  1. The B2B Procurement Oligopsony Trap: Unlike consumer electronics markets where products are sold to millions of individual retail buyers, the telecom hardware market is strictly Business-to-Business (B2B). It operates as a domestic oligopsony where the entire demand is dictated by just three corporate Telecom Service Providers (TSPs): Reliance Jio, Bharti Airtel, and Vodafone Idea.
  2. High Revenue Volatility for Component Vendors: Because manufacturers cannot sell directly to retail consumers, their cash flows depend entirely on procurement contracts from these three dominant TSPs. When TSPs slow down their capital expenditure cycles, as observed after the peak 5G rollout phase, equipment vendors are left with massive unutilized capacity. Lacking long-term purchase agreements, 16 approved companies could not justify deploying further capital, causing them to miss milestones and forfeit their subsidy eligibility.
  3. Steep Escalation Hurdles for MSMEs: Facing restricted access to flexible credit networks, smaller enterprises struggle to scale up production capacity fast enough. This makes it exceptionally difficult to hit the escalating year-on-year incremental sales targets necessary to trigger active incentive payouts, leaving them vulnerable to missing performance cutoffs.
  4. Components and IP Dependency: The underlying intellectual property for high-value gear (such as 5G gNodeB base stations and core routers) is still largely held by multinational corporations. The 1% additional incentive for design-led manufacturing has seen uneven uptake due to the high gestation time required to develop competitive, indigenous carrier-grade IP from scratch.

Way Forward

To bridge these institutional gaps and sustain the momentum of India’s telecom manufacturing transition, a strategic policy recalibration is required:

  • De-Risking the Oligopsony via BSNL Integration: The DoT should tie the ongoing deployment of BSNL’s indigenously developed 4G and 5G network stacks to the output of domestic PLI and design-led MSME vendors. Positioning the public sector telecom operator as an assured anchor buyer provides a stable demand cushion for domestic manufacturers, insulating them from private sector capex volatility.
  • Export Diversification and Market Entry Support: Since the domestic corporate buyer market is highly concentrated, the Ministry of External Affairs and DoT should collaborate to pitch Indian-made, design-led telecom products to emerging markets across Africa, South-East Asia, and Latin America. Offering line-of-credit funding to these nations tied to Indian telecom hardware procurement can break the domestic demand bottleneck.
  • Restructuring Incremental Sales Milestones for MSMEs: The PMA should consider smoothing the rigid year-on-year incremental sales targets for domestic MSMEs. Transitioning to a cumulative evaluation over a three-year moving average, rather than a hard annual cutoff, would better account for the long gestation and testing timelines typical of carrier-grade B2B telecom equipment.
  • Deepening Value Addition through Sandbox Component Hubs: The policy must move toward subsidizing component fabrication. Future modifications should prioritize incentivizing local multi-layer PCB design, semiconductor packaging, and optical transceiver manufacturing to transform the industry from a hardware assembly destination into a deep value-additive ecosystem.
  • Establishing a Sovereign Telecom IP R&D Fund: To overcome the deep gestation barriers of design-led manufacturing, the government should establish a dedicated, non-lapsing fund funded by unutilized capital from the telecom PLI pool. This fund should offer matching equity or long-term, non-dilutive grants directly to domestic firms developing indigenous open-RAN architectures, core switching software, and network chips, shifting the incentive metric from gross sales volumes to local IP ownership. 

References 

About the Contributor

Rashi Kothari is a Research & Editorial Intern at IMPRI. She is currently pursuing an undergraduate degree in Economics at Delhi University. An aspiring policy researcher, she has a keen interest in advanced econometrics, public policy, and urban sustainability. With a long-term goal of contributing to national policy-making frameworks, she is focused on utilizing rigorous data analysis to address contemporary economic and structural challenges.

Acknowledgement

I would like to express my sincere gratitude to IMPRI (Impact and Policy Research Institute) for providing the opportunity to draft this policy update article and for offering a rigorous environment that connects research with policy practice. Special thanks go to the editorial board and coordinators for their insightful feedback and guidance in structuring this piece in the required format.

Reviewed by– Paridhi Passi and Shreeya Dixit

Published by- Ms. Shivani Chauhan

Disclaimer: All views expressed in the article belong solely to the author and do not necessarily represent the views or policies of the organisation.

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