Industrial policy has experienced a significant resurgence globally, with government interventions in this area increasing dramatically from around 5% in 2010 to over 40% today. According to recent studies, industrial policy now covers not just traditional industries but extends to the service sector and even small and medium enterprises. The effectiveness of such policies depends on the state's capability and its relationship with the private sector, with optimal results occurring when states avoid overreach and maintain appropriate levels of government activity. Throughout the late 1970s to the early '90s, the Indian government made a series of policy interventions that resulted in the rise of India's highly export-oriented information technology sector, demonstrating how intelligent state intervention can leverage market power effectively.
India's production-linked incentive scheme currently provides subsidies to 14 industries, with large-scale electronics manufacturing and pharmaceuticals accounting for 73% of total PLI incentives disbursed till FY26. As reported by the analysis, the scheme has shown success in iPhone assembly and pharmaceuticals, where gains have come through exports rather than domestic production. However, disbursements under other industries such as IT hardware, telecom, automotive, ACC battery, and solar PV modules have been limited, with some objectives focused on import substitution rather than exports. The absence of an embedded bureaucracy has hurt prospects across most targeted sectors, though the scheme has seen some success in electronics manufacturing. Recent developments show PLI 2.0 calling for 35% of global mobile output and $130 billion production, indicating continued government commitment to the scheme.
The analysis suggests that India should focus PLI subsidies on exports while implementing hard stops on import substitution-focused industries. According to the report, this approach would limit the need for additional import protection measures and help avoid regulatory capture issues. The recommendation emphasizes that India should prioritize its scarce public resources on education and public health rather than costly PLI schemes designed to pick winners, focusing instead on wider reforms to make industry more broadly competitive without dependence on government subsidies. The discipline imposed by export markets makes industrial policy an efficient framework, unlike import substitution which lacks such market discipline. As noted in recent analysis, industrial policy is unlikely to fundamentally reindustrialise countries like the US, but can help build advanced semiconductor facilities and supply-chain resilience in sectors facing geopolitical shocks.
SIAM President Rajan Wadhera has emphasized that India must develop automotive technologies domestically rather than just localizing global products, urging component makers to focus on high-value technologies including power electronics, battery systems, electric motors, thermal management, sensors, control systems and lightweight materials. Recent disruptions involving critical minerals, particularly rare earths, have demonstrated how even relatively small components can expose the industry to strategic supply-chain risks. The government has started developing an integrated rare-earth permanent magnet ecosystem in India, but Wadhera stressed the need for a comprehensive approach covering raw materials, processing, components, sub-components and final systems. OEMs and component makers must work more closely to provide suppliers with visibility on future technology requirements and develop domestic vendors to create viable local manufacturing scale. As noted by Wadhera, the localisation agenda must now enter its next phase, focusing on deep localisation of high-value and technology-intensive components through closer collaboration between vehicle manufacturers and component makers.
The solar manufacturing sector faces significant overcapacity challenges through 2030, with India's module exports heavily concentrated in the US market. According to recent reports, India exported approximately 4.5GW of modules in FY2026, with the US accounting for around 97% of total export volume. Indian module exports to the US peaked at approximately US$1.94 billion in FY2024 before falling 44-47% over the following two years due to sharp US trade policy tightening. Preliminary determinations by the US Department of Commerce resulted in combined duty exposure exceeding 200% for most Indian manufacturers, with final determinations deferred to October 2026. Despite these challenges, emerging demand segments offer potential, with data centres providing an annual solar demand opportunity of around 2-3GW by 2030 and information technology sector load projected to increase from approximately 1.5GWac in 2025 to 7-8GWac by 2030.
