India’s Production Linked Incentive scheme for solar photovoltaic modules has delivered a major boost to domestic manufacturing, but its full potential can be realised only with stronger upstream integration, stable policies and a more holistic support framework, according to a report by the Institute for Energy Economics and Financial Analysis (IEEFA).
Launched in 2021 with an outlay of Rs 4,500 crore, the scheme drew strong industry interest, prompting the government to raise the total budget to Rs 24,000 crore in 2022. The PLI scheme was designed to reduce import dependence, promote local value addition and establish India as a globally competitive solar manufacturing hub across the entire value chain.
Capacity Growth Driven by PLI
By June 2025, India’s solar PV manufacturing ecosystem recorded significant expansion. Installed capacity stood at 3.3 gigawatts of polysilicon, 5.3 gigawatts of wafers, 29 gigawatts of cells and 120 gigawatts of modules. The limited polysilicon and wafer capacities currently available in the country have come entirely from PLI backed facilities. The scheme contributed about 36 percent of total cell capacity and 24 percent of module capacity additions.
Module capacity grew two hundred sixteen percent and cell capacity increased three hundred forty four percent since 2022, reflecting strong momentum in domestic manufacturing. PLI linked projects accounted for thirty nine percent of total module additions and sixty two percent of cell additions.
Operational Constraints Slow Progress
Despite the progress, the report notes that the scheme has not yet reached operational maturity. Many facilities are still in advanced construction or partial commissioning stages. Frequent changes to the Approved List of Models and Manufacturers have created uncertainty for investors. The deferment of ALMM in 2023 aligned with a period of global oversupply, leading to unrestricted imports at lower prices. Even after ALMM reinstatement in 2024, imported cells continued to remain exempt, reducing the financial viability of domestic integrated facilities.
Upstream processes such as ingot and wafer production require three to five times the capital investment of module lines, slowing the pace of integration. Continued dependence on imported equipment and raw materials has created challenges in meeting local value addition targets.
Technical constraints have also emerged. Visa restrictions limited the entry of Chinese technicians needed for equipment installation and commissioning. Although expedited visa approvals introduced in 2024 eased some pressure, financial stress in the Chinese PV industry reduced the availability of experts. Global raw material price volatility and emerging geopolitical risks have further complicated project economics.
Financial Stress and Delayed Returns
The PLI scheme originally targeted Rs 94,000 crore in investment and 65 gigawatts of integrated PV capacity. By June 2025, progress had reached roughly half the target: Rs 48,120 crore in investment and 31 gigawatts of capacity.
Awardees face potential financial exposure of up to Rs 41,834 crore through encashed guarantees and unrealised revenue. The two year extension in commissioning timelines announced in 2025 provides immediate relief but does not extend the incentive period. Beneficiaries receiving the extension will get incentives only for the remaining years of the original five year term.
Market Impact and Pricing Trends
Solar tariffs have plateaued in recent years. After falling to the Rs 2.0 to Rs 2.2 per kilowatt hour range in FY2020 to FY2021, tariffs have stabilised at Rs 2.5 to Rs 2.7 per kilowatt hour in FY2024 to FY2025. Domestic Content Requirement compliant modules continue to cost more, while balance of system and financing costs have risen.
Global module prices have declined sharply due to oversupply and dumping from China, but Indian manufacturers face competitiveness challenges in the short term. Price corrections in China under its involution policy may reduce volatility but will not eliminate cost pressure on Indian producers.
Way Forward: A More Comprehensive Manufacturing Framework
IEEFA recommends that future iterations of PLI adopt a broader manufacturing linked framework that integrates fiscal support, upfront capital subsidies, ecosystem development and longer policy tenures. Stronger backward linkages through expansion of ALMM to cover cells and wafers will be critical.
The report – prepared by Prabhakar Sharma, Chirag H Tewani, and Aman Gupta (JMK Research & Analytics), Vibhuti Garg and Soni Tiwari (IEEFA) — warns that trade risks are rising. The recent United States decision to impose a fifty percent tariff on Indian solar exports highlights the need for India to diversify its export markets and strengthen domestic demand absorption.
Baburajan Kizhakedath