Unutilised Funds, Startup Barriers: Is Auto PLI Scheme Due for Reform?

The Production Linked Incentive (PLI) scheme for electric vehicles (EV) was introduced in 2021 to accelerate manufacturing, boost domestic value addition and strengthen the EV ecosystem. Although well intended on paper, the scheme has been plagued by concerns about “PLI squatting,” unutilized funds, high entry barriers for startups and growing market concentration.

The Centre for Digital Economy Policy Research (C-DEP) has released a report where policy experts examined whether the current framework is achieving its intended goals or unintentionally distorting competition. In an interaction with Acko Drive, Jaijit Bhattacharya, President, C-DEP, shared key insights from the study, outlined bottlenecks in the current framework, and suggested measures needed to address them.

What Is “PLI Squatting”?

One of the central concerns raised was the issue of “PLI squatting.” The concept refers to companies that apply for and secure PLI allocations but fail to utilize them because they do not meet production criteria — sometimes not manufacturing even a single vehicle. The concern is not merely administrative.

“If somebody asks for that PLI and then does not use it because they have not met any of the criteria… then they have denied that opportunity to other players in the economy. Because of this the economy gets stifled since other players would have got in, they have manufactured more two-wheelers and they would have strengthened the economy,” said Bhattacharya.

In effect, unutilized allocations block capable manufacturers from accessing incentives, slowing down overall sectoral growth. The argument is that such inactivity restricts production, limits competition and dampens economic momentum in what is still a developing market.

A natural follow-up question is whether unused PLI funds can be redirected to other manufacturers. Under existing Government Financial Rules (GFR), this is not straightforward. “Unless there is a policy to support it, you cannot simply take the funds out and do something else with it,” said Bhattacharya. 

If allocated companies fail to meet criteria, the funds remain idle. This has broader economic implications. The scheme was designed to stimulate manufacturing, jobs and domestic value addition. Idle funds mean unrealized growth potential. To address this, the recommendation is clear: introduce more frequent performance reviews.

Urging the government and concerned authorities to look into this, Bhattacharya said, “Please review the PLI performance on a more frequent basis and those who are not performing can be swapped out by those who are non-PLI but they're willing to take the PLI and perform.” Such a mechanism would inject dynamism into the system, allowing capable entrants, whether startups or legacy players, to participate.

How PLI Allocation Works: Product-Based, Not Blanket Incentives

The discussion also clarified a common misconception: PLI incentives are not granted as blanket subsidies to companies. “It is by product only. The PLI is given by product… that product is checked for its domestic value,” Bhattacharya pointed out. Even after a company qualifies under the scheme, each product must be submitted for approval. Only products meeting domestic value addition criteria receive incentives.

However, eligibility thresholds for participation remain significant. For startups, requirements reportedly include approximately ₹3,000 crore in fixed assets and ₹1,000 crore in net worth. Critics argue that such thresholds limit access for innovative early-stage players.

Market Share Concentration: A Growing Concern?

One of the more striking observations from the report was the growing market share of PLI beneficiaries relative to non-PLI players. Bhattacharya warned saying, “It is clearly not good when there is a concentration of the market in a few hands not only because of their competitiveness but because of subsidies coming in from the taxpayer money.”

The concern is not about business success per se, but about distortion. If taxpayer-funded subsidies help a small group of players capture a disproportionate share of the market — reportedly around 80 percent — questions arise about competitive neutrality. In sectors like electric four-wheelers, where fewer players dominate, this dynamic may be less contentious. However, the electric two-wheeler segment is structurally different.

He said “In the electric two-wheeler market, there are a large number of startups that are innovating and why should they get discriminated against using taxpayer money?” The argument is that in a market characterised by rapid technological change and innovation, policy design must encourage broad participation rather than entrench incumbency.

Also READ: Non-PLI Electric Two-Wheeler OEMs See Growth Plunge from 407% to –33%: Report

Level Playing Field: Not Startups vs Legacy Players

However, Bhattacharya didn’t want the discussion to turn into “Startups vs Legacy Manufacturers”. He said, “We are not saying one versus the other… We want a level playing field and then let the best players succeed.” The core concern is discrimination arising from high entry thresholds and static beneficiary lists. To promote innovation and competition, eligibility norms for startups may need recalibration.

Meanwhile, Bhattacharya also recommended mid-course correction to address the irregularities. “Those who are not performing should be thrown out and fresh players should be brought in so that there is dynamism in the market”, he said. Dynamism, rather than protectionism, is presented as the key to accelerating cost parity between electric and internal combustion vehicles and enhancing competitiveness against global players.

Should Underperformers Be Penalised?

On the question of penalties or blacklisting for companies that failed to utilise their allocations, Bhattacharya's response was measured. “Entrepreneurship is a very risky business so we should not penalise failure but we should definitely take the resources and give it to somebody else if they have not performed,” he concluded.

The emphasis is on reallocating resources efficiently rather than punishing entrepreneurial risk. Companies may have applied in good faith and invested significant effort to qualify.