Policy Update
Anshu
Background
The Production Linked Incentive (PLI) Scheme for the National Programme on High Efficiency Solar Photovoltaic (PV) Modules was approved by the Union Cabinet on 7 April 2021, with a total outlay of ₹24,000 crore, to build gigawatt-scale domestic manufacturing capacity and reduce India’s dependence on solar imports. It is administered by the Ministry of New and Renewable Energy (MNRE). Tranche-I, a smaller pilot worth ₹4,500 crore, required manufacturers to integrate the full value chain, from polysilicon through to modules, to qualify. This bar proved too high, only three manufacturers ultimately won Letters of Award (LoAs), for a combined 8,737 MW, leaving most of the scheme’s intended capacity-building potential untapped.
Tranche-II was designed specifically to fix this. Approved by the Cabinet on 21 September 2022, with Scheme Guidelines issued on 30 September 2022 and an outlay of ₹19,500 crore, more than four times Tranche-I, it replaced the single full-integration requirement with three manufacturing “baskets” pitched at different points of the value chain. The intent was to widen participation beyond the handful of firms capable of building an entire supply chain from scratch, while still steering at least some investment toward the upstream stages (wafers and polysilicon) that Tranche-I had almost entirely failed to attract.
| Basket | Integration Level Required | Capacity Awarded | Purpose |
| Basket 1 | Polysilicon → Wafer → Cell → Module (full chain) | 15,400 MW | Deepest incentive; targets the upstream stages India lacks almost entirely |
| Basket 2 | Wafer → Cell → Module | 16,800 MW | Mid-level integration; builds cell and wafer capacity without requiring polysilicon |
| Basket 3 | Cell → Module only | 7,400 MW | Lowest bar; widens participation to manufacturers capable only of assembly-stage integration |
Table 1: The three manufacturing baskets under PLI Tranche-II
Source: MNRE/SECI, RfS document, November 2022; PIB, 28 March 2023.
The Solar Energy Corporation of India (SECI) was designated the implementing agency and issued a Request for Selection on 18 November 2022. LoAs were issued in April 2023 to 11 manufacturers, Reliance, Waaree, Avaada, ReNew, JSW, Tata Power Solar, First Solar, Vikram Solar, Indosol, Grew, and AMPIN, for a cumulative 39,600 MW of awarded manufacturing capacity, against a PLI allocation of approximately ₹13,937.5 crore. The scheme envisaged this would draw in ₹93,041 crore of investment and generate roughly 1,01,487 jobs (35,010 direct, 66,477 indirect), with separate government estimates projecting the wider ecosystem effect at closer to 1,95,000 direct and 7,80,000 indirect jobs.
Functioning
The PLI mechanism is output-linked, incentives are paid only after a manufacturer commissions its facility and then produces and sells qualifying high-efficiency modules for at least one year, with payouts spread over five years thereafter. Incentive rates are calibrated to basket depth, so a manufacturer in Basket 1 (full chain) earns a higher per-watt rate than one in Basket 3 (cell-to-module only), the scheme’s built-in nudge toward upstream investment.
Two trade instruments reinforce this. The Approved List of Models and Manufacturers (ALMM) restricts government- and PSU-backed solar projects to listed manufacturers, and the Domestic Content Requirement (DCR), tightened in March 2025 to require undiffused wafers be processed in India, determines what counts as a domestically made cell. From 1 June 2026, ALMM List-II extends listing to cells as well as modules.
Even with these incentives, wafer and polysilicon manufacturing has proven far harder to localise than cell or module assembly, for three compounding reasons. First, capital intensity- a polysilicon or wafer fab requires investment an order of magnitude larger than a module assembly line for comparable capacity. Second, technological complexity- polysilicon must be refined to 99.9999 per cent purity and wafer-slicing requires precision equipment and process expertise that India’s manufacturing base has not yet built.
Third, China’s cost advantage is structural rather than incidental, built over two decades through massive scale, low-cost power, and sustained state support, it now controls over 90 per cent of global polysilicon and wafer capacity, making it very difficult for a new entrant to compete on cost even with PLI support layered on top.
Performance
Three distinct figures recur in assessments of the scheme’s progress, and conflating them can be misleading. “Awarded” capacity (39,600 MW) is what manufacturers committed to build when LoAs were signed in April 2023, a paper commitment, not built capacity. “Commissioned” capacity is what has actually been constructed and declared operational for production. “Incentive-eligible” capacity is narrower still, only commissioned capacity that has completed one full year of post-commissioning production, the threshold at which PLI payouts begin.
Against the scheme’s own phased targets 7,400 MW commissioned by October 2024, a cumulative 24,200 MW by April 2025, and the full 39,600 MW by April 2026 actual commissioning has lagged badly.
Figure 1: Phase-wise capacity targets under PLI Tranche-II
source: PIB, MNRE, 28 March 2023.
Only around 4 GW of integrated cell-and-module capacity was declared commissioned as of October 2025, the scheme’s first commissioning tranche, well behind the original October 2024 milestone. Separately, India’s national manufacturing base (across PLI and non-PLI capacity combined) stood at roughly 30 GW of modules, 10.5 GW of cells, and just 2 GW of wafers as of the most recent figures cited in Parliament, useful context on the value chain’s overall shape, though not a direct measure of Tranche-II’s own progress.
No capacity has yet crossed into the third category. In a written Lok Sabha reply on 28 February 2026, Union Minister Prahlad Joshi confirmed MNRE has disbursed no PLI funds to date, since no awarded project has yet completed a full year of post-commissioning operation, nearly five years after Cabinet approval.
This has a direct budgetary echo, MNRE’s overall budget rose from about ₹10,222 crore (2023-24) to ₹26,538 crore (2025-26 RE), yet a parliamentary Standing Committee report on the 2026-27 Demand for Grants noted no allocation was made for this PLI scheme for 2026-27, since no disbursement is expected in the first half of the year, an unusual instance of a flagship scheme with a zero budget line precisely because it has not yet spent anything.
Impact
Measured by capacity built, the scheme’s impact is substantial, national module manufacturing capacity scaled from a negligible base to roughly 100 GW by August 2025, a transformation credited to the combined pull of PLI incentives, ALMM listing, and DCR mandates. But this impact sits almost entirely at the assembly end of the chain, India still imports an estimated 98 per cent of its wafers and effectively 100 per cent of its polysilicon, a gap the basket structure was designed to narrow but has not yet meaningfully closed.
The scheme has also reshaped domestic pricing. DCR-compliant modules were recently priced around USD 0.28-0.29 per watt in India, against Chinese export prices of roughly USD 0.088-0.09 per watt over the same period, a gap of more than three times. This protects domestic manufacturers’ order books but raises input costs for downstream deployment schemes such as PM Surya Ghar and PM-KUSUM, both of which mandate domestically manufactured modules.
Emerging Issues
- Awarded-versus-delivered gap: the government continues to cite 39,600 MW of Tranche-II “awarded” capacity as a scheme achievement, while commissioned capacity remains a fraction of that and incentive-eligible capacity is still zero. Reporting should distinguish these consistently.
- Upstream basket underperformance: Basket 1 (the full-chain, highest-incentive category) has been the slowest to materialise, suggesting the deeper incentive alone has not been enough to offset the capital and technology barriers to wafer and polysilicon manufacturing.
- MSME exclusion: eligibility criteria favour large, vertically integrated manufacturers. Smaller domestic players in the 200-500 MW range, unable to meet scale or basket thresholds, face a reported risk of 40-50 per cent closures as larger PLI beneficiaries capture the protected domestic market.
- ALMM List-II capacity mismatch: enlisted cell capacity is projected to fall roughly 60 GW short of installed module capacity ahead of the 1 June 2026 mandate, putting close to half of existing module capacity at risk of losing eligibility for domestic deployment.
- WTO challenge to the scheme’s legal architecture: on 19 December 2025, China requested formal WTO consultations with India (case WT/DS644), naming India’s tariff treatment on solar cells and modules together with subsidy measures “contingent upon the use of domestic inputs” a direct reference to PLI incentives tied to local value addition, reinforced by ALMM and DCR. China argues these measures are prohibited import-substitution subsidies inconsistent with GATT 1994, the Agreement on Subsidies and Countervailing Measures, and the TRIMs Agreement. If a dispute panel eventually rules against India, it could force changes to the very PLI-ALMM-DCR combination this scheme depends on, making the case’s outcome directly consequential for Tranche-II’s design, not just a peripheral trade irritant.
- Narrow ministerial focus: a parliamentary Standing Committee has flagged that MNRE’s spending and policy attention remain heavily concentrated on solar, and has asked the Ministry to develop a roadmap for other renewable sub-sectors as well.
Way Forward
The basket structure has proven that graduated incentives can widen participation and rapidly scale assembly-stage capacity; the unfinished task is making the upstream baskets, where India’s dependence remains most acute, actually competitive, not merely eligible for a higher incentive rate on paper. This may require support beyond per-watt incentives, such as viability-gap funding for wafer and polysilicon fabs or shared testing infrastructure, given the scale of capital and technical barriers involved.
On execution, MNRE and SECI should report the awarded-commissioned-incentive-eligible distinction consistently going forward, so that scheme performance is judged on actual conversion rather than capacity-awarded headlines. Separately, the WTO consultations now underway will need a considered defence, given how directly they target the local-content logic on which not just this scheme but India’s wider ALMM-DCR framework rests. Finally, MSME-specific transition support ahead of the ALMM List-II deadline would help avoid the sector consolidating so heavily around the eleven Tranche-II beneficiaries that domestic competition itself becomes a casualty of the scheme meant to build the industry.
References
- Ministry of New and Renewable Energy. (n.d.). Production linked incentive (PLI) scheme: National programme on high efficiency solar PV modules. Government of India.
https://mnre.gov.in/en/production-linked-incentive-pli
- Press Information Bureau. (2023, March 28). Government allocates 39,600 MW of domestic solar PV module manufacturing capacity under PLI (Tranche-II). Government of India. https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1911380
- Press Information Bureau. (2023, February 3). Government of India takes several steps to promote renewable energy in the country. Government of India.
https://www.pib.gov.in/Pressreleaseshare.aspx?PRID=1896066&®=48&lang=2 - Saur Energy International. (2026, March 19). ₹24,000 Cr solar PLI yet to disburse funds as projects miss eligibility deadlines. https://www.saurenergy.com/solar-energy-news/24000-cr-solar-pli-yet-to-disburse- funds-as-projects-miss-eligibility-deadlines-11226997
- Prakash, D. (2025, July 15). Why the PLI scheme for solar PV manufacturing is losing steam. Outlook Business. https://www.outlookbusiness.com/planet/why-the-pli-scheme-for-solar-pv-manufacturing-is-losing-steam
- PRS Legislative Research. (2026). Demand for grants 2026–27 analysis: Power and new & renewable energy.
https://prsindia.org/budgets/parliament/demand-for-grants-2026-27-analysis-power-and-new-renewable-energy - Siddiqi, M. A. (2025, March 12). Budget analysis: MNRE and MoP fund allocations and utilisation. Renewable Watch. https://renewablewatch.in/2025/03/12/budget-analysis-mnre-and-mop-fund-allocations-and-utilisation/
- Sharma, R. (2026, June 27). Behind India’s import dependence is solar installations. Business Today.https://www.businesstoday.in/magazine/deep-dive/story/behind-indias-import-dependence-is-solar-installations-539458-2026-06-27
- AL Circle. (2025, December 27). India’s solar protectionism against China backfires: Fragile supply chain & rising reliance on Chinese cells.https://www.alcircle.com/press-release/india-s-solar-protectionism-against-china-backfires-fragile-supply-chain-rising-reliance-on-chinese-cells-116730?srsltid=AfmBOorhJ-q_4fFK7mKd_XuIySetCr1qniLR0cJH272OrDXrfnD1dF2h
- Duari, T. (2026, July 24). The geopolitics of solar manufacturing and how can India build a China-alternative supply chain. pv magazine. https://www.pv-magazine.com/2026/07/24/the-geopolitics-of-solar-manufacturing-and-how-can-india-build-a-china-alternative-supply-chain/
- Biswas, S., & Kale, A. (2025, November 10). How India’s new solar manufacturing list could shift costs, capacity, and competitiveness. Council on Energy, Environment and Water (CEEW).https://www.ceew.in/blogs/unlocking-solar-manufacturing-potential-with-solar-pv-modules
- SolarQuarter. (2026, May 23). India to mandate DCR solar panels from June 2026 amid supply and cost concerns. SolarQuarter. https://solarquarter.com/2026/05/23/india-to-mandate-dcr-solar-panels-from-june-2026-amid-supply-and-cost-concerns-industry-leaders-view/
- Singh, S. (2025, October 6). An investor’s guide to solar manufacturing in India. India Briefing. https://www.china-briefing.com/china-outbound-news/an-investors-guide-to-solar-manufacturing-in-india
About the Contributor
Anshu Kumari is a Research Intern at IMPRI, and holds an MA in Public Policy and Sustainable Development from TERI School of Advanced Studies, New Delhi. Her research focuses on energy policy, renewable energy manufacturing, and workforce development in India’s clean energy transition.
Acknowledgement:
The author sincerely thanks the reviewers and editorial team at IMPRI Insights for their valuable comments, constructive suggestions, and guidance throughout the preparation of this article, which significantly enhanced its clarity and analytical quality. The author also acknowledges the support received during the research and writing process that contributed to the completion of this work.
Disclaimer:
All views expressed in the article belong solely to the author and not necessarily to the organisation.
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