9 Government Incentives Beyond PLI for Foreign Manufacturers

Why PLI Is Just the Starting Point

When foreign manufacturers evaluate India, the conversation almost always begins and ends with the Production Linked Incentive (PLI) scheme. And for good reason: with INR 1.97 lakh crore allocated across 14 sectors and proven disbursements in electronics and pharma, PLI is India's flagship manufacturing incentive. But it is far from the only one.

India has built a layered incentive architecture that extends well beyond PLI. Some of these schemes predate PLI by decades; others were launched alongside it to address gaps PLI does not cover. Together, they can reduce a foreign manufacturer's effective cost of setting up and operating in India by 30-50% beyond what PLI alone provides.

The problem is discoverability. These incentives are administered by different ministries, governed by different statutes, and have different application windows. A foreign CFO evaluating India will likely hear about PLI from every consultant and government pitch deck — but may never learn about the EPCG scheme that lets them import capital goods at zero customs duty, or the state-level subsidies that reimburse 25-30% of fixed capital investment.

This article maps 9 government incentives beyond PLI that foreign manufacturers should evaluate before finalizing their India investment structure. Each incentive includes eligibility criteria, benefit rates, and practical considerations for foreign-owned operations.

1. Export Promotion Capital Goods (EPCG) Scheme: Zero-Duty Capital Goods Imports

What It Offers

The EPCG scheme allows foreign manufacturers to import capital goods — machinery, equipment, tools, dies, moulds, and accessories — at zero customs duty. Given that India's standard customs duty on capital goods ranges from 7.5% to 15% (with total landed cost often reaching 20-25% after IGST and cess), this represents a substantial upfront saving.

For a manufacturer importing INR 100 crore worth of machinery, the EPCG scheme saves INR 20-25 crore in import duties on day one — capital that can instead be deployed toward production ramp-up.

Export Obligation

The trade-off is an export obligation: the manufacturer must export goods worth six times the duty saved, within six years from the date of the EPCG licence issuance. For the INR 100 crore machinery example, this means achieving INR 120-150 crore in exports over six years — roughly INR 20-25 crore per year.

For export-oriented foreign manufacturers entering India specifically to serve global markets — which describes most China-plus-one investments — this obligation is typically met organically through regular operations. A two-year extension is available if the obligation is not met within the initial period.

Eligibility for Foreign Companies

The scheme covers manufacturer exporters, merchant exporters tied to supporting manufacturers, and service providers. A wholly owned subsidiary of a foreign company incorporated in India qualifies as a manufacturer exporter. The application is filed with the Directorate General of Foreign Trade (DGFT) through their online portal.

Practical Consideration

EPCG and PLI can be claimed simultaneously. A foreign electronics manufacturer can import machinery duty-free under EPCG while earning 4-6% PLI incentives on incremental sales — effectively stacking two central government benefits on the same operation.

2. Remission of Duties and Taxes on Exported Products (RoDTEP)

What It Offers

RoDTEP reimburses embedded taxes and duties that are not otherwise refundable — including state-level VAT on fuel, electricity duty, mandi tax, municipal taxes, and certain non-creditable GST components. These are costs that even SEZ and EOU benefits do not fully cover.

The reimbursement rates are product-specific, calculated as a percentage of FOB (Free on Board) export value, generally ranging from 0.3% to 4.3%. For FY 2025-26, the scheme covers 10,780 HS tariff lines for domestic tariff area exports and 10,795 lines for SEZ/EOU/Advance Authorisation exports, with a total government allocation of INR 18,233 crore.

2025-26 Expansion

A significant expansion took effect from 1 June 2025: RoDTEP benefits were reinstated for exports from Advance Authorisation holders, EOUs, and SEZ units. Previously, these categories were excluded, creating a gap where embedded taxes on fuel and utilities went unrefunded even for tax-exempt units. This reinstatement makes RoDTEP relevant for virtually every export-oriented foreign manufacturer in India, regardless of their operating structure.

How to Claim

RoDTEP credits are issued as electronic scrips through the ICEGATE customs portal after export shipments are processed. These scrips can be used to pay customs duties on future imports or transferred to other importers — providing either a direct cost reduction or a tradeable financial instrument.

3. Electronics Component Manufacturing Scheme (ECMS): 25% Capital Subsidy

What It Offers

Launched to address the gap between India's electronics assembly capabilities and its component manufacturing ecosystem, the ECMS provides up to 25% capital subsidy for setting up or expanding electronic component manufacturing units. Additionally, it offers 4-6% incentives on incremental sales over a base year for five years, plus customs duty exemptions and GST reimbursements for specified components.

The Union Budget 2026-27 significantly scaled up the ECMS, increasing the outlay to INR 40,000 crore — signalling the government's intent to move beyond finished-product assembly toward upstream component sovereignty.

Why It Matters for Foreign Manufacturers

For foreign component manufacturers — particularly those producing semiconductor substrates, passive components, connectors, sensors, and PCB assemblies — ECMS fills a gap that PLI does not. PLI targets finished products (mobile phones, laptops, telecom equipment); ECMS targets the components that go into those products. A foreign company manufacturing capacitors or flex circuits for the Indian electronics ecosystem would find ECMS more relevant than PLI.

Eligibility

The scheme is administered by the Ministry of Electronics and Information Technology (MeitY). Foreign-owned subsidiaries incorporated in India qualify. The application process involves submitting an investment proposal with projected manufacturing capacity, employment generation, and value addition targets.

4. India Semiconductor Mission (ISM): Up to 50% Fiscal Support

What It Offers

The India Semiconductor Mission provides fiscal support of up to 50% of project cost for semiconductor fabrication plants, compound semiconductor facilities, assembly/testing/marking/packaging (ATMP) units, and chip design centres. The total incentive framework is INR 76,000 crore — making it one of the largest semiconductor incentive programmes globally.

As of March 2026, 10 semiconductor units have been approved: two fabrication plants and eight ATMP/OSAT facilities. The initiative has attracted both domestic and international players, with Micron Technology committing to a USD 2.75 billion ATMP facility in Gujarat.

ISM 2.0 (Budget 2026-27)

The Union Budget 2026-27 announced ISM 2.0 with a financial outlay of INR 8,000 crore, expanding the mission to cover semiconductor equipment and materials manufacturing, full-stack design capabilities, and indigenous IP development. A particularly attractive new measure: a five-year income tax exemption for foreign companies supplying capital goods and tooling to Indian contract manufacturers in bonded zones, available until 2031.

Customs duties have been moved toward 0% for approximately 70 types of capital goods and critical semiconductor inputs (silicon quartz, boron, and specialty chemicals), further reducing setup costs for foreign fab and OSAT operators.

Practical Consideration

The semiconductor mission's 50% fiscal support stacks with state-level incentives. Gujarat's Semiconductor Policy (2022-2027) provides an additional 40% of the CAPEX assistance approved under national schemes — meaning a semiconductor manufacturer could receive central + state fiscal support covering 70-90% of capital expenditure, depending on the project structure and location.

5. State-Level Capital Investment Subsidies: 15-30% of Fixed Capital

What They Offer

Individual Indian states compete aggressively for foreign direct investment with their own subsidy packages. The most competitive states offer capital investment subsidies of 15-30% of fixed capital investment — paid as a direct reimbursement after the manufacturing unit commences operations.

Leading States for Foreign Manufacturers

Karnataka's Flexible Model

Karnataka's Industrial Policy 2025-30, launched alongside the Global Investor Meet 2025, introduced a notable innovation: investors can choose between production-linked incentives or capital subsidies — allowing both high-capital and high-turnover industries to pick the model that maximizes their benefit. Companies establishing R&D centres or Global Capability Centres alongside manufacturing units receive an additional 10% incentive.

How to Access

State incentives are typically applied for through the state's single-window clearance system after the manufacturing unit is established. Most states require a minimum investment threshold (typically INR 25-100 crore for foreign manufacturers) and job creation commitments. The subsidy is disbursed in instalments over 3-7 years after verification of investment and employment targets.

6. Section 35 R&D Deductions and Patent Box Regime

What It Offers

Foreign manufacturers establishing R&D facilities in India can claim a 100% tax deduction on both revenue and capital expenditure incurred on approved in-house R&D under Section 35 of the Income Tax Act. The R&D facility must be approved by the Department of Scientific and Industrial Research (DSIR), Ministry of Science & Technology.

For sectors like chemicals, electronics, biotechnology, and pharmaceuticals, DSIR-registered facilities may also access government grants, subsidized loans, and equity support for their research activities.

Patent Box Regime: 10% Tax on Patent Royalties

India's Patent Box Regime applies a concessional tax rate of 10% on royalty income earned from patents developed and registered in India. For a foreign manufacturer that develops process innovations or product patents through its Indian R&D centre, this creates a powerful incentive to locate IP creation in India rather than licensing it in from the parent company.

Consider the tax arbitrage: royalties paid by an Indian subsidiary to a foreign parent are subject to withholding tax at 10-20% (depending on the DTAA), plus the parent must pay tax on receipt in the home jurisdiction. But patent income earned directly by the Indian entity from India-developed patents is taxed at only 10% — with no cross-border withholding or double taxation complexity.

Budget 2025-26 R&D Boost

The government committed INR 20,000 crore for private sector-driven R&D in Budget 2025-26, marking a substantial increase from previous allocations. This fund is accessible to DSIR-registered entities, including foreign-owned subsidiaries.

7. Customs Duty Exemptions on Critical Inputs and Capital Goods

What They Offer

Beyond the EPCG scheme, India provides sector-specific customs duty exemptions through budget notifications that reduce or eliminate Basic Customs Duty (BCD) on critical manufacturing inputs. The Union Budget 2025-26 removed seven customs tariff rates for industrial goods, and Budget 2026-27 expanded exemptions significantly.

Key Exemptions for Manufacturers (2025-2026)

How They Stack

These exemptions operate independently of PLI and EPCG. A foreign manufacturer setting up a lithium-ion battery plant could simultaneously claim: (a) zero customs duty on capital goods via EPCG, (b) zero BCD on critical mineral inputs via budget notification, (c) PLI incentives on incremental production, and (d) state-level capital subsidies — creating a four-layer incentive stack.

8. National Industrial Corridor Development Programme (NICDP)

What It Offers

The Union Cabinet approved the creation of 12 new world-class industrial smart cities as part of the NICDP, with a budget of INR 28,602 crore. Combined with 8 previously approved cities, India is building a network of 20 smart industrial hubs designed specifically for manufacturing investment.

Manufacturers who locate within these corridors receive:

• Plug-and-play infrastructure: Ready-to-use industrial plots with power, water, road connectivity, and logistics infrastructure pre-built
• Subsidized land: Industrial plots at state industrial development corporation rates — typically 30-50% below market rates
• Integrated logistics: Proximity to dedicated freight corridors, ports, and multi-modal logistics parks
• Single-window clearances: Expedited environmental, building, and operational approvals

Key Corridors for Foreign Manufacturers

The Delhi-Mumbai Industrial Corridor (DMIC) is the most advanced, with operational nodes in Dholera (Gujarat), Shendra-Bidkin (Maharashtra), and Vikram Udyogpuri (Madhya Pradesh). The Chennai-Bengaluru Industrial Corridor targets electronics and auto component manufacturers, while the Amritsar-Kolkata Industrial Corridor serves northern and eastern India's manufacturing demand.

Practical Advantage

For foreign manufacturers unfamiliar with Indian land acquisition, environmental clearances, and utility connectivity, NICDP nodes eliminate the single biggest operational bottleneck: site development. Instead of spending 12-18 months acquiring land, obtaining permissions, and building infrastructure, manufacturers can access ready-to-build plots and begin construction within weeks of company registration.

9. Credit Guarantee and Export Finance Schemes

Credit Guarantee Scheme for Exporters (CGSE)

The Union Cabinet approved the CGSE in 2025, providing 100% credit guarantee coverage by the National Credit Guarantee Trustee Company (NCGTC) for additional credit facilities up to INR 20,000 crore extended to eligible exporters, including MSMEs. This means foreign-owned manufacturing subsidiaries with export operations can access working capital loans from Indian banks with zero collateral requirement — the government guarantee covers the bank's risk.

Mutual Credit Guarantee Scheme (MCGS-MSME)

For foreign manufacturers whose Indian subsidiaries qualify as MSMEs (micro, small, and medium enterprises — classified by investment and turnover thresholds), the MCGS-MSME provides 60% guarantee coverage on credit facilities up to INR 100 crore for purchasing equipment and machinery. This significantly eases the financing challenge that foreign companies face when Indian banks are hesitant to lend to newly incorporated subsidiaries without a local credit history.

CGTMSE Enhanced Coverage

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), effective from 1 April 2025, now facilitates credit guarantees on loans up to INR 10 crore for micro and small enterprises without requiring collateral or third-party guarantees. A foreign company's Indian subsidiary that falls within the MSME definition can leverage this for initial capex financing.

Practical Consideration

The financing challenge is real. Indian banks are notoriously conservative in lending to newly incorporated companies — even those backed by Fortune 500 parents. These government-backed guarantee schemes bridge the gap by transferring credit risk from the bank to the government, making it easier for foreign manufacturers to access affordable INR-denominated working capital and term loans without requiring the parent company to provide a corporate guarantee.

How to Stack Multiple Incentives: A Practical Example

Consider a hypothetical scenario: a Japanese electronics component manufacturer setting up a wholly owned subsidiary in Tamil Nadu to produce passive components (capacitors, resistors) for the Indian and export markets. Investment: INR 200 crore in fixed capital, INR 100 crore in imported machinery.

Total upfront incentive value: INR 90-100 crore on a INR 300 crore total investment — a 30-33% reduction in effective capital outlay, before counting ongoing annual benefits from RoDTEP and the concessional tax rate.

For assistance structuring your India manufacturing investment to maximize all available incentives, consult our FDI advisory services team.

Key Takeaways

• EPCG eliminates import duty on machinery: Zero customs duty on capital goods with a 6x export obligation over six years — a clear win for export-oriented manufacturers.
• RoDTEP reimburses hidden costs: State-level taxes on fuel, electricity, and utilities that are not covered by GST input credit are reimbursed at 0.3-4.3% of export value.
• ECMS targets component manufacturers: With INR 40,000 crore budget (2026-27), this scheme fills the gap between PLI's finished-product focus and the upstream supply chain.
• Semiconductor mission provides up to 50% fiscal support: Combined with state policies (Gujarat's 40% top-up), semiconductor manufacturers can secure 70-90% capital support.
• State subsidies are substantial and stackable: Capital investment subsidies of 15-30%, stamp duty exemptions, electricity subsidies, and SGST reimbursement all layer on top of central schemes.
• R&D deductions and Patent Box save on both costs and IP tax: 100% deduction on R&D expenditure plus a 10% tax rate on India-developed patent royalties.
• Government credit guarantees solve the India lending challenge: CGSE, MCGS-MSME, and CGTMSE enable collateral-free financing for newly incorporated foreign subsidiaries.