Journal Press India^®

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India’s persistent trade deficit, averaging USD 2,295.32 million monthly, stems from heavy import reliance in electronics, pharmaceuticals, and energy sectors. This study examines the impact of the Production-Linked Incentive (PLI) scheme on export growth and import substitution from 2017 to 2024 using econometric models. Employing Vector Error Correction Model (VECM), it reveals a long-run equilibrium between exports and imports, with unidirectional Granger causality from imports to exports and significant exchange rate influences. Constant Market Share (CMS) analysis decomposes export growth (USD 3,483.41 million), attributing 95.19% to competitiveness effects. Difference-in-Differences (DiD) estimates PLI-driven import reductions of USD 950.61 million in treated sectors versus controls. Findings highlight PLI’s role in enhancing manufacturing and global integration, though challenges like low value addition persist. Policy recommendations include exchange rate stabilization and sectorial diversification for sustainable trade balance.

Keywords

Trade deficit; PLI scheme; VECM; Export Competitiveness; Import substitution

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