How PLI is transforming India’s MSME landscape

By Bharat Gite

India’s vision for self-reliance, encapsulated in the Atmanirbhar Bharat initiative, seeks to position the country as a global economic powerhouse. To fuel this ambitious endeavour, it is imperative to reduce import dependency and boost local manufacturing.

The Production Linked Incentive (PLI) scheme is central to this mission. Introduced in 2020 to transform India’s manufacturing sector, its targeted financial initiatives directly align with the goals of a self-reliant nation. Today, the PLI scheme aims to accelerate growth in key sectors like electronics, medical devices and automotive manufacturing.

Complementing these initiatives are the country’s Micro, Small, and Medium Enterprises (MSMEs) — which form the backbone of India’s economy.

The Contribution of MSMEs in India’s Journey Towards Self-Reliance

According to the Indian Brand Equity Foundation (IBEF), India is home to over 63 million MSMEs. Data from the government’s Press Information Bureau reveals that despite their relatively small size, these growing businesses contribute to over 30% of India’s GDP and account for an impressive 45.79% of India’s exports — demonstrating how critical they remain to India’s role in global trade. Additionally, they drive job creation and promote inclusive growth by employing over 20.5 crore people.

The contribution of MSMEs is not limited to economic efforts alone. They also promote the spirit of entrepreneurship, reduce regional disparities and integrate informal enterprises into the formal economy. Their foundational role in India’s self-reliance efforts is further enhanced by the PLI scheme, which empowers these enterprises to scale up, particularly in key strategic sectors.

In the renewable energy sector, for instance, an outlay of $2.31 billion (₹19,500 crore) has been earmarked under this scheme to help achieve 65 GW of solar PV manufacturing capacity. MSMEs remain crucial manufacturers and suppliers of the components covered under these projects. In the automotive sector, these enterprises are vital contributors to electric vehicle component manufacturing, backed by a PLI allocation of over $3 billion (₹25,938 crore). Additionally, in perhaps the most striking success story to emerge from this initiative, India has transformed from a net importer to a net exporter of mobile phones in the electronics sector, where MSMEs play an integral role in the supply chain.

In all these sectors, MSMEs continue to play a vital role in production and innovation. While these opportunities highlight the immense potential of MSMEs in driving the shift towards an Atmanirbhar Bharat, several significant challenges still need to be addressed to unlock their full contribution to self-reliance.

Roadblocks Along the Way: Addressing the Core Barriers to Further Growth

A significant number of MSMEs remain unregistered, often due to complex registration processes and limited awareness of government schemes. This limits their ability to access government benefits like the PLI scheme and keeps them outside formal banking channels.

Other roadblocks to scalability include high compliance costs (due to multiple regulatory requirements across central, state, and local levels) and fragmented supply chains (due to poor infrastructure connectivity and limited digital adoption). Skill gaps, which persist because many MSMEs lack the resources required for regular workforce training, also hinder their ability to adopt advanced manufacturing technologies.

Another pressing issue is the presence of financial constraints in this business segment. While schemes like the CGTMSE provide collateral-free loans up to ₹500 lakh with an 85% guarantee, many MSMEs still struggle to secure funding due to limited credit histories and collateral. Industry reports from Avendus Capital estimate the MSME credit gap to be $530 billion. Despite government initiatives like the ₹50,000 crore Self-Reliant India Fund and the Udyam Assist Platform, the credit challenge persists. This is largely due to low scheme awareness among small businesses, complex application processes, and the reluctance to extend credit support to MSMEs among many lenders. As a result, a significant portion of eligible MSMEs have yet to benefit from these financing initiatives, leaving the sector’s funding needs largely unmet.

Future in Focus: A Blueprint to Building an Enabling Ecosystem for MSMEs

To maximise the impact of the PLI scheme, it is vital to create an enabling environment that nurtures MSMEs. This involves strategic investments in infrastructure, policy consistency and targeted skill development.

Infrastructure investments like dedicated industrial clusters, logistics parks and renewable energy hubs can all provide MSMEs with the resources they need to scale efficiently. Policies that incentivise technological adoption and simplify compliance will further strengthen their position in global supply chains.

Additionally, aligning skill development programmes with industry requirements can ensure that MSMEs have access to a skilled workforce. Government initiatives like the Skill India Digital platform already lay the groundwork for this integration. However, stronger industry-MSME alignment, wider regional language adoption and more sector-specific training modules can enhance the impact of these programs on MSMEs. Moreover, incentivising MSMEs to participate in skill development programs and creating easier pathways for on-the-job training can help bridge the current gaps between available programs and actual industry needs.