The Indian government has developed a plan to enhance and streamline incentive programs for micro, small, and medium enterprises (MSMEs). This initiative is expected to be a chief priority for the Narendra Modi administration if re-elected for a third term.
The proposed measures involve providing specific incentives to manufacturers for their domestic procurement from MSMEs under production-linked incentive (PLI) schemes, which are set to undergo a comprehensive overhaul. A senior official stated, “The government aims to streamline all MSME subsidy and credit-linked schemes for maximum reach and seamless claims process by rationalizing and merging certain initiatives.” With 64 million MSMEs playing a pivotal role in the Indian economy, accounting for over 110 million jobs and contributing significantly to the country’s GDP, these enterprises are a vital component of India’s economic landscape.
Access to finance has been a persistent challenge for MSMEs, with a Niti Aayog report recommending the creation of an incentive package to substantially boost export credit guarantee. Moreover, the government has extended the Interest Equalisation Scheme, and the Federation of Indian Export Organisations (FIEO) has pushed for an increase in interest subsidy for MSME manufacturers. The introduction of the Rs 50,000 crore Self Reliant India (SRI) equity fund and its investment in MSMEs have provided growth capital and support to deserving units.
Efforts are underway to ensure that MSMEs face no hurdles in availing the benefits offered by various schemes. Despite significant incentives offered through 14 PLI schemes, only a small fraction of benefits have been claimed by PLI manufacturers. The government plans to revamp the PLI schemes, including incentivizing the inclusion of MSMEs in supply chains and addressing the deficiency of lacking domestic supply chain obligations.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has witnessed a sharp increase in guaranteed amount, highlighting its effectiveness in facilitating credit flow to MSMEs without the complications of collateral and third-party guarantee.
The proposed reforms aim to strengthen and support the MSME sector, recognizing its pivotal role in India’s economy.
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