India’s Small Enterprises Want A Slice Of The PLI Scheme

India’s micro, small and medium enterprises (MSMEs) want a share of the government’s production linked incentive (PLI) schemes. This was part of a 10-point presentation made by the Federation of Indian Micro, Small & Medium Enterprises (FISME) – an umbrella body of 740 associations across India – to the finance ministry last month.

The scheme, which subsidises manufacturing, would help create more jobs. “We need employment…that’s the drive from all over,” Sandeep Jain, president of FISME, told The Core. “And MSMEs are the largest employers in the country [but] there is no PLI scheme for MSMEs,” he said. Until 2 August 2023, the number of people employed by the MSME sector was over 12.3 crore, according to the Udyam Registration Portal. MSMEs contributed to 43.6% of India’s total exports in FY23.

Jain said that the body questioned how products were chosen for the PLI scheme. Some of the industries are established, such as automotive, but not all. “We do not ask for a product-based, we ask for a systemic system-based scheme, which generates employment,” he added.

The idea behind the scheme is also to help smaller businesses grow. “99% of MSMEs are the micro, the really tiny ones…business is not very easy for them,” Jain said. There are about 6 crore micro enterprises in the country, followed by about 25-30,000 medium enterprises. “Whatever ask we carried to the finance ministry for the pre-budget meeting was basically to allow the smalls and the mediums to grow further,” he said.

The presentation received a positive response from the Ministry, he said. The administration of a PLI scheme for MSMEs could be tricky going by the experiences of larger companies also using PLI schemes to expand their manufacturing base. However, Jain said that it was too early to forecast this. The PLI scheme is currently available for 14 sectors including mobile manufacturing and electronic components, medical devices, pharmaceutical drugs, textile products, food products and more.

The FISME also wants a revision in the Special Mention Account (SMA) classification used by banks in their loans to MSMEs. This is similar to being declared a non performing asset – the SMA is triggered if principal or interest payments are delayed by 30 days.

Obviously once the red flag is raised, bringing it down is not easy for the small enterprise. Jain, who runs a company manufacturing auto components in Gurgaon, explained that since this is system-driven, it doesn’t take into account issues caused by external factors like ongoing wars or Covid-19.

The body put forth two very glaring examples in front of the Ministry – award winning export companies doing very well but because they delayed their repayment to the bank just by a few days, the computer marked this as an SMA, and the bank closed down the facility immediately. Their accounts were frozen and the companies had no cash flow and suddenly they had to close down their business.The proprietors had to sell up their private properties to repay the loan.

“Unlike larger companies, which can take some of these kinds of disruptions in their flow…small companies, they operate on very, very small operative margins and cash flows, they get clobbered when things go wrong,” Jain said.

In the meeting, FISME also urged the finance ministry to look eastward to expand exports. “One of our studies shows that business is moving from the west to the east,” he explained. Data shows that the GDP of Southeast Asian countries in world trade by 2030 will rise to 60%.

“We suggested that we must start looking at the east as a viable export destination on war footing because all our export promotion activities…are all directed toward the west,” Jain said. “We don’t want to be left behind.”