The NITI Aayog is working on a dedicated production-linked incentive (PLI) scheme for micro, small and medium enterprises (MSMEs) to help them enhance capacity, said a top government official, who is privy to the discussion.
The policy think tank is considering if the PLI scheme should be divided into two parts — one larger scheme for big companies with higher targets, and another for smaller ones, which are the backbone of the Indian economy and are critical to the supply chain. Last month, Business Standard had reported the NITI Aayog has recommended extending the PLI scheme across sectors to medium-sized industries to make the country self-reliant and lift domestic manufacturing. However, it is now felt that there should be a dedicated scheme for smaller businesses.
The government has extended the PLI scheme to 13 sectors to integrate India’s manufacturing ecosystem with global supply chains. The scheme entails providing incentives to firms on incremental sales for five years over the base year of 2019-20. The NITI Aayog, it is learnt, feels wherever there is scope there should be separate PLI schemes, with different parameters, for bigger and smaller companies. The issue is currently being deliberated internally, and a final decision is yet to be taken, the official said.
For small businesses, a new scheme should be formulated by undertaking sectoral analyses and examining business models and profiles, said the official. This should be done to enlarge the size of the business based on demand, he added. There shouldn’t be any blanket application of the scheme along with larger businesses, such that there isn’t scope for their smaller peers. Instead, there should be demand-based application of the PLI scheme for MSMEs, where they actually tend to benefit, the official said.
The PLI scheme so far has been targeted only at large businesses, and small businesses have not yet benefited, said Anil Bhardwaj, secretary general of the Federation of Indian MSMEs. The PLI scheme does not currently focus on making MSMEs a part of the supply chain, Bhardwaj said. He added that incentives for small businesses should be higher as investment by such firms would not be as high as larger players.
Any concrete scheme with incentives for small businesses will definitely help MSMEs, said NR Bhanumurthy, vice-chancellor of Bengaluru Dr BR Ambedkar School of Economics University.
“There is asymmetry of information with regard to problems faced by MSMEs — financial constraints, cost of production, competition and their capacity,” Bhanumurthy said. Hence, it is necessary to better understand the issues related to specific sectors that will help small businesses expand their size, Bhanumurthy said. “Evidence-based policy intervention is needed that will help small businesses compete with larger ones domestically and internationally,” he added. Business Standard