India’s manufacturing sector appears to be on the cusp of a revival. According to this week’s print of the Index of Industrial Production, manufacturing grew by a promising 3.9 percent in June. Fifteen of the 23 industry groups under the second level of industrial classification posted positive annual growth in June 2025.
The Production-Linked Incentive (PLI) scheme has been credited for much of this revival. In July, minister of state for commerce and industry Jitin Prasada informed the Lok Sabha that PLI schemes, with an outlay of ₹1.97 lakh crore across 14 sectors, had attracted ₹1.76 lakh crore in investments by March. These resulted in production increases exceeding `16.5 lakh crore and generated over 12 lakh jobs.
Electronics—especially mobile phone manufacturing—and pharmaceuticals have emerged as consistent success stories. The PLI scheme helped India move from being a net importer of bulk drugs (₹1,930 crore in 2021-22) to a net exporter (₹2,280 crore in 2024-25).
This targeted strategy, aimed at fostering global champions and reducing import dependence, has undeniably positioned India as a serious manufacturing contender. Yet, a critical question lingers: in helping industrial giants, are we overlooking the micro, small, and medium enterprises (MSME)—the silent-but-vital engine of inclusive growth?
PLIs are designed to attract large-scale investments in high-tech industries with thresholds largely suited to established players. While their growth is vital for competitiveness and innovation, the benefits don’t always reach the broader MSME ecosystem. This risks creating a dual economy—gleaming high-tech manufacturing hubs alongside a struggling MSME sector, much like the skyscrapers and slums of Mumbai.
MSMEs are not mere ancillary units. They form the bedrock of India’s economic fabric. As per data up to July 2024, MSMEs contributed above 30 percent of India’s gross value added. They are crucial to India’s trade ambitions, accounting for 45.79 percent of India’s exports in May 2024, with MSME exports surging from ₹3.95 lakh crore in 2020-21 to an impressive ₹12.39 lakh crore in 2024-25. Crucially, they remain the nation’s foremost job creators after agriculture, employing an estimated 203.9 million people as of July 2024. Their reach extends deeply into semi-urban and rural areas, providing livelihoods and fostering decentralised economic development.
Despite this undeniable power, MSMEs continue to grapple with fundamental systemic challenges that the current manufacturing push, with its PLI focus, is not adequately addressing. Lack of access to affordable credit is the most pressing issue. A Niti Aayog report in May highlighted a persistent credit gap estimated at ₹80 lakh crore, often filled by informal sources with exorbitant interest rates of 30-60 percent.
A more recent SIDBI report pointed out that this reliance on informal credit sources disproportionately affects micro enterprises, with 12 percent of them (compared to 3 percent and 2 percent for small and medium enterprises) forced to such usury. Only 16 percent of total credit disbursed in 2024-25 went to micro firms, despite them constituting over 95 percent of the registered MSMEs. This imbalance starves them of the working capital and investment. Beyond credit, MSMEs face a number of hurdles.
Technological lag: A significant 84 percent of digitally ‘hesitant’ MSMEs struggle to see clear value in technology investments, and 56 percent cite a lack of technical skills for modern solutions. This hinders their ability to upgrade processes and compete effectively.
Regulatory burden: The complexity of compliance with tax laws, labour regulations and licences disproportionately burden smaller units.
Delayed payments: Large entities often exploit procedural loopholes to delay payments to MSMEs, severely impacting their cash flow and financial health—a persistent problem the government is trying to address, for instance, with the new Online Dispute Resolution Portal.
Skilled labour shortage: The National Skill Development Corporation estimates nearly 47 percent of MSME workers require reskilling or upskilling. Yet, investment in structured training programmes remains low. A truly holistic manufacturing strategy for India must look beyond PLI and actively empower MSMEs. This means a multi-pronged approach.
Deepening financial inclusion: expanding collateral-free loan schemes like Credit Guarantee Fund Trust for Micro and Small Enterprises—recently revamped with the loan ceiling doubled to ₹10 crore— and ensuring their effective penetration to micro and women-led enterprises.
Accelerating technology adoption: Providing targeted subsidies and handholding for MSMEs to embrace digital tools, automation and sustainable technologies.
Simplifying regulatory frameworks: Continuously reviewing and simplifying compliance procedures to ease the burden on small businesses.
Strengthening supply chain linkages: Mandating and enforcing timely payments from large corporations to MSMEs and fostering stronger, more equitable linkages, perhaps through incentives for large PLI beneficiaries to source significantly from MSMEs.
Investing in targeted skill development: Customising skilling programmes to meet the specific needs of MSME clusters and promoting apprenticeships to build a job-ready workforce.
For a truly resilient and inclusive ‘Make in India’ vision, we must ensure that the roar of large factories is not the only sound we hear. The vibrant hum of thriving micro and small enterprises must echo equally loudly. Only then can India’s manufacturing prowess translate into widespread prosperity and sustainable growth.
Tulsi Jayakumar | Professor, Economics & Policy and Executive Director, Centre for Family Business & Entrepreneurship at Bhavan’s SPJIMR
(Views are personal)