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In countries across the globe, smaller enterprises contribute substantially to the GDP, exports and employment generation. The Micro, Small and Medium Enterprises (MSMEs) in India play a vital role in keeping this economy vibrant and robust. With over 70 million units, the MSME sector of India is a significant component of building the economy. Approximately half of these units are in the urban areas, and the other half is set up in rural areas.
Let’s discuss the details of their classification and importance from an Indian perspective, some of the key drivers of the sector, implemented policies to aid their growth, and their prospects.
The classification of MSMEs has been revised frequently, keeping in mind the goals and objectives of the government concerning the future. The latest revision was made to incorporate the purpose of Atmanirbhar Bharat. The revised criterion considers two factors. These factors are ‘Investment in plant and machinery’ and ‘Turnover’. These two factors determine whether the MSMEs would be classified as a micro, small or medium enterprise.
This article also talks about the role of MSE in export and MSE’s and its benefits. MSE in export has 2 fold benefits for the country; decreasing unemployment and bringing foreign exchange. From a developing country’s point of view, mse’s and its benefits are long term and should be developed at a fast pace.
Contribution in terms of GDP, employment and exports
MSMEs contribute about 6.11% of the manufacturing GDP and nearly 24.63% of the GDP from service activities. Despite having a relatively lower share of total GDP grants, MSMEs contribute around 40% of India’s exports. They play a pivotal role in providing employment and bringing valuable foreign exchange to the nation.
Lately, the focus is more on MSMEs as India targets achieving a $5 trillion economy.
MSMEs produce over 8,000 different categories of products. Besides serving the local household needs of Indians, these products also significantly contribute to the export basket of India.
This promotes trade development and prevents the Indian economy from global economic shocks and adversities.
In India, the MSME industry employs about 11 crore people. Interestingly, the three subsectors, namely trade, services, and manufacturing, generate approximately equal amounts of employment.
Despite the size and scale, each unit remains primitive in size. This is because micro-enterprises are unable to grow into small and medium enterprises. It is also known as the problem of the missing middle. Due to financial, regulatory, technological and operational limitations, the growth within MSMEs is harder to achieve. It is particularly the reason why 97% of the employment is provided solely by micro-enterprises.
Since the micro enterprises are unable to grow into small and medium enterprises, majority of the enterprises in India are of micro scale. These huge numbers of micro units employ 97% of the MSE’s workforce. This also indicates that these micro units are heavily reliant on manual labour and don’t leverage technology and other capital assets to reduce their costs of production.
Key drivers of MSME
Favourable industrial policies:
India has significantly improved parameters like registering property, construction permits, trading across borders, starting a business and getting electricity. These indicators are crucial to the growth and development of all businesses, not just MSMEs. India has substantially improved its Ease of Doing Business ranking by continuously improving on these aspects. This has helped contribute to the growth of MSMEs too.
Technology:
To be a part of the global value chain, each business needs to be technologically updated since it has a strong relationship with cost and quality. The induction of technology helps achieve economies of scale, automating processes and standardising the quality of output.
Access to capital:
Schemes such as Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) and Credit Linked Capital Subsidy (CLCSS) have been introduced. These schemes aim to reduce the bottlenecks in the provision of capital to MSMEs. Earlier, MSMEs could not access funds due to a lack of detailed financial records and digital presence. These schemes are aimed at overcoming those hurdles.
Facilitating Policies
The following policies have been introduced and implemented to ensure that the least stoppages exist in the growth of MSMEs. Some of the most troublesome issues have been the lack of credit and risk capital, technological hindrances and operational inefficiencies. These schemes aim to address the recurring problems.
Prime Minister Employment Generation Program (PMEGP)
Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
Interest Subvention Scheme
Credit Linked Capital Subsidy Scheme
Gram Udyog Vikas Yojna
MSMEs also play a critical role in keeping the local traditions and art alive. Indian art and handicrafts from all parts of the country have become a part of our pride and heritage. It ranges from the famous Madhubani paintings of Bihar to the Pashmina wool apparel of Jammu and Kashmir.
The various forms of traditional dance and music are an industry in themselves. Different parts of the country exhibit their flawless portrayal through ‘haats’, local ‘melas’, shops, and exhibitions.
It preserves our culture and tradition and opens up export avenues for MSMEs.
Conclusion
MSMEs play an essential role in a country by contributing to its GDP, providing employment and adding to foreign exchange by aiding exports. Despite being important, MSMEs in India face several financial, regulatory, operational and technological problems. The Government of India has introduced several measures to remove such bottlenecks that act as a hindrance to the growth of MSMEs.
MSME and its benefits include an often overlooked aspect of keeping traditional and cultural products alive. Indian rugs and Pashmina wool are a few of the many products that bring repute to the country and a good amount of foreign exchange.
