MSME at a Glance

 Micro, Small and Medium Enterprises

The MSME full form is Micro, Small, and Medium Enterprises. The Indian government popularised it through the Micro, Small & Medium Enterprises Development (MSMED) Act 2006. MSME is a vibrant and dynamic sector of the Indian economy. The role of MSMEs is to provide large employment opportunities at lower capital costs than large industries. Additionally, It helps in the industrialization of rural & backward areas to reduce regional imbalances and assure more equitable distribution of national income and wealth. Narayan Rane is the minister of micro, small, and medium enterprises. The headquarters of MSME is located in New Delhi.

MSME Sector

The Government of India’s Ministry of Micro, Small, and Medium Enterprises serves as the supreme executive authority for developing and enforcing laws, rules, and regulations about micro, small, and medium-sized businesses in India.

• The National Board for Micro, Small, and Medium Enterprises (NBMSME) was established by the Indian government by the Micro, Small, and Medium Enterprises Development Act, 2006, to investigate the factors influencing the development and promotion of MSME.
• Additionally, this body examines current regulations and recommends to the government for developing the MSME sector.
• The following are the services offered by the Ministry of MSME:
• Testing and training facilities for entrepreneurial development
• Pollution and energy audit
• Project and product profiles are created.
• Consulting in management and technology
• Support for exports

Classification of the MSME Sector

The Indian government amended the MSME definition in 2020. These modifications to the Atmanirbhar Bharat Abhiyaan assistance package’s definition of micro, small, and medium-sized firms were authorized. The number of medium-sized businesses increased due to the bigger investment and turnover numbers. The MSME sector is categorized as follows

Type of Enterprise	Investment	Turnover
Micro	Rs 1 Crore	Rs 5 Crore
Small	Rs 10 crore	Rs 50 crore
Medium	Rs 50 crore	Rs 250 crore

Features of MSME

The MSME sector is crucial for India's economic growth and has significantly contributed to its development. It is vital in generating employment and uplifting backward and rural areas. India has around 63 million MSMEs.These enterprises offer several advantages for those interested in entering the manufacturing industry, including:

• Export Promotion and Potential: MSMEs have opportunities for promoting Indian products in international markets.
• Funding and Subsidies: They have access to financial support and subsidies from the government.
• Government Promotion and Support: The government actively promotes and supports the growth of MSMEs.
• Growing Domestic Market: There is a rising demand for MSME products in the domestic market.
• Lower Capital Requirement: MSMEs require relatively less capital to start and operate than larger enterprises.
• Manpower Training: MSMEs provide training and skill development opportunities for their workforce.
• Project Profiles: They have access to project profiles that aid in setting up and running their businesses.
• Raw Material and Machinery Procurement: MSMEs can procure raw materials and machinery required for production.

MSMEs contribute around 8% to India's GDP, employ over 60 million people, and have a significant share in exports and manufacturing. Therefore, they are crucial for the overall economic development of India.

Ministry of Micro, Small, and Medium Enterprises

The Micro Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to address policy concerns impacting MSMEs and the sector’s coverage and investment cap.

• The Act aims to boost these businesses’ competitiveness while facilitating their growth.
• It offers the first-ever legal framework for recognizing the idea of an “enterprise,” which includes businesses that provide goods and services.
• It aims to unify the three levels of these enterprises, micro, small, and medium and offers the first definition of medium firms.
• The Act also establishes a legislative consultation structure with broad advisory responsibilities and balanced representation of all stakeholder groups at the national level, particularly the three classes of firms.

Registration of MSMEs in India

• Any MSME (regardless of the social category of ownership) must register under the Udyam system of registration, which went into effect on July 1, 2020, to be eligible for concessions or benefits from the Central and State governments.
• Based on self-declaration, the Registration may be submitted online. Uploading documents, papers, or certificates as proof is no longer essential.
• The primary determining factors for MSME classification would be turnover and investment in plant, machinery, and equipment.
• Any enterprise’s turnover and investment calculations based on the prior year’s IT returns would not include exporting goods, services, or both.
• The Champions Control Room’s now responsible for assisting entrepreneurs in their initial registration and ongoing operations nationwide.

Significance of the MSME Sector in the Indian Economy

• Exports: MSMEs significantly influence India's exports, contributing to more than 45% of the total export value.
• Inclusive growth: MSMEs provide employment opportunities to rural residents, particularly those from disadvantaged social groups, promoting inclusive growth.
• Employment: MSMEs are the second-largest employment generator after agriculture, providing jobs to approximately 120 million people in India.
• Financial inclusion: MSMEs facilitate financial inclusion by offering banking services and products to people in tier-II and tier-III cities.
• Promote innovation: MSMEs encourage innovation by enabling aspiring entrepreneurs to develop innovative products, enhancing business competitiveness, and driving growth.
• Stability and resilience: The MSME sector is a foundation for India's economy, safeguarding it against external shocks and adversities.
• Contribution to GDP: With around 36.1 million units across the country, MSMEs contribute 6.11% to the manufacturing GDP and 24.63% to the services GDP.
• Future goals: The MSME Ministry aims to increase the sector's GDP contribution to 50% by 2025, aligning with India's projected economic growth of $5 trillion.

Factors leading to the growth of MSME

Factors that contribute to the growth of the MSME sector are as follows:

• Innovation: MSMEs provide opportunities for aspiring business owners to develop new and innovative products, fostering competitiveness and driving growth.
• Employment opportunities: Younger generations are shifting away from agriculture and entrepreneurship, creating employment opportunities for others.
• Government campaigns: Initiatives like Make in India, Startup India, Skill India, and Digital India, aim to create a level playing field and promote increased production in the MSME sector.
• Adapting to labor market trends: The shift of younger generations from agriculture to businesses opens up more employment opportunities for others.
• New definition: Introducing a new definition and classification eliminates the need for frequent inspections to verify investments in plant and machinery, providing transparency and fairness.
• Digitization: The increasing use of the internet and consumer comfort with digital payments, supported by B2C e-commerce firms, contribute to the expansion of the MSME sector.
• Access to finance: MSMEs now have easier access to collateral-free financing through partnerships with modern non-banking finance (FinTech) enterprises.

Issues and challenges in MSME

• Financial Constraint: Smaller firms and businesses in the Indian economy have always faced financial challenges, which poses a significant hurdle for both businesses and the MSME sector. However, it is even more concerning that only 16% of SMEs can obtain timely finance, leaving small and medium firms reliant on their resources.
• Lack of Innovation: Indian MSMEs lack innovation, with many products relying on outdated technologies. The sector lacks sufficient entrepreneurs, hindering the adoption of new technologies and tools. Consequently, MSMEs struggle with outdated technology and lower productivity levels compared to larger firms.
• The dominance of Small Firms: Micro and small businesses make up over 80% of MSMEs, making it difficult to access government initiatives such as emergency lines of credit, stressed asset relief, equity participation, and fund of funds operations due to communication gaps and limited awareness.
• Lack of Formalization Among MSMEs: Many MSMEs lack formal registration, contributing to the credit gap. Approximately 86% of manufacturing MSMEs in the country remain unregistered, and only around 1.1 crore MSMEs are currently registered under the Goods and Services Tax.
• Economic uncertainties, including fluctuations in raw material prices and market demand, impact the stability of MSMEs.

Share of MSMEs in India

• MSMEs, which account for roughly 45% of the nation’s total manufacturing output, 40% of exports, and nearly 30% of the national GDP, are under pressure due to limited demand visibility for the upcoming six months at least and the depletion of internal reserves.
• After agriculture, the sector generates the second-highest number of jobs.
• About 120 million people in India are employed as a result.
• MSMEs comprise over 36.1 million units across the country, contributing 6.11 percent of the GDP from manufacturing and 24.63 percent from services.
• The MSME Ministry has set a goal to increase its GDP contribution to 50% by 2025 as India’s economy grows to $5 trillion.

Initiatives Undertaken by the Government for MSME Sector

The government has implemented various initiatives to support the MSME sector, including:

• Emergency Credit Line Guarantee Scheme (ECLGS): This scheme provided unsecured loans of Rs. 3 lakh crore to MSMEs and firms to revive economic activity.
• Priority sector lending for Non-Banking Financial Companies (NBFCs): The RBI allowed bank funding to NBFCs for on-lending to agriculture, MSMEs, and housing, categorizing it as priority sector lending.
• Stimulus plan under Atmanirbhar Bharat Abhiyan: The government announced a stimulus plan focused on the MSME sector.
• Revised MSME definition and establishment of a fund: A new definition for MSMEs was introduced, along with establishing a fund with a corpus of Rs. 50,000 crores.
• Credit guarantee and state-level initiatives: Measures such as a credit guarantee of Rs. 3 lakh crore, Andhra Pradesh's ReStart program, policy for smart industrial villages, and promotion of the "Swadeshi" ideology were implemented.
• Government schemes: Various government schemes like 

• MSME Samadhaan
• ASPIRE scheme
• Credit Guarantee Scheme
• Prime Minister Employment Generation Programme
• Credit Linked Capital Subsidy Scheme (CLCSS)
• National Manufacturing Competitiveness Programme (NMCP)
• Zero Defect Zero Effect model