Recognised as a major force in the Indian economy, the Micro, Small, and Medium Enterprises or the MSME sector play a substantial role in shaping the GDP, driving exports, and nurturing job opportunities. Within India, a significant portion of small and micro enterprises finds their roots in the agro and food sectors, embodying grassroots economic activity. In contrast, medium-sized enterprises are mostly in sectors such as pharmaceuticals, automotive, and chemicals. The MSME sector, in collaboration with various state governments, ministries, and stakeholders, actively engages in initiatives aimed at fortifying India’s rural economy. In this blog we shall learn about the MSME sector in India.
The Significance of MSME Sector in India
India currently has a staggering 6.3 crore MSMEs, with the latest data from the MSME Ministry, as of 2022, indicating 5,767,734 registered MSMEs through the MSME Registration portal.
The registration figures are classified into three categories:
- Micro-enterprises: 5,441,220
- Small Enterprises: 293,555
- Midsized Enterprises: 32,959
Role of MSME sector in India in Boosting GDP
The MSME sector plays a pivotal role, contributing 29 percent to the nation’s GDP as of the latest data. This growth is attributed to the escalating demand in both domestic and international markets.
Further, MSMEs are encouraged to showcase their products on e-commerce platforms, particularly through the Government e-Marketplace (GeM). GeM, a government-backed portal, facilitates Ministries and PSUs in sourcing their procurement needs.
As of 2022, the GeM portal has garnered approximately 8.16 million orders, amounting to Rs 159,483 crore, from 3.1 million registered sellers. These orders have served over 55,929 buyer organisations.
Economic Contribution of MSME Sector in India
The MSME sector is a vital force propelling the Indian economy forward. With approximately 63 million MSMEs operating nationwide, it significantly contributed to the nation’s GDP, accounting for 30.5% in FY 2019 and maintaining a substantial 30% in FY 2020.
The MSME sector has emerged as a prolific job creator across various sectors. According to data released by the Ministry of Statistics & PI in 2016, the MSME sector generated approximately 111 million jobs in India, addressing crucial employment needs.
Also, in comparison to larger entities, MSMEs have played a noteworthy role in driving industrialisation in rural areas. Notably, they have achieved this without incurring exorbitant capital costs, contributing to the overall economic development.
The MSME sector has made significant contributions to the nation’s socio-economic landscape, providing support to prominent industries. Currently, the MSME sector in India accounts for 40% of the country’s total exports and contributes around 25% to the GDP from the service sector.
Key Drivers for Growth of MSME Sector in India
Mentioned below are the key drivers for growth and prosperity of MSME sector in India:
Favourable Industrial Policies
The MSME sector in India has experienced substantial growth, owing in part to the presence of amicable industrial policies. The relaxed norms surrounding labour and regulatory requirements have created a conducive environment for healthy expansion within this sector.
Infusion of Overseas Investments
The encouragement of Foreign Direct Investments has significantly contributed to the MSME sector’s growth. The influx of overseas players has brought substantial investments, empowering MSMEs to adopt advanced technologies and resources. This infusion enhances productivity and competitiveness within the market.
Impact of Cutting-edge Technologies
The integration of cutting-edge technologies and improved production methods has been a catalyst for MSMEs, fostering enhancements in their overall supply chain and productivity. Embracing technological advancements has played a vital role in sustaining a healthy growth rate.
Government-backed Credit Schemes
The MSME sector in India have benefited from various credit schemes initiated by the Government of India. These schemes provide essential financial support, enabling MSME sector in India to meet their productivity requirements seamlessly and maintain robust relationships with suppliers.
Credit Linked Capital Subsidy and Credit Guarantee Trust Fund
Government schemes such as Credit Linked Capital Subsidy and Credit Guarantee Trust Fund for Micro & Small Enterprises are actively supporting MSMEs. These initiatives facilitate easy funding, eliminating hurdles and ensuring a hassle-free process for financial assistance, contributing to the sector’s healthy growth.
Government’s Efforts to Promote MSME Sector in India
Mentioned below are the government schemes to promote MSME sector:
1. Prime Minister Employment Generation Program
PMEGP focuses on strengthening employment opportunities in rural areas by providing fiscal aid (ranging from Rs 10 lakh to Rs 25 lakhs) for upcoming projects. The aim is to prevent the migration of rural youth to urban areas.
2. Credit Guarantee Trust Fund for Micro & Small Enterprises
A joint initiative of SIDBI and the MSME Ministry, CGTMSE ensures collateral-free credit availability for micro and small industries across India. It is accessible to both existing and new entities within the MSME sector.
3. Interest Subvention Scheme
RBI-driven, this scheme aims to reduce interest rates on new and incremental term loans acquired by MSMEs. The scheme offers a 2 percent relaxation on interest rates for all MSMEs availing these loans.
4. Credit Linked Capital Subsidy Scheme
Introduced two decades ago, CLCSS facilitates technology upgradation for Micro & Small Enterprises. The government provides capital subsidy to upgrade technology, and NABARD acts as the nodal agency for channelising subsidies through various banks.
Other Initiatives for MSME Growth
The GOI has also formulated other policies to boost the MSME sector, including:
1. SAMBHAV Initiative
A national-level awareness initiative aimed at incentivising economic growth.
2. Collateral-Free Loans
Providing collateral-free loans up to Rs. 3,00,000 crores for the MSME sector to procure raw materials, meet operational liabilities, and restart business activities.
3. Fair Competition Measures
Preventing unfair competition from foreign players by disallowing their participation in government procurement tenders worth up to Rs 200 crores.
4. Timely Payment Measures
Enforcing consistency in production and the entire supply chain by penalising public sector units that fail to clear dues to MSMEs within a 45-day timeline.
The GOI has initiated various campaigns such as Startup India, Skill India, Made in India, and Digital India to promote MSME growth and enhance productivity within the sector. These campaigns focus on creating a conducive environment for the MSME sector to thrive and contribute significantly to the Indian economy.
Digitalisation and MSME Growth
The MSME sector, despite historical limitations in advanced technologies, has demonstrated significant development. Recognising the potential for further growth, the sector is now leveraging digitalisation to scale up operations. The Government of India has implemented various measures to facilitate this transition.
The GOI, through the MSME ministry, has undertaken initiatives to digitise the administration system, aiming for increased effectiveness, security, and results. Notable investments include:
- Allocating Rs 200 crores for the establishment of 20 tech facilities.
- Allocating Rs 20 crores for the development of 100 extension centres.
These investments are intended to empower the MSME sector with the necessary technological infrastructure for digitalisation.
The MSME sector has experienced a significant surge in growth, attributed in part to increased internet penetration and consumer preferences shifting towards digital payments. The support from Business-to-Consumer e-commerce players has further propelled this trend.
MSMEs are actively engaging in strategic collaborations with Fintech companies to access seamless and hassle-free financing solutions. This collaboration not only eases financial processes but also enhances the overall financial health of MSMEs.
Digitalisation is set to instil transparency across the supply chain, providing MSMEs with the tools to scale up their operations efficiently. By leveraging digital technologies, MSMEs can streamline processes, reduce inefficiencies, and enhance overall productivity.
Final Thoughts
The MSME sector in India holds immense potential and is a vital driver of economic growth. With around 6.3 crore enterprises, contributing 30.5% to the GDP, and generating substantial employment, its impact is undeniable. Government initiatives, financial support schemes, and digitalisation efforts are propelling its growth, fostering innovation and competitiveness. The sector’s adaptability, especially in embracing advanced technologies, positions it for strong future prospects. As India continues its economic evolution, the MSME sector will play a pivotal role in job creation, industrialisation, and overall socio-economic development, making it a cornerstone of the nation’s economic sector.
