The MSMEs and Small Scale Industries SSIs play a crucial role in bolstering the Indian economy by fostering entrepreneurship and generating employment opportunities. Know in detail about their impact in this blog
Overview
MSMEs and SSI are India’s economic growth engines, accounting for 30% of the country’s gross domestic product (GDP). Surprisingly, MSMEs are also linked to the rural economy, with over half of MSMEs operating in rural India.
Micro, Small, and Medium Enterprises (MSMEs) are businesses classified according to their level of investment. In terms of production, employment, and export, they significantly contribute to the economy. They contribute to exports, increase manufacturing sector production, and supply raw materials, essential goods, finished parts, and components to more prominent industries, all of which contribute to the economy.
According to the Ministry of MSMEs’ MSME at a Glance’ Report, the sector employs more than 80 million people and has 36 million units. Over 6,000 goods are produced in the industry, accounting for about 8% of GDP, 45% of total industrial output, and 40% of exports.
Classifications of Micro, Small and Medium Business
- Micro: Plant and machinery or equipment worth no more than ₹1 crore and an annual turnover of no more than ₹5 crores
- Small: Plant and machinery or equipment worth no more than ₹10 crore and an annual turnover of no more than ₹50 crores
- Medium: Plant and machinery or equipment costing no more than ₹50 crore, with a maximum annual revenue of ₹250 crores.
Number of MSMEs in Our Nation
India has the second-largest MSMEs globally, after China. The industry offers various services and produces over 6,000 products, ranging from traditional to high-tech. Thanks to the government’s ‘Make in India’ initiative and a push to attract more FDI, the Indian MSME sector is well-positioned for rapid expansion and integration with critical global value chains.
According to government estimates, the country has 63.05 million micro industries, 0.33 million small businesses, and 5,000 larger businesses. Uttar Pradesh has the most estimated MSMEs, accounting for 14.20% of all MSMEs. West Bengal is second with 14% of the vote, followed by Tamil Nadu and Maharashtra, both with 8%. COVID-19’s spread in India and the resulting lockdown have hampered national economic development and put businesses under financial strain. As a result, the government has announced that MSMEs will be defined differently.
How Do Msmes Contribute to the Indian Economy?
The Micro, Small, and Medium Enterprises (MSME) sector plays a pivotal role in driving employment generation with its labor-intensive nature, creating diverse job opportunities for both skilled and unskilled workers. Operating on a small scale, these businesses often hire from the local population, curbing unemployment and underemployment in specific regions. Here are few ways how an MSME contributes to the Indian economy:
Employment Boost
MSMEs generate jobs across regions, employing both skilled and unskilled workers. Their local operations help curb unemployment and underemployment.
Support Marginalised Groups
MSMEs focus on marginalized groups, especially women and economically challenged youth, create jobs, improving income distribution, and reduce poverty.
Industrial Growth
MSMEs drive industrial growth by introducing new products, services, and technologies. They also play a key role in the supply chain, supporting larger industries.
Entrepreneurial Support
Serving as a platform for budding entrepreneurs, MSMEs offer networking opportunities. Access to credit and insurance from various sources aids in establishing and sustaining businesses.
The MSME Annual Report for the fiscal year 2022-23 underscores the diverse economic activities undertaken by Micro, Small, and Medium Enterprises (MSMEs), playing a crucial role in generating substantial employment opportunities at lower capital costs. The distribution of MSMEs across various categories is detailed in the table below:
| Category of Activity | Estimated Number of MSMEs (in lakhs) |
| Manufacturing | 196.65 |
| Electricity | 0.03 |
| Trade | 230.35 |
| Other Services | 206.85 |
This distribution reflects the significant contribution of MSMEs across different sectors, showcasing their resilience and impact on employment and economic growth.
MSME Registration
MSMEs, or micro, small, and medium enterprises, are the backbone of every rising economy. The Indian government enacted the MSMED Act to stimulate and grow MSMEs via various subsidies, programs, and incentives. Udyog Aadhar MSME Registration is required to get advantages under the MSMED Act from the Central or State Governments and the Banking Sector.
Any business that falls into these categories is classified as a micro, small, or medium enterprise (MSME). MSME businesses are the backbone of every economy and a driving force behind economic progress, ensuring everyone benefits from growth. MSME businesses are frequently more labour-intensive than large corporations and provide excellent job opportunities at a low capital cost. MSME contributes a significant portion of India’s industrial output and exports.
As a result, India’s MSMED Act allows MSMEs to be promoted and developed through various incentives, programs, and subsidies. To take advantage of the MSMED Act’s benefits, proprietorships, partnership firms, limited liability partnerships, private limited companies, and public limited companies must register.
MSME Registration Has Its Benefits
The registration of a small business is not required by law. The MSME registration process in India is designed to benefit all companies. Businesses are eligible to benefit from the MSMED Act’s provisions. The Central Government provides various benefits, including quick approval of bank loans, lower interest rates, an Exemption under Direct Tax Laws, and legislative assistance.
State governments and union territories have created benefits and incentives for small businesses. Some of the benefits provided by the state government to MSMEs include the creation of specialised industrial estates, tax subsidies, electricity tariff subsidies, capital investment subsidies, and other assistance. The Centre and the State usually target their incentives and support packages at units registered with them, whether by law or otherwise.
The Banking Laws, Excise Law, and Direct Taxes Law have used MSME in their exemption announcements. As a result, the registering body’s registration certificate is proof of MSME status and must access MSMEs’ benefits.
The Economic Impact of MSMEs in India
When the Ministries of Small Scale Industries: https://msme.gov.in/ and Agro and Rural Industries merged in 1961, the Ministry of Micro, Small, and Medium Enterprises (M/o MSME) was formed.
MSMEs create a diverse range of products for domestic and international markets. MSMEs support the growth and development of the Khadi, Village, and Coir industries by collaborating with key ministries, state governments, and stakeholders.
The Government of India established the National Board for Micro, Small, and Medium Enterprises (NBMSME) under the Micro, Small, and Medium Enterprises Growth Act, 2006, to assess MSME promotion and development issues. This body also examines current policies and makes recommendations to the government on how to grow the MSME sector. Micro Small and Medium Enterprise (MSME) was coined to describe a critical component of the goods and services supply chain in rural India and a source of large-scale job opportunities.
What Are the Challenges That This Sector Faces?
The Micro, Small, and Medium Enterprises (MSME) sector confronts several challenges that impact its overall growth and sustainability. A predominant hurdle is the issue of insufficient financing, restricting access to funds necessary for adopting new technologies and building essential infrastructure. Here are some of the challenges majorly faced:
Insufficient Financing
- Limited access to funds hampers the adoption of newer technologies and essential infrastructure
- Financial constraints impede growth and competitiveness in the market.
Organisational Development Deficiency
- Lack of emphasis on organizational development leads to a dearth of streamlined structures and processes
- Inefficiencies hinder the sector’s ability to scale and navigate complex business environments.
Managerial Competence Gaps
- Inadequate managerial skills result in operational roadblocks
- Impact on decision-making processes, strategic planning, and overall business efficiency
- Competence gaps limit adaptability to dynamic market conditions.
What Are the Government Schemes Available to MSMEs?
Considering the role of this sector in the Indian economy, the central government, along with the RBI, has launched schemes to help the MSME entrepreneurs. A few notable initiatives are:
Financial Assistance Schemes
| Scheme Name | Description |
| Prime Minister’s Employment Generation Programme (PMEGP) | Empower entrepreneurs by providing financial assistance for starting micro-enterprises. |
| Credit Linked Capital Subsidy for Technology Upgradation (CLCSS) | Subsidizes capital investment for technology upgradation, enhancing MSME competitiveness. |
| Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) | Facilitates credit availability to MSMEs by providing a credit guarantee for collateral-free loans. |
| 2% Interest Subvention Scheme | Lowers the interest burden on timely repayment of loans, encouraging financial discipline among MSMEs. |
| ₹20,000 crore Subordinate Debt for stressed MSMEs | Addresses financial stress by providing subordinate debt for stressed MSMEs, supporting their revival. |
Skill Development and Training Initiatives
| Scheme Name | Description |
| Entrepreneurship and Skill Development Programme (ESDP) | Fosters entrepreneurship by providing skill development programs, enhancing the capabilities of MSMEs. |
| Technology Centres (Tool Rooms & Technology Development Centres) | Equips MSMEs with technical expertise through specialised technology centres. |
Infrastructure Support Programs
| Scheme Name | Description |
| Scheme of Fund for Regeneration of Traditional Industries (SFURTI) | Revives traditional industries by providing financial support and infrastructure development. |
| A Scheme for Promotion of Innovation, Rural Industry, and Entrepreneurship (ASPIRE) | Encourages innovation and entrepreneurship in rural areas, fostering MSME growth. |
| Micro & Small Enterprises Cluster Development (MSE-CDP) | Promotes the development of MSME clusters, enhancing collaboration and shared resources. |
| Promotion of MSMEs in NER and Sikkim | Focuses on fostering MSME development in the North Eastern Region (NER) and Sikkim. |
Technology Upgradation Initiatives
| Scheme Name | Description |
| Design Expertise to Manufacturing MSME sector | Enhances design capabilities to improve manufacturing processes in the MSME sector. |
| Lean Manufacturing Competitiveness Scheme (LMCS) | Promotes lean manufacturing practices, enhancing efficiency and competitiveness of MSMEs. |
| Digital MSME Scheme | Facilitates the adoption of digital technologies to boost competitiveness in the MSME sector. |
| Financial Support to MSMEs in ZED Certification Scheme | Supports MSMEs in obtaining Zero Defect Zero Effect (ZED) certification, ensuring product quality and sustainability. |
| Support for Entrepreneurial and Managerial Development of MSMEs through Incubators | Nurtures entrepreneurial and managerial skills through incubation programs for MSMEs. |
| Building awareness on Intellectual Property Rights (IPR) | Promotes awareness and understanding of Intellectual Property Rights (IPR) among MSMEs. |
| Credit Linked Subsidy for Technology Upgradation | Provides subsidies to MSMEs for upgrading their technology and staying competitive in the market. |
Procurement and Marketing Support
| Scheme Name | Description |
| Procurement and Marketing Support (PMS) Scheme | Assists MSMEs in marketing and procuring goods through financial support and guidance. |
| Public Procurement Policy (PPP) for MSEs Order, 2012 | Ensures a fair share of government procurement for MSMEs, promoting their participation in public projects. |
| Government e-Marketplace | Facilitates online procurement of goods and services, providing a platform for MSMEs to showcase their products. |
Web Services
| Scheme Name | Description |
| Udyam Registration | Simplifies MSME registration and documentation processes through the online Udyam Registration portal. |
| Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength (CHAMPIONS) Portal | Supports MSMEs through grievance redressal, information dissemination, and coordination on a single platform. |
| MSME Samadhaan Portal | Provides a platform for MSMEs to file delayed payment grievances and seek resolution. |
| MSME Sampark Portal | Facilitates networking and business collaborations among MSMEs, fostering growth and partnerships. |
Atmanirbhar Bharat Announcements
| Announcement | Description |
| ₹20,000 crores Subordinate Debt for Stressed MSMEs | Aims to alleviate financial stress by providing subordinate debt for stressed MSMEs, supporting their recovery. |
| ₹50,000 cr. Equity infusion for MSMEs through Fund of Funds | Enhances equity funding for MSMEs, fostering growth and innovation through the Fund of Funds initiative. |
| Global tenders disallowed up to ₹200 Crore | Promotes the ‘Atmanirbhar Bharat’ initiative by restricting global tenders, boosting opportunities for domestic MSMEs. |
| New Definition of MSMEs | Revises and simplifies the definition of MSMEs, promoting inclusivity and easier access to benefits for businesses. |
| ₹3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs | Facilitates easy access to collateral-free automatic loans, providing financial support to businesses and MSMEs. |
Conclusion
MSMEs are very important in the Indian economy. This industry has proven vital to the country’s economic growth, boosting exports and providing numerous job opportunities for the unskilled, recent graduates, and underemployed. It also increased the chances of banks giving additional loans to MSME businesses. To ensure the sector’s long-term viability, the government should pay special attention to the importance of MSME in providing more and more MSME Registration benefits by adopting better laws and enabling financial institutions to offer more credit at lower interest rates.
Frequently Asked Questions
How does MSME help the Indian economy?
MSMEs play a crucial role in the Indian economy by fostering entrepreneurship, generating employment, and promoting equitable development. They contribute significantly to GDP, export earnings, and industrial production, making them vital for economic growth, especially in rural and backward areas.
What is the contribution of SSI in the Indian economy?
Small Scale Industries (SSI) have historically been the backbone of the Indian economy, contributing significantly to employment generation, industrial output, and export earnings. Their decentralised nature helps in balanced regional development and reduces regional disparities, enhancing overall economic stability and resilience.
What is the role of SME in the Indian economy?
SMEs in India serve as the engine of growth by fostering innovation, increasing competitiveness, and enhancing productivity across various sectors. Their agility and adaptability to changing market dynamics contribute to economic diversification, fostering sustainable development and inclusive growth.
What is the conclusion of micro and small scale industries in India?
Micro and small-scale industries in India are instrumental in driving inclusive growth and fostering socio-economic development. They create employment opportunities, alleviate poverty, and empower marginalised communities, thereby contributing to poverty reduction and socio-economic inclusion, ultimately leading to a more equitable society.
How does SME contribute to the growth of a nation's economy?
SMEs contribute to a nation's economy by creating jobs, fostering innovation, and enhancing competitiveness. Their dynamic nature and ability to adapt to changing market conditions drive economic growth, increase productivity, and stimulate investment, leading to overall prosperity and development.
What is the growth of SMEs in India?
SMEs in India have witnessed substantial growth in recent years, fueled by favorable government policies, technological advancements, and increased access to finance. Their resilience and contribution to job creation, export earnings, and GDP make them integral to India's economic landscape and development agenda.
What are the problems of MSMEs in India?
MSMEs in India face numerous challenges, including limited access to finance, inadequate infrastructure, complex regulatory frameworks, and lack of skilled manpower. Addressing these challenges is crucial for unleashing their full potential and ensuring their sustainable growth and contribution to the economy.
Why is SME important in Asia?
SMEs are important in Asia due to their significant contribution to employment generation, economic growth, and poverty alleviation. They play a vital role in fostering innovation, enhancing competitiveness, and promoting inclusive development, making them essential drivers of sustainable economic progress in the region.
