What is MSME? What is its importance, discussion on the problems of MSME
Full-Form Of MSME – Micro, Small, and Medium Enterprises.
Worldwide, MSMEs have been acknowledged as engines of economic growth and for promoting equitable growth.
These constitute over 90% of total enterprises in most economies and are credited with generating the highest rates of employment growth.
With low investment requirements, operational flexibility, and the ability to develop suitable indigenous technology, SMEs have the power to take India to new heights.
Hence, it seems that a silent revolution is taking place in India driven by MSMEs.
Importance of MSMEs to the Indian Economy
Employment: It is the second-largest employment generating sector after agriculture. It provides employment to about 120 million people in India.
Contribution to GDP: With 36.1 million units in the country’s geographical spread, MSMEs contribute 6.11% of manufacturing GDP and 24.63% of GDP from service activities. Ministry of MSME has contributed up to 50% of GDP in India by 2025 The target of making a 5 trillion economy has been set.
Exports: It contributes about 45% of the total exports from India.
Inclusive growth: MSMEs promote inclusive growth by providing employment opportunities in rural areas, especially to the weaker section of society.
For example, Khadi and rural industries require less per capita investment and provide employment to a large number of women in rural areas.
Financial Inclusion: Small industries and retail businesses in Tier-II and Tier-III cities create opportunities for people to access banking services and products.
Promote innovation: It provides an opportunity for budding entrepreneurs to create creative products that promote business competitiveness and fuel growth.
Thus, the Indian MSME sector is the backbone of the national economic structure and acts as a bulwark for the Indian economy, providing resilience to overcome global economic shocks and adversities.
MSME redefined
The Micro, Small, and Medium Enterprises Development (Amendment) Bill, 2018 proposes to revamp all MSMEs, whether manufacturing or service providing enterprises, on the basis of their annual turnover.
The bill was introduced in the Lok Sabha and referred to the Standing Committee which submitted its report on 28 December 2018.
Benefits of the proposed reclassification
Benefits of proposed reclassification: The new classification will eliminate the need for frequent inspections that were earlier required to check investments in plants and machinery.
It will be a non-discriminatory, transparent, and objective criterion.
These factors led to the growth of MSMEs. Definitely push.
Digitization: Increase in Internet penetration, customer familiarization with digital payments fueled by B2C e-commerce players leads to growth in the MSME sector.
Tie-ups with new-age non-banking finance (fintech) companies allow MSMEs access to collateral-free finance in a timely manner.
Changing employment patterns: The younger generation is moving from agriculture to entrepreneurial activities, it is creating employment opportunities for others.
Government schemes to promote MSMEs
- Udemy Mitra Portal: Launched by SIDBI to improve access to credit and handholding services to MSMEs.
- MSME Sambandh: To oversee the implementation of public procurement from MSMEs by Central Public Sector Enterprises.
- MSME Samadhaan -MSME Delayed Payment Portal — will empower Micro and Small Entrepreneurs across the country to directly register cases related to delayed payments by Central Ministries/Departments/CPSEs/State Governments.
- Digital MSME Scheme: It involves the use of Cloud Computing where MSMEs access the Internet as well as tailor-made IT infrastructure.
- Prime Minister Employment Generation Programme: It is a credit-linked subsidy program under the Ministry of MSME.
- Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI): Organizes traditional industries and artisans into clusters and makes them competitive by enhancing their marketability and equipping them with better skills.
- A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) Creates new jobs and reduces unemployment, Promotes entrepreneurial culture, Promoting innovative business solutions, etc. gives convenience.
- National Manufacturing Competitiveness Program National Manufacturing Competitiveness Program (NMCP): To develop global competitiveness among Indian MSMEs by improving their processes, design, technology, and market access.
- Micro & Small Enterprises Cluster Development Program Micro & Small Enterprises Cluster Development Program (MSE-CDP) – adopts the approach of the cluster development to enhance productivity and competitiveness as well as capacity building of MSEs.
- Credit Linked Capital Subsidy Scheme Credit Linked Capital Subsidy Scheme (CLCSS) – Credit Linked Capital Subsidy Scheme (CLCSS) is operational for the up-gradation of technology for MSMEs.
Other recent initiatives to promote MSMEs
In June 2019, an RBI committee headed by former SEBI chairman UK Sinha suggested a stressed asset fund of Rs 5,000 crore for the MSME sector, to provide relief to small businesses suffering from demonetization, GST, and a liquidity crisis.
It has recommended doubling the cap on collateral-free loans from the current Rs 10 lakh raised for borrowers covered under Mudra Yojana, Self Help Groups, and MSMEs.
In the MSME Ministry in June 2019 announced the lifting of restrictions on the entry of corporates and private players into the MSME sector, to pave the way for the creation of 700 clusters to reduce dependence on imports as well as for employment generation.
The MSME ministry is planning to set up enterprise facilitation centers across the country to make small businesses more competitive and help them integrate with larger enterprises.
Therefore, the government should continue to make concerted efforts for the holistic development of MSMEs in key areas such as human capacity development, knowledge services, access to finance, technology, infrastructure, market access, and ease of doing business.
International Experiences
According to the World Bank, formal SMEs contribute to 60% of total employment and up to 40% of national income (GDP) in emerging economies.
600 million jobs will be needed over the next 15 years to absorb the growing global workforce, mainly in Asia and sub-Saharan Africa.
In emerging markets, the majority of formal jobs are generated by SMEs, creating 4 out of 5 new positions.
However, access to credit remains a major problem for the MSME sector globally.
In a globalized world, it is imperative to enable MSMEs to adapt and grow in a more open environment and participate more actively in digital transformation, promoting economic growth and providing for more inclusive globalization.
Way Forward
Today enterprises need to adopt best practices and adhere to international standards to offer innovative solutions.
The focus should be on the transfer of information and skill development so as to use the transferred technology effectively.
There is an urgent need for any enterprise to upgrade the infrastructure utilities (like water, electricity supply, road/rail) to run its operations successfully.
Entrepreneurs need to develop a quality-conscious mindset embedded in the organizational culture.
The need of the hour is to sensitize and steer MSMEs to various and advanced levels of certification.
Finally, as suggested by the India MSME Report 2018, we need an entitlement approach that has the ability to force all relevant stakeholders to work on solutions under a common national agenda and a scientifically structured framework. This approach calls for the identification and analysis of key security threats to MSMEs and grassroots entrepreneurship.
