Small but Mighty: Unveiling the Significance of MSMEs

Micro, Small, and Medium Enterprises (MSMEs) have become a crucial component of the Indian economy. This sector contributes significantly to India’s Gross Domestic Product (GDP), generating job opportunities, and boosting sustainable economic growth. Understanding the significance of MSMEs is crucial, especially with the current state of the Indian economy.

In this article, we unveil the importance of MSMEs, how they contribute to India’s economy, the challenges they face, and the policy changes that can improve this sector.

What is MSME?

Micro, Small, and Medium Enterprises (MSMEs) encompass a broad spectrum of businesses classified based on their investment, turnover, and employment size. In India, what is MSME, businesses that invest less than Rs. 1 crore, with turnover less than Rs. 5 crores, and with employees not exceeding 10 are classified as micro-enterprises. Small enterprises are those that invest less than Rs. 10 crores, with a turnover of less than Rs. 50 crores and not exceeding 50 employees. Medium enterprises are those that invest less than Rs. 50 crores, with a turnover of less than Rs. 250 crores, and not exceeding 250 employees. Understanding what MSME means is pivotal for governments, policymakers, and entrepreneurs in fostering economic growth and employment opportunities.

MSMEs Contribution to Indian Economy

MSMEs contribute significantly to India’s economy in terms of employment generation, industrial output, and exports. According to the Ministry of MSMEs, this sector employs approximately 120 million people in approximately 63 million units spread across the country. MSMEs produce over 6,000 products ranging from traditional to high-tech manufacturing. They are responsible for generating up to 30% of India’s industrial output and more than 45% of India’s total exports.

In terms of employment, MSMEs are capable of generating huge opportunities, especially for individuals with specific skill sets. They often lay the foundation for a skilled workforce in specific sectors, such as electronic equipment, plastic, and food processing, among others.

Moreover, MSMEs play a critical role in promoting entrepreneurship, innovation, and fostering technological advancement. They serve as breeding grounds for young entrepreneurs to showcase their innovative skills and establish a niche for themselves in the industry.

Challenges Facing MSMEs

Despite the significant role of MSMEs in the economy, they face several challenges that limit their growth and sustainability. One of the most significant challenges is difficulty in accessing finance, market, and technology – often referred to as the “3Ms.”

The Indian banking system is not yet fully equipped to cater to the MSMEs, making it hard for them to access credit facilities. Although there are several schemes for MSMEs that aim to address this problem, the benefits of these schemes are impeded by the strict regulatory environment and technophobia of some entrepreneurs.

The second major challenge faced by MSMEs is the lack of access to markets. These businesses often struggle to secure market share and survive in the competition since the market is dominated by large corporations and established businesses. Unlike the large and established entities, MSMEs find it hard to market their products easily. They need dedicated market support, and technology-enabled platforms to promote their products and reach the target market.

Another significant challenge faced by MSMEs is the lack of access to technology. With the inconsistent power supply, unreliable internet connection, and an unorganized startup culture, MSMEs struggle to implement and use the latest technologies to boost productivity, efficiency, and quality improvement.

Policy Changes to Improve MSMEs

The government of India has launched numerous policy initiatives to support and improve the growth and development of MSMEs. The key policies that have been enacted include the MSME Development Act in 2006, the National Policy for MSMEs in 2009, and the Micro Units Development Refinance Agency (MUDRA) Bank in 2015.

The implementation of the Goods and Services Tax (GST) has also helped to formalize and encourage the growth of MSMEs. The introduction of GST has simplified the tax regime, removed multiple taxes levied by different state governments and brought in connected small businesses into the tax net.

Moreover, in 2018, the government introduced an online platform called the Champions, to offer a solution to all the queries and grievances of MSMEs. The MSMEs can report their issues related to finance, marketing, and technology online, and the platform would ensure the quick resolution of these issues.

Conclusion

In conclusion, MSMEs are a crucial component of India’s economy. They generate employment opportunities, promote entrepreneurship, and contribute significantly to the country’s economic growth. However, they face numerous challenges that hinder their growth and sustainability. Through intensive policy initiatives, the government can support MSMEs to overcome these challenges and reach their full potential. Improving access to finance, technology, and market publicity will play a critical role in bolstering the growth of MSMEs in India and positively impacting the economy.