A comprehensive review of MSMEs in India

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Context: Recently, the Indian Prime Minister announced a
number of measures to make it easier for micro, small and medium enterprises
(MSMEs) to access credit.

What are Micro, Small and Medium Enterprises?

According to Micro, Small and Medium Enterprises Development (MSMED) Act, 2006,
there are two categories of MSMEs in the country – manufacturing and services. For
the manufacturing sector, the definition of an MSME is based on a company’s capital
investment in plant and machinery. For the services sector, the definition of an MSME
is based on a company’s investments in equipment.

MSMEs in India: Statistics

As per the National Sample Survey (NSS) 73rd round (2015-16), there were
633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in
different economic activities
31% MSMEs were found to be engaged in Manufacturing activities, while 36%
were in Trade and 33% in Other Services.
Out of 633.88 estimated number of MSMEs, 324.88 lakh MSMEs (51.25%) were
in rural area and 309 lakh MSMEs (48.75%) were in the urban areas
The Micro sector accounts for more than 99% of total estimated number of
MSMEs. Small sector with 3.31 lakh and Medium sector accounts for 0.52% and
0.01% of total estimated MSMEs, respectively.
State of Uttar Pradesh had the largest number of estimated MSMEs with a share
of 14.20% of MSMEs in the country.

Role of MSME in Indian economy

Contribution to GDP: MSMEs contribute around 6.11% of the manufacturing GDP

and 24.63% of the GDP from service activities as well as 33.4% of India’s
manufacturing output. Further, the sector has consistently maintained a growth
rate of over 10%.
Leveraging Exports: MSMEs contribute around 45% of the overall exports from
India.

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 Employment Opportunities: Since the enterprises falling in this sector require low
capital to start the business, it creates huge employment opportunities for many
unemployed youths. MSMEs provide employment to around 120 million persons
Fostering Inclusive Growth: MSME is constructing inclusive growth in numerous
ways through promoting non- agricultural livelihood at least cost, unbiased
regional development, large female participation, and providing a protection
against deflation.

Issues/ Problems faced by MSMEs in India:

Access to Credit: According to Economic Survey (2017-18), MSME sector faces a

major problem in terms of getting adequate credit for expansion of business
activities. The Survey had pointed out that the micro, small and medium
enterprises (MSME) received only 17.4 per cent of the total credit
outstanding.Most banks are reluctant to lend to MSMEs because from the
perspective of bankers, inexperience of these enterprises, poor financials, lack of
collaterals and infrastructure.
Poor Infrastructure: With poor infrastructure, MSMEs’ production capacity is
very low while production cost is very high.
Access to modern Technology: The lack of technological know-how and financial
constraints limits the access to modern technology and consequently the
technological adoption remains low.
Access to markets: MSMEs have poor access to markets. Their advertisement and
sales promotion are comparatively weaker than that of the multinational
companies and other big companies. The ineffective advertisement and poor
marketing channels makes it difficult for them to compete with large companies.
Legal hurdles: Getting statutory clearances related to power, environment, labour
are major hurdles. Further, laws related to the all aspects of manufacturing and
service concern are very complex and compliance with these laws are difficult.
Lack of skilled manpower: The training and development programs in respect of
MSME`S development has been inadequate. Thus, there has been a constant
crunch of skilled manpower in MSMEs

Legal provisions:

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006:
It governs the coverage and investment ceiling of MSMEs in India.
In February 2018, Union cabinet approved amendment to Section 7 of the Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006 for classifying
MSMEs from current investment in plant and machinery criteria to annual
turnover criteria.

New Classification:

A micro enterprise will be defined as a unit where the annual turnover does not
exceed five crore rupees;
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 A small enterprise will be defined as a unit where the annual turnover is more
than five crore rupees but does not exceed Rs 75 crore;
A medium enterprise will be defined as a unit where the annual turnover is more
than 75 crore rupees but does not exceed Rs 250 crore.
Additionally, the Central Government may, by notification, vary turnover limits,
which shall not exceed thrice the limits specified in Section 7 of the MSMED Act

Steps taken:

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE): Ministry
of MSME and Small Industries Development Bank of India (SIDBI), established a
Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) to implement Credit Guarantee Fund Scheme for Micro and Small
Enterprises and provide financial assistance to MSMEs. The corpus of CGTMSE is
being contributed by GoI and SIDBI
A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship
(ASPIRE): It aims to set up a network of technology centers, incubation centres to
accelerate entrepreneurship and also to promote start-ups for innovation and
entrepreneurship in rural and agriculture based industry
Micro & Small Enterprises Cluster Development (MSE-CDP): It aims to support
the sustainability and growth of MSEs by addressing common issues such as
improvement of technology, skills and quality, market access, access to capital,
etc.
National Manufacturing Competitiveness Programme: The objective is to develop
global competitiveness among Indian MSMEs. This programme targets at
enhancing the entire value chain of the MSME sector.
SFURTI-SI (Scheme of Fund for Regeneration of Traditional Industries, Credit
Guarantee Scheme): The scheme aims to organize the traditional industries and
artisans into clusters to make them competitive and provide support for their
long term sustainability and economy of scale
Prime Minister’s Employment Generation Programme (PMEGP): The major
objective is to generate employment opportunities in rural as well as urban areas
of the country through setting up of new self- employment ventures/ projects/
micro enterprises.
Udyog Aadhaar Memorandum (UAM): It is a simple one-page registration form
aimed at easing out registration process.
MSME SAMADHAAN:The Ministry of MSME launched a portal
samadhaan.msme.gov.in. to facilitates MSEs to file their delayed payments
related complaints online.
Market assistance Scheme: It aims to help MSMEs to participate domestic and
international exhibitions/trade fairs etc.

Recent Measures:

Support and Outreach Initiative for MSME Sector:

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 59-minute loan portal (loans up to 1 crore) to enable easy access to credit for
MSMEs.
2% interest subvention for all GST registered MSMEs, on fresh or incremental
loans.
increase in interest rebate from 3% to 5%, for exporters who receive loans in the
pre-shipment and post-shipment period
All companies with a turnover more than Rs. 500 crore, must now compulsorily
be brought on the Trade Receivables e-Discounting System (TReDS). Joining this
portal will enable entrepreneurs to access credit from banks, based on their
upcoming receivables.
public sector companies have been asked to compulsorily procure 25%, instead of
20% of their total purchases, from MSMEs. Out 25% procurement mandated from
MSMEs, 3% must now be reserved for women entrepreneurs.
Technology upgradation: 20 hubs to be formed across the country, and 100
spokes in the form of tool rooms to be established.

Way Forward:

Government of India and banks should design plans and measures to widen easy,
hassle-free access to credit.
The RBI should bring stringent norms for Non-Performing Assets (NPA) and it
will help curbing loan defaulters and motivate potential good debts. Further,
according to critics, the Credit Guarantee Scheme for MSME (CGTMSE) run by
SIDBI is a growing contingent liability and needs to be examined with urgency
Government should provide enhanced development and upgradation of existing
rail & road network and other infrastructure facilities in less developed and rural
areas to boost growth and development of MSMEs
There should proper research and development in respect of innovative method
of production and service rendering. Further, the government should promote
and subsidise the technical know-how to Micro and small enterprises.
Government should encourage procurement programme, credit and performance
ratings and extensive marketing support to revive the growth of sick units.
Skill development and imparting training to MSME workers is a crucial step to
increase the productivity of the sector. The government should emphasise
predominantly on skill development and training programs.

By: Priyank Kishore

Profile Resources

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