Professional Documents
Culture Documents
ABSTRACT
As a driving force for economic growth and the promotion of fair development, micro and
medium-sized businesses (MSMEs) are recognised. The intensity of labour in the MSME
sector is significantly higher than that in big companies. MSMEs account for over 90 percent
of the total businesses in most nations and generate the greatest employment rates and
represent an important proportion of industrial and export production. In the overall
expansion of the country's industrial economy the MSMEs play a key role.The industry has
demonstrated outstanding innovativeness and flexibility with its agility and dynamism, to
withstand the current financial crisis and downturn, as well as many prospects for future
growth.
This report highlights MSMES' rise and highlights the possibilities for MSMES in the Indian
economy.
2
ECONOMICS
TABLE OF CONTENTS
RESEARCH METHODOLOGY 5
RESEARCH QUESTION: 5
REVIEW OF LITERATURE: 5
INTRODUCTION 7
MSMEs IN INDIA 8
EMPLOYMENT OPPORTUNITIES 8
DE-RESERVATION 9
TESTING LABORATORIES 10
COMPETITIVE TECHNOLOGY 10
EXPORT PROMOTION 11
INFRASTRUCTURAL DEVELOPMENT 11
ACCESS TO CREDIT 13
FUNDS OF FUND 14
3
ECONOMICS
OPPORTUNITIES 15
TECHNOLOGICAL DISRUPTION 18
REGULATORY CHOLESTEROL 18
PROBLEM OF SCALE 19
SUGGESTIONS 20
CLUSTER MANUFACTURING 20
CONCLUSION 22
REFERENCES 23
4
ECONOMICS
CHAPTER 1:
RESEARCH METHODOLOGY
RESEARCH QUESTION:
1. What are M SMEs and what is their role in the growth of Indian economy?
2. What are the challenges faced by MSMEs?
3. What are the benefits obtained by MSMEs?
4. What are the few suggestions to overcome the problems faced by the MSMEs?
REVIEW OF LITERATURE:
5
ECONOMICS
6
ECONOMICS
CHAPTER 2:
INTRODUCTION
Micro, SMEs are Indian economic development accelerators and contribute around 30% of
the country's gross domestic product (GDP). In terms of exports, they are part of the supply
chain and account for around 40% of total exports. MSMEs are also a big player in job
creation, with over 110 million employees throughout the country. Furthermore, it is
interesting to note that MSMEs have a relationship with the rural economy, since over half of
the MSMEs operate in rural India.
The Government of India has sometimes launched several programmes to promote this
sector's development in order to ensure that MSMEs continue to drive the country towards
economic prosperity. The government has launched numerous initiatives under the
'Aatmanirbhar Bharat' plan, that is, self-confidential India, because of the economic difficulty
caused by Covid 19. The MSME classification criterion was also updated accordingly. In
accordance with the new criterion, the combined variables for plant and machinery
investment and for 'turnover' are to be taken into consideration in order to decide whether a
micro, small or medium-sized company should be considered.In the past only investment in
plant and machinery was dependent on the categorization of an MSME unit, and also on
whether a company was in the manufacturing sector or in the services sector.
In accordance with the revised definition, different units are now categorised as below-
1. Micro-businesses - Less than 1 crore and less than 5 crore turnover
2. Small companies - Less than '10 crore investment and less than '50 crore turnover
3. Medium-sized companies - Less than 50 crore investment and less than 250 crore
turnover
The Government chose to take export turnover into consideration not in the aforementioned
turnover ceiling imposed for the MSME units as a move towards easy business in India.
7
ECONOMICS
CHAPTER 3:
MSMEs IN INDIA
The MSME sector has steadily achieved a greater growth rate in recent years compared to
India's total industry. The MSME Sector had an average growth rate of 13% in the first four
years of the XI Plan, a spectacular result compared with many other industries. The industry
employs about 59,7 million people distributed over 26,1 million companies, according to the
fourth Census of MSME. The value of the MSME sector accounts for around 45% of
production and approximately 40% of the country's overall export. The main benefit of the
sector is its cheap capital cost employment potential.
Setting up specific funds to promote, develop and enhance their competitiveness, reporting
schemes for this purpose, gradual credit policies and practising practises, preferences for
public procurement for micro-enterprise and small business products and services, better
mechanisms to address problems of delayed payments to micro and small businesses.1
The MSMED Act of 2006 aims to assist the growth of these companies and improve
their competitiveness. They will also be introduced to improve micro, small and
medium businesses. It provides the first legal framework to recognise the notion of
"company," which involves manufacturers and service providers alike. It specifies for
the first time medium-sized companies and tries to unify the three levels, i.e. micro,
small and medium-sized firms. The Law also establishes a national legislative
1
What is MSME? Meaning, Full Form, Features, Role & Importance in India Lendingkart,
https://www.lendingkart.com/msme-loan/what-is-msme/ (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
8
ECONOMICS
⮚ EMPLOYMENT OPPORTUNITIES
In India, the SSI sector provides India's greatest job possibilities second to agriculture
for the Indian population. It was projected that four people are employed via a lakh
investment rupee in fixed assets in the small sector. Not only does the MSME play an
important role when it comes to providing large jobs at a relatively low cost for
investment than large industries, but they also support rural and backward
industrialisation, thereby reducing regional imbalances and ensuring a fairer
distribution of national wealth and income. As auxiliary units, MSMEs support the
larger industries and contribute significantly to the economic and social growth of the
nation. In approximately 26 million units around the country, it is estimated that it
employs over 60 million individuals. Over 6000 goods are made by 35 MSMEs in
Germany, ranging from conventional to high technology products. It is generally
known that both self-employment and wage employment are offered the best
possibilities in the MSME sector outside agriculture. The MSME sector not only
helps increase the rate of economic growth, but also contributes in innumerable ways
to building an inclusive and sustainable society by creating low-cost livelihoods,
balanced regional development, gender and social balance, environmentally
sustainable development, and all that, recession proofing of economic growth, which
the sector has proven time and again.
The passage of the MSMED Act of 2006 removes the 24% limit on equity held by
industrial undertakings, domestically or externally, in MSEs and only defines MSEs.
2
Impact of FDI in multi-brand retail on MSMEs PRSIndia,
https://www.prsindia.org/report-summaries/impact-fdi-multi-brand-retail-msmes (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
9
ECONOMICS
⮚ DE-RESERVATION3
For the last 20 years, the question of de-reservation has been a topic of lively debate
inside the government. The Eleventh Five-Year Plan approach emphasises the harmful
effects of goods reservations for exclusive MSE production and proposes phased
de-establishment. In the last several years 654 products have been removed from a list
of items reserved for exclusive manufacture by micro and small companies in order to
allow additional investment for upgrading technology and greater productivity of
micro and small businesses. This has helped the sector in enlarging the scale of
operations and also paved the way for entry of larger enterprises in the manufacture of
these products in keeping with the global standards.
⮚ TESTING LABORATORIES
There are now numerous test laboratories in the nation, including micro units, that
provide test facilities to the industrial sector. Specialized test facilities are not
available in the nation for some high-end products, particularly leather products.
These facilities come from the international testing laboratories for exporting MSME
units. As such, new testing facilities in the nation need to be established. The creation
for cluster/industry concentration, district/major industrial sector of at least 100 n°
quality testing laboratory for MSMEs was proposed. This may be done in the Public
Private Partnership manner. There is also need for up gradation of existing Test
Laboratories under the Ministry.
⮚ COMPETITIVE TECHNOLOGY
3
DC-MSME Dcmsme.gov.in, http://www.dcmsme.gov.in/publications/reserveditems/resvex.htm (last visited Jul
15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
10
ECONOMICS
Technology has become more essential than ever in today's rapid speed global
business situation. The Government has built up dix state-of- the art tool rooms and
training centres to promote the expansion of the MSME sector throughout the country.
Through precise tools and the provision of skilled artisans in tool and die
manufacture, these Tool Rooms provide an essential service to India's industry. This
Tool Room is highly competent in technology for moulding and die-producing and
promotes accuracy and quality in the creation and production of advanced moulds,
dies and instruments.
In addition to the best technology, the Werkzeuge Rooms are also equipped with the
newest developments such as CAD and CAM, CNC tooling machining, vacuum heat
treatment, rapid prototyping and so on. The Tool Room and Training Centers also
provide different training programmes to accommodate the vast range of technical
personnel required in the industrial sector. The courses are developed with an ideal
combination of theory and practise to provide the apprentices with an insight into
actual work and work experience. The Tool Rooms also have designed specific
training programmes to suit the international criteria, which people from across the
world attend.
⮚ EXPORT PROMOTION4
A significant focus was given to the promotion of exports from the MSE sector. The
following facilities/incentives are offered to assist MSEs in the export of their
products:
1. MSE exporters' products are on display at international trade shows and
Government expenses shall be repaid;
2. Trainings on export packaging programmes are organised in various parts of the
country together with the Indian Packaging Institute to familiarise MSE exporters
with the most recent standards, techniques, etc.;
3. Assistance shall be granted to persons to participate in exhibits in the overseas
countries, in foreign study trips and tours of individuals as a member of a trade
4
DC-MSME Laghu-udyog.gov.in, http://laghu-udyog.gov.in/MSME-DO/ (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
11
ECONOMICS
⮚ INFRASTRUCTURAL DEVELOPMENT
12
ECONOMICS
CHAPTER 4:
BENEFITS OF OBTAINING MSMEs
One of the main advantages of registration as an MSME unit is that the invoices are
guaranteed to be paid within 45 days for micro- and small companies under the MSME Act.
In the event that payment is failed within 45 days, the purchaser is obliged to pay compound
interest at three times the bank rate established by the Reserve Bank of India on the amount
of the invoice to the MSME.5
Government and public sector firms have been requested to acquire 25% of their MSMEs'
demand, thereby providing an edge when applying for tenders. Other government advantages
are: collateral and guarantee-free loans, interest subsidies, market assistance and export
promotion programmes, power concessions, ISO certification fee refund, etc. Other benefits
offered by government include.
Taking into account the present economic environment, government fresh efforts to promote
the MSME sector have been launched. These include emergency financing initiatives, equity
support to promote MSME procurement, etc. The following are the most important schemes.
⮚ ACCESS TO CREDIT
Lending access was one of the MSMEs' main issues. The Government has launched
an urgent credit line for companies/MSMEs to handle this issue, which proposes that
banks/financial institutions approve credit of up to $3 billion. Under this programme
5
7 Benefits of MSME Registration in India Msmex.in,
https://www.msmex.in/learn/benefits-of-msme-registration-in-india/ (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
13
ECONOMICS
20 percent of the outstanding loans are guaranteed by the government at the cut-off
date of 28 February 2020 and banks can loan without further guarantees.
Because of the ongoing epidemic, developers are unable to provide equity capital to
the financial burden encountered by MSMEs. To aid the promoters, various
procedures regarding subordinate debt have been adopted by the government. The
subordinate debt programme is designed to offer support to the promoters by giving
up to 15% or '75 lakh debt, whichever is less. Under this arrangement, the banks can
finance the contribution of the promoter and the government guarantees funding. In
some respects, this is government equity assistance, while banks take no additional
risk. The promoter, in turn, will infuse the amount in the MSME unit as equity and
thereby enhance the liquidity and maintain debt-equity ratio.6
⮚ FUNDS OF FUND
The Government has established a fund programme with a capital of '10,000 crore' to
provide MSMEs with potential growth and viability financial assistance and finance.
This initial fund is run by a 'mother fund,' which will raise '50,000 crore' to a
householder's level.
A further good move is the creation of a portal completely dedicated to MSME. The
fundamental aim is to provide financial, raw materials, labour, permits and so on to
MSMEs. This portal also helps MSMEs explore new prospects, like the manufacture
and long-term identification of medical products and accessories, to discover MSMEs
with potential growth.
6
Benefits of MSME Registration - FundsTiger - Fast Loans for India FundsTiger - Fast Loans for India,
https://www.fundstiger.com/benefits-msme-registration/ (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
14
ECONOMICS
The government has instructed to settle sums owing to the government and public
sector entities within 45 days of acceptance of goods/services to enhance the liquidity
situation of the MSMEs.
As declared in Atma Nirbhar Bharat's package, the government has revised the
General Financial Regulation 2017 to reject worldwide government procurement
contracts till '200 crore. This courageous action is intended to provide domestic
players greater chances and allow the local sector to prosper from this initiative.
Around 5,600 crore ($750,000,000) of emergency response money has just been
awarded by the World Bank for the MSME sector. This offers much needed liquidity
and the government's policy of channelling cash to MSMEs through NBFCs and
small banks.
The World Bank is also collaborating with GOi to enable financing for as many
MSMEs as feasible on multiple Fintech platforms, the trade receivable system
(TReDS). With government attention continuing on MSMEs, its position as the Indian
economy's development engine would continue and millions of untrained and
semi-trained individuals across the country will find their jobs.
⮚ OPPORTUNITIES8
Because of the following considerations the potential within MSMES are huge:
1. Unintensive Capital
2. Extensive Promotion and Support by the Exclusive Manufacturing Government
3. project profiles
7
Global Tenders for value upto Rs, 200 Crores. Ongcindia.com, https://www.ongcindia.com (last visited Jul 15,
2021)
8
Benefits Of MSME Registration In India - Corporate/Commercial Law - India Mondaq.com,
https://www.mondaq.com/india/corporate-and-company-law/1037954/benefits-of-msme-registration-in-india
(last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
15
ECONOMICS
9
Benefits of MSME Registration In India TaxGuru,
https://taxguru.in/corporate-law/benefits-msme-registration-india.html (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
16
ECONOMICS
17
ECONOMICS
CHAPTER 5:
CHALLENGES PERTAINING TO MSMEs IN INDIA10
The major problem for MSMEs continues to be access to capital and their
development has been restricted. MSME bank financing has stagnated because
policymakers are unwilling to receive bad loans. MSMEs had dealt deeply with their
liquidity crash after the IL&FS crisis and its influence on the other NBFCs (Non Bank
Finance Companies).
Because of this, MSMEs are not able, because of a shortage of cash that is especially
disadvantageous in the struggle with global rivals, to invest in production, buy raw
materials on time, access new technologies or learn new skills.
⮚ TECHNOLOGICAL DISRUPTION
The MSME industry of India is dependent on outmoded technologies that hinder the
efficiency of its manufacturing. Data analysis, robotics and associated technology
(together known as Industry Revolution 4.0), which is emerging as new technologies
such as Artificial Intelligence, represents a greater challenge for SMEs than
large-scale manufacturing organisations.11
10
Challenges to MSME - Chamber of Indian Micro Small,
https://www.indiansmechamber.com/challenges_to_msme.php (last visited Jul 15, 2021)
11
Major Challenges Faced by the MSME Sector – SMEcorner Blog SMEcorner,
https://www.smecorner.com/major-challenges-faced-by-the-msme-sector/ (last visited Jul 15, 2021)
KIRIT P MEHTA SCHOOL OF LAW
18
ECONOMICS
⮚ REGULATORY CHOLESTEROL
⮚ PROBLEM OF SCALE
Mainly micro-enterprises are companies in MSMEs. A large number of little and local
stores comprise the MSM area and thus the increase is a concern, especially if access
to funds is problematic. The MSME area is a micro-space.
19
ECONOMICS
CHAPTER 6:
SUGGESTIONS
By using public procurement and project proposals, the government may play an
important role in building local production capacities. Megapublic projects such
Sagarmala, Bharatmala, industrial corridors and Pradhan Mantri Awas Yojana
(PMAY), for example, can encourage local production. The streamlining of the
regulatory procedure should be complemented by this.
⮚ CLUSTER MANUFACTURING
Disruptive technology also provides new work prospects, while contributing to job
losses in established industries. In order to recognise the changing industrial
requirements and prepare employees, a better connection between
government-industry-academies is needed.
The Industrial Revolution 4.0 will also strengthen Indian industrial supply networks.
KIRIT P MEHTA SCHOOL OF LAW
20
ECONOMICS
India has already done a number of actions that have made it much easier to operate in
India (the Indian rating easily rose from 142 in 2014 to 63 in 2020). India has already
taken many steps.
However, some changes, particularly in the fields of land, labour reform and contract
enforcement, are still needed.
21
ECONOMICS
CHAPTER 7:
CONCLUSION
Finally, the MSME industry in India is currently the doorway to global expansion with
competitive and high-quality products. Government support is nonetheless necessary in order
to reduce the transaction costs of upgrading technology, market penetration, infrastructure
modernization, etc. We examined the development of the Indian micro and medium
enterprise industries in the last 10 years in this study. In emerging nations, the MSME sector
has frequently been called the ‘growth engine.’
We start with an overview of this industry in India and take stock of certain new trends in the
Indian economy that underline the industry’s development and importance to it. In fixed
investment, production performance, job creation and export contributions we have evaluated
MSMES growth. Perhaps the most significant of these recent policy reforms is the MSME
Development Act of 2006. State spending and subsidies for this industry are policy of
interest. We spoke about jobs prospects, infrastructure development, laboratory testing,
foreign direct investment policy, de-reservation, competitive technology and MSME export
promotion. In addition, we have examined the prospects for improving MSMEs in the Indian
economy.
Factors such as export promotion, reservation policy, tools and technology, workforce
training, technology and management skills have offered huge development prospects and
increased economic performance. Also covered in the report was the key work area of the
12th five-year plan.
In conclusion, MSMEs in the Indian Economy showed enormous growth and performance
with the support of the policy framework to the growth and development of the MSMEs and
of effective actions made by the Government from time to time.
Financial crash will be easier for micro, small and medium-sized businesses (MSMEs)
through collateral-free support or government loan guarantees.However, the government
should devise this scheme in such a way that the issue of moral hazard can be averted.
KIRIT P MEHTA SCHOOL OF LAW
22
ECONOMICS
CHAPTER 8:
REFERENCES
23