14 June 2024 – The Hindu

Role of the MSME Sector in the Growth of Indian Economy

What are MSMEs?

• About: Micro, Small and Medium-Sized Enterprises is what MSME stands for. MSMEs are companies that manufacture, prepare, and store commodities.
• These are categorised in general terms according to their annual turnover as well as the amount they invest in plant and machinery for manufacturing or service businesses.
• MSME Regulation in India: The Ministry of Micro, Small, and Medium Enterprises was established in 2007 via the merger of the Ministries of Small Scale Industries and Agro and Rural Industries.
• To help MSMEs and contribute to their expansion, this ministry creates policies, arranges programmes, and oversees their execution.
• The Micro, Small, and Medium Enterprises Development Act of 2006 defines the term “enterprise,” addresses a number of issues impacting MSMEs, and gives the Central Government the authority to increase MSME competitiveness. It also creates a National Board for MSMEs.

What Role Do MSMEs Play in India’s Economic Development?

• GDP Contribution and Employment Creation: MSMEs are the main engine of economic growth in India, accounting for 30% of the country’s GDP at the moment.
• Additionally, MSMEs require a lot of labour and are essential to the creation of jobs in a variety of industries. In India, they presently employ more than 11 crore people.
• For example, a large number of people are employed in the textile sector, which is dominated by small-scale businesses, in tasks like spinning, weaving, and making clothing.
• Contribution to Manufacturing Output: MSMEs, especially in the food processing, engineering, and chemical industries, provide a substantial contribution to the nation’s manufacturing output.
• For instance, 28% of India’s footwear exports come from the Agra footwear sector, which is mainly made up of MSMEs.
• Export Promotion: Approximately 45% of India’s overall exports are currently made up of MSMEs. India’s standing in the international commercial arena is bolstered by their wide choice of products, which frequently cater to niche markets.
• Small-scale craftsmen and businesses dominate the Indian handicraft industry, which has a worldwide market and brings in a sizable amount of money for the nation through exports.
• Rural Industrialization: MSMEs are essential to the advancement of inclusive growth and rural industrialization.
• The small-scale businesses that make up the Khadi and Village industries sector have played a crucial role in empowering local people and creating jobs in rural areas.
• Innovation and Entrepreneurship: The MSME sector encourages innovation and entrepreneurship since small enterprises frequently find it easier to develop new goods and services and adjust to shifting market conditions.
• For example, the third-largest startup ecosystem globally, in India, is mostly powered by MSMEs and has produced a plethora of creative solutions in a variety of industries, including fintech and e-commerce.

Which are the main MSMEs-related government initiatives in India?

• Pradhan Mantri MUDRA Yojana: It offers small and micro businesses that are not corporations or farms loans of up to Rs. 10 lakh. These loans fall under the MUDRA loan category.
• Credit Guarantee Schemes: To reduce risk for banks and other financial institutions and facilitate MSMEs’ access to credit, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offers credit guarantee schemes.
• The Micro and Small Enterprise Facilitation Council oversees MSME SAMADHAAN, an online Delayed Payment Monitoring System that allows MSMEs (Micro, Small and Medium Enterprises) to file complaints and obtain references regarding delayed payments. The system also allows MSMEs to track their case status online.
• Government e-Marketplace (GeM): MSMEs can access a larger market by using this online platform to assist public procurement.
• Udyam Registration: An easier way for MSMEs to sign up online and take advantage of government programmes and advantages.
• CHAMPIONS Portal: This ICT-driven control room and management information system aims to strengthen the nation’s economy and productivity by using cutting-edge procedures.
• It seeks to resolve the problems faced by Indian MSMEs and offer direction, support, and help along the route in order to help them become National and Global CHAMPIONS.

 Which are the Main Obstacles for MSME?

• Insufficient Financial Access: Even with government initiatives such as Mudra loans, MSMEs still face significant difficulties in acquiring credit.
• Their lack of collateral and credit history make them look like high-risk borrowers to traditional banks.
• This limits their capacity to make investments in working capital, innovation, and expansion.
• Delayed Payments: The problem of larger businesses or government agencies paying MSMEs late is one of their biggest obstacles.
• This may put a significant burden on their cash flow and working capital, making it more difficult for them to run efficiently.
• Delays in payment for goods or services given can put a small supplier or contractor in danger of serious financial troubles and disrupt their business operations.
• Restricted Skilled Workforce: A lot of MSMEs have trouble finding employees who possess the abilities needed to operate sophisticated equipment or introduce new technologies. Reduced product quality, production delays, and inefficiencies may result from this.
• Restricted Branding and Outreach: MSMEs frequently lack the means and know-how to sell their goods and raise brand awareness. This makes it challenging to compete, particularly in the internet industry, with bigger businesses or well-known brands.
• Infrastructure Restrictions: Inadequate infrastructure can seriously impede the operations and expansion of MSMEs. Examples include inadequate road connectivity, unstable power supplies, and restricted access to contemporary facilities.
• Poor road conditions can make it difficult for a small food processing business in a remote area to get its products to markets, and an unstable power supply can cause frequent production disruptions.

 The Way Ahead:

• MSME Innovation centres: Creating online or offsite centres for MSME innovation. These centres may serve as a conduit between MSMEs and researchers, industry professionals, and mentors.
• They would make it easier to exchange knowledge, work together to create cutting-edge goods, and gain access to cutting-edge technology or design know-how.
• A design specialist at the hub can work with an MSME garment maker to create a new range of clothing, encouraging creativity and differentiating themselves in the market.
• Blockchain-Powered Smart Contracts: By combining smart contracts with blockchain technology, MSMEs’ payment cycle can be completely transformed.
• To enable safe and transparent transactions between MSMEs and their clients—larger businesses or government agencies—a blockchain-based platform might be created.
• AI-powered mentoring Programmes: Creating an AI-powered mentoring programme that offers MSMEs individualised direction and counsel according to industry data and their particular needs.
• This can decrease the access gap to mentorship, particularly for MSMEs located in remote areas.
• Embracing Digital Transformation: To be competitive in the digital age, MSMEs need to adopt technology.
• This include using digital marketing techniques, automating and digitising processes, and utilising e-commerce platforms.
• This change can be fueled by initiatives like digital literacy campaigns, upskilling programmes, and incentives for adopting new technologies.
• Promoting Sustainable Entrepreneurship: MSMEs can benefit the environment and society by being encouraged to adopt sustainable and socially conscious business practices.
• This can involve encouraging the use of renewable energy sources, encouraging green entrepreneurship, and supporting eco-friendly production techniques.
• Navigating the Global Market: MSMEs should be prepared to access foreign markets given the increasing trend of globalisation.
• MSMEs can get assistance navigating the challenges of international trade through programmes including export promotion, international trade facilitation centres, and mentorship from successful exporters.