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Micro small and Medium enterprises (MSME)

Micro, Small and Medium Enterprises (MSME)

  • The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 defines the sizes of the micro, small and medium enterprises in India, in Section 7 of the Act. As per the Act, the enterprises which produce or manufacture goods concerned with any industry that is specified in the First Schedule of the Industries (Development and Regulation) Act, 1951 can be defined as:
    • A micro enterprise if the investment in plant & machinery is under Rs.25 lakhs
    • A small enterprise if the machinery and plant investment is between Rs.25 lakhs and Rs. 5 crores
    • A medium enterprise if the said investment is between Rs.5 crores and Rs.10 crores.
  • The chief responsibility in promoting this industry lies with the state government. This sector employs about 60 million people in the country.

Benefits provided to MSMEs

  • Loans under the priority sector lending scheme.
  • 25% share in procurement by government and government-owned companies.
  • Promoters are allowed to bid for stressed assets under the insolvency law (unlike big companies).
  • Various government schemes and funds.

Significance of MSMEs

  • The significance of the MSMEs sector can be noted from the fact that it is the second-largest employment provider, after agriculture in India.
  • In India, at present, there are nearly 56 million such enterprises in various industries, employing close to 124 million people.
  • Of these, nearly 14% are women-led enterprises, and close to 60% are based in rural areas.
  • In all, the MSME sector accounts for 8% of India’s GDP and 45% of merchandise exports.
  • Due to this, the MSME sector is called the growth engine of the nation.

Issues faced by MSMEs | Micro small and Medium enterprises (MSME)

  • Access to credit: 90% of MSMEs are dependent on informal sources for funding due to lack of sufficient collateral and high capital needs.
  • Access to markets:
    • Low outreach and non-availability of new markets.
    • Lack of skilled manpower and ineffective marketing strategy.
    • Difficult for MSMEs to sell products to government agencies.
    • Competition from MNCs and other big industries.
  • Technology access: MSMEs, particularly in the unorganized sector, show lower adaptability of technology and innovation.
  • Quality and export: Low-quality products impact export competitiveness. Also, inadequate access to quality raw materials and the use of traditional machines causes low productivity.
  • Ease of doing business: Heavy government procedures and rules for establishing new units. Due to the bureaucratic delays in getting clearances and the poor litigation system, business becomes a slower process.

Solutions to the issues | Micro small and Medium enterprises (MSME)

  • Access to credit:
    • Launch of the 59-minute loan portal to enable easy access to credit for MSMEs. The loans up to Rs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes.
    • A 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.
    • All companies with a turnover of 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.
  • Access to markets:
    • Public sector companies have now been asked to compulsorily procure 25%, instead of 20% of their total purchases, from MSMEs. Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.
    • All public sector undertakings of the Union Government must now compulsorily be a part of government e-Marketplace (GeM). They should also get all their vendors registered on GeM.
  • Technology up-gradation:
    • 20 hubs and 100 spokes in the form of tool rooms will be established across the country to facilitate product design. A tool room is a room where tools are stored or, in a factory, space where tools are made and repaired for use throughout the rest of the factory.
  • Ease of doing business:
    • In order to simplify the government procedures, the return under 8 labour laws and 10 Union regulations must now be filed only once a year.
    • The establishments to be visited by an Inspector will be decided through a computerised random allotment.
  • Environmental Clearance under air pollution and water pollution laws have been merged into one. Also, the return will be accepted through self-certification.
  • For minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts but can correct them through simple procedures.

Share of MSMEs in India

  • The Micro, Small and Medium Enterprises occupies strategic importance in terms of output (about 45% of manufacturing output), exports (about 40% of the total exports) and employment (about 69 million persons in over 29 million units throughout the country) based on the Planning Commission, 2012.
  • It is observed worldwide that as income increases the share of the informal sector decreases and that of the formal SME sector increases.

Worldwide Trends in the SME Sector

  • Thailand – SMEs employ 60.7% of the population while contributing 38% to the GDP.
  • Japan – SMEs employ 70% of the wage earners and contribute 55% of the value-added.
  • China – SMEs contribute to over 68% of the exports – in the last 20 years created more SMEs than the total number of SMEs in Europe and the US combined.

Note: In China, an industrial SME is defined as having up to 2,000 employees, while a small business has less than 300 employees and medium-sized business has employees between 301 and 2,000.

Key announcements of Atma-nirbhar Bharat Abhiyan

  • Rs 3 lakh crore collateral-free automatic loans for MSMEs
  • Rs 50,000 crore equity infusion through MSME Fund of Funds
  • Rs 20 crore subordinate debt for MSMEs


Indian Economy

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