Advantage India
Sector
Overview
* The number of MSMEs in India increased by a CAGR of 18.5% from 2019 to 2020.
* In FY21, the loan disbursals to MSMEs stood at Rs. 9.5 trillion (US$ 128.06 billion), a 40% increase compared with Rs. 6.8 trillion (US$ 91.66 billion) in FY20.
Statutory
Bodies
* The MSME Ministry heads five statutory bodies—KVIC, Coir Board, NSIC, NI-MSME and the MGIRI
* These bodies are responsible for aiding MSMEs with respect to government schemes and policies
Government
Schemes
* In November 2021, the Indian government launched the Special Credit Linked Capital Subsidy Scheme (SCLCSS) for the services sector. This scheme will help enterprises in the services sector meet various technology requirements.
policy
Support
* In July 2021, the Indian government announced inclusion of retail and wholesale trades as MSMEs to strengthen the sector and boost economic growth.
* Budget allocation for MSMEs in FY22 more than doubled to Rs. 15,700 crore (US$ 2.14 billion) vis-à-vis Rs. 7,572 crore (US$ 1.03 billion) in FY21.
Introduction
The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country. In India, the sector has gained significant importance due to its contribution to Gross Domestic Product (GDP) of the country and exports. The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.
According to the provisions of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two classes i.e., Manufacturing Enterprises and Service Enterprises.
The enterprises are further categorized based on investment in equipment and annual turnover.
|
Criteria |
Manufacturing |
Service |
||
|
Turnover |
Investment |
Turnover |
Investment |
|
|
Micro |
Rs. 5 crore (US$ 0.6 million) |
Less than Rs. 25 lakh (US$ 0.03 million) |
Rs. 5 crore (US$ 0.6 million) |
Less than Rs. 10 lakh (US$ 0.01 million) |
|
Small |
Rs. 50 crore (US$ 6.8 million) |
More than Rs. 25 lakh (US$ 0.03 million) but less than Rs. 5 crore (US$ 0.6 million) |
Rs. 50 crore (US$ 6.8 million) |
More than Rs. 10 lakh (US$ 0.01 million) but less than Rs. 2 crore (US$ 0.3 million) |
|
Medium |
Rs. 250 crore (US$ 34 million) |
More than Rs. 5 crore (US$ 0.6 million), but less than Rs. 10 crore (US$ 1.4 million) |
Rs. 250 crore (US$ 34 million) |
More than Rs. 2 crore (US$ 0.3 million) but does not exceed Rs. 5 crore (US$ 0.6 million) |
Market Size
The BSE SME (small and medium enterprises) platform is expected to witness >60 SMEs to enter the market in one year (2021-22) to bring up equity funds for meeting their business requirements. The initial public offering (IPO) route witnessed 16 SMEs enter the market; they raised Rs. 100 crore (US$ 13.74 million) in 2020. In June 2021, Bombay Stock Exchange (BSE) announced that it has collaborated with Electronics and Computer Software Export Promotion Council (ESC) to build awareness among small businesses and start-ups about advantages of listing.
MSMEs are being encouraged to market their products on the e-commerce site, especially through Government e-Marketplace (GeM), owned and run by the government, wherefrom Ministries and PSUs (public sector undertakings) source their procurement.
As of November 2022, the GeM portal has served 12.28 million orders worth Rs. 334,933 crores (US$ 40.97 billion) from 5.44 million registered sellers and service providers for 62,247 buyer organisations.
As per data from the Ministry of Micro, Small & Medium Enterprises, as of November 25 2022, the Udyam Registration portal registered 12,201,448 MSMEs, replacing the former process of filing for a Udyog Aadhaar Memorandum (UAM). Registered micro-enterprises stood at 11,735,117 (96.17%), followed by small enterprises at 426,864 (3.49%) and midsized enterprises at 39,467 (0.32%).
Domestic business requires a strong financial stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes.
Indian Micro, Small and Medium Enterprises (MSMEs) are rapidly adopting digital payments over cash, with 72% payments done through the digital mode compared with 28% cash transactions. Rise in digital adoption presents prospects for further growth in the sector.
Statutory Bodies
MSME Ministry has four statutory bodies namely, Khadi and Village Industries Commission (KVIC) who is responsible for promoting and developing khadi and village industries for providing employment opportunities in rural areas, thereby strengthening the rural economy, Coir Board in charge of promoting overall development of the coir industry and improving living conditions of workers in this industry, National Small Industries Corporation Limited (NSIC) responsible for promoting, aiding and fostering growth of micro and small enterprises in the country, generally on commercial basis, National Institute for Micro, Small and Medium Enterprises, (NI-MSME) in-charge of enterprise promotion and entrepreneurship development, enabling enterprise creation, performing diagnostic development studies for policy formulation, etc. and lastly, Mahatma Gandhi Institute for Rural Industrialisation (MGIRI) responsible for accelerating rural industrialisation for sustainable village economy, attract professionals and experts to Gram Swaraj, empower traditional artisans, encourage innovation through pilot study/field trials and R&D for alternative technology using local resources. New online system of MSME/Udyam Registration launched by the Union MSME Ministry, w.e.f. July 01, 2020, successfully registered >1.1 million MSMEs until November 2020. In June 2021, the Ministry of Micro, Small and Medium Enterprises extended the validity of Udyog Aadhaar Memorandum from March 31, 2021, to December 31, 2021.
Government Policies
The Government of India has designed various policies for the growth of MSMEs in the country.
- As on July 8, 2022 the number of loans sanctioned under the Pradhan Mantri MUDRA Yojana (PMMY) scheme was 10.03 million and the amount disbursed was Rs. 73,199.89 crore (US$ 9.15 billion).
- In the Union Budget of 2022-23 MSMEs sector was allocated an Emergency Credit Line Guarantee Scheme (ECLGS) of Rs. 50,000 crore (US$ 6.55 billion).
- On March 30 2022, the Indian government allocated Rs. 6,062.45 crore (US$ 808 million) for the scheme Raising and Accelerating MSME Performance (RAMP). The programme aims to improve market and credit access, strengthen institutions and governance at the centre and state levels, improve centre-state connections and partnerships, resolve late payment difficulties, and green MSMEs.
- In November 2021, the Indian government launched the Special Credit Linked Capital Subsidy Scheme (SCLCSS) for the services sector. This scheme will help enterprises in the services sector meet various technology requirements.
- In November 2021, the Ministry of Micro, Small and Medium Enterprises launched SAMBHAV, a national-level awareness programme to push economic growth by promoting entrepreneurship and domestic manufacturing.
Recent Developments
Major Recent Developments in the MSMEs include:
- In June 2022, the central government announced a new initiative called "Promotion of MSMEs in North Eastern Region and Sikkim." The main purpose of this project was to stimulate MSMEs in the North East by establishing mini-technological centres, developing new and existing industrial estates, and promoting tourism.
- In November 2021, the Small Industries Development Bank of India (SIDBI) inked a pact with Google to pilot social impact lending with financial assistance up to Rs. 1 crore (US$ 133,939.60) at subsidised interest rates to micro enterprises. To reinvigorate the Indian MSME sector, Google India Pvt. Ltd. GIPL, will bring a corpus of US$ 15 million (~Rs. 110 crore) for micro enterprises as a crisis response related to COVID-19.
- In November 2021, digital freight forwarder Freightwalla, launched a shipment tracking service for MSME exporters and importers based on predictive analytics to help businesses tackle risks associated with shipment delays and improve supply chain efficiency.
- In November 2021, Cashinvoice, a supply chain financing (SCF) platform, announced that it will aid MSMEs with over Rs. 10,000 crore (US$ 1.33 billion) worth of financing in the year ahead, as it has raised Pre-Series A funding of US$ 1 million from Accion Venture Lab.
- In October 2021, Sundaram Finance and the MSME Development Institute (Chennai), provided marketing assistance to MSMEs. Entrepreneurial and managerial development of MSMEs will be done through an incubator scheme, that will give innovators opportunities to develop and nurture ideas for the production of new products.
- In September 2021, Aerospace Engineers Private Limited, a Tamil Nadu-based MSME, secured a contract from Boeing to produce and supply critical aviation components.
Achievements in the Sector
The Ministry of MSME runs numerous schemes targeted at providing credit and financial assistances, skill development training, infrastructure development, marketing assistance, technological and quality upgradation and other services for MSMEs across the country.
Road Ahead
The Government of India has envisioned doubling the Indian economy to US$ 5 trillion in five years. In order to achieve this goal, career opportunities for the young population have been generated and MSMEs have the potential to serve as a key employment generator. Therefore, the government has taken up promotion of MSMEs in order to create new jobs in the sector. Further, the government aims to enhance MSME’s share in exports and its contribution to GDP.
In order to achieve these targets, the government should invest in providing more back-end services to improve performance of the MSME sector as it supplies goods and services to big industrial enterprises. Lack of technology-based production activities and low investment in R&D activities are bottlenecks hindering the sector to become competent. Globally available technology could be subsidised by the government so that the product quality of MSME players can be improved using the existing resources. This also requires the help of academic institutions in the form of providing research and development (R&D) services for product innovation.
References: Government Websites, Press Releases, Media Reports, Deloitte Report
Note: Conversion rate used in November 2022, Rs. 1 = US$ 0.012
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