MSME Industry in India

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.

Market Size

India has approximately 6.3 crore MSMEs. As per the MSME Ministry data, as of May 16, 2021, the Udyam Registration portal registered 30,00,822 MSMEs, which replaced the former process of filing for Udyog Aadhaar Memorandum (UAM). Registered micro-enterprises stood at ~ 28 lakh (93%), followed by small enterprises at 1.78 lakh (6%) and midsized enterprises at 24,657 (1%). The Indian MSMEs sector contributes about 29% towards the GDP through its national and international trade.

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 July 20, 2021, the Government e-Marketplace (GeM) portal served 7 million orders worth Rs.122,405 crore (US$ 16.39 billion) from 2.2 million registered sellers and service providers for 53,193 government buyers.

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) incharge 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.

• In July 2021, the Indian government announced inclusion of retail and wholesale trades as MSMEs to strengthen the sector and boost economic growth.
• In July 2021, Khadi and Village Industries Commission (KVIC) secured trademark registrations in three countries, i.e., Mexico, the UAE and Bhutan, giving a major boost to the ‘Khadi’ brand globally.
• In June 2021, the Union Minister of MSME and Road, Transport and Highway, Mr. Nitin Gadkari launched the Indian Bank’s ‘MSME Prerana’ in Maharashtra to empower MSME entrepreneurs.
• In June 2021, the Minister for Road Transport & Highways and Micro, Small and Medium Enterprises, Mr. Nitin Gadkari announced simplification of process for registration of micro, small and medium enterprises. He added that only PAN and Aadhaar cards will be required for registration of MSMEs.
• Under the ‘Startup India’ initiative, the government recognised 50,000 start-ups that created 5.5 lakh jobs, as of June 03, 2021.
• 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.
• The government also announced Rs. 3 lakh crore (US$ 40.85 billion) collateral-free automatic loans for businesses.
• In Union Budget 2021, the government announced funds worth Rs. 10,000 crore (US$ 1.36 billion) for ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers, giving a major boost to the sector.

Recent Developments:

• In July 2021, Amazon India introduced Digital Kendra in Surat—its first brick and mortar resource centre to assist ‘kiranas’ and small businesses to go digital.
• In July 2021, the Federation of Indian Export Organisations (FIEO) signed a memorandum of understanding (MoU) with Aramex India, logistics services provider, to support MSME exporters in India.
• In July 2021, Flipkart Wholesale expanded across seven cities in Bihar to offer a digital platform for MSME fashion retailers.
• In July 2021, Google Pay and Flexiloans announced their collaboration to enable small business online loans.
• In June 2021, the Small Industries Development Bank of India (SIDBI) collaborated with Global Alliance for Mass Entrepreneurship (GAME) to extend services to MSMEs.
• In June 2021, Mastercard partnered with Instamojo to enable MSMEs and gig workers to digitise and expand their businesses.
• In June 2021, SBM Bank India partnered with Drip Capital to offer trade financing solutions to MSME exporters in India.
• In June 2021, Tide, a UK-based business financial platform, announced to invest >Rs. 1,000 crore (US$ 134.21 million) in India over the next five years to tap the rising SME (small and medium-sized enterprises) market.
• 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.
• Owing to numerous revenue options, the key Indian telecom players, including Vodafone Idea (Vi), Reliance Jio and Bharti Airtel, are focusing on medium and small-scale enterprises (MSME) for digital services, over established organisations that have fixed providers for network services.
• 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 May 2021, Emergency Credit Line Guarantee Scheme (ECLGS) expanded ‘ECLGS 4.0’ for onsite oxygen generation, wider coverage of ECLGS 3.0 and increase in tenor for ECLGS 1.0. In May 2021, the sanctioned loan amount disbursed stands at Rs. 2.54 lakh crore (US$ 35.09 billion), an increase of 53% from Rs. 165,886 crore (US$ 22.92 billion) in January 2021.
• In May 2021, IDBI Bank announced the introduction of its fully digitised loan processing system, with >50 products for MSMEs and agriculture.
• In May 2021, BSE, a stock exchange platfom, collaborated with Dun & Bradstreet Information Services India to establish an ecosystem for small and medium enterprises for promotions and boosting growth.

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 to double the Indian economy to US$ 5 trillion in five years. In order to achieve this goal, career opportunities for the young population has 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 July 2021, Rs. 1 = US$ 0.013

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.