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. The number of registered MSMEs grew 18.5% Y-o-Y to reach 25.13 lakh (2.5 million) units in 2020 from 21.21 lakh (2.1 million) units in 2019. The Indian MSMEs sector contributes about 29% towards the GDP through its national and international trade.  

According to data shared by the MSME Minister in the Rajya Sabha, the registered MSME is dominated by micro enterprises at 22.06 lakh (2.2 million) units in 2020 from 18.70 lakh (1.8 million) units in 2019, while small enterprise units went up from 2.41 lakh (0.24 million) units to 2.95 lakh (0.29 million) units. Midsized businesses only increased from 9,403 units to 10,981 units during this period.

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. The platform has recorded transactions worth Rs. 55,048 crore (US$ 7.5 billion) until September 2020.

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.

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.

Government Policies

The Government of India has designed various policies for the growth of MSMEs in the country.

• To provide reliable measures and set benchmark to boost and strength the MSME sector in India, TransUnion CIBIL, in partnership with the Ministry of Statistics & Programme Implementation (MoSPI), launched the MSME Credit Health Index on November 2, 2020.
• In October 2020, the Ministry of MSME in a major initiative onboarded the latest IT tools of Artificial Intelligence (AI) and Machine Learning (ML) for providing assistance and solutions to the Micro, Small, and Medium Enterprises (MSMEs). The ministry has implemented AI & ML on its robust Single Window System 'Champions’, which was launched by the Prime Minister Mr. Narendra Modi on June 1, 2020.
• In September 2020, the Government of India constituted five ministerial task forces to make India’s MSMEs future-ready and formulate a concrete strategy towards making the country a leading exporter.
• Udyog Aadhaar Memorandum: Udyog Aadhaar Memorandum (UAM) is a one-page online registration system for MSMEs based on self-certification. The information sought is on a self-certification basis and no supporting documents are required at the time of online filing of UAM.
• MSME DataBank: MSME DataBank enables the Ministry of MSME to streamline and monitor the schemes and pass on the benefits directly to MSMEs. It is helpful for MSME units that can update their enterprise information as and when required without visiting any government office and updating information about their products/services. Until May 2019, more than 6.1 lakh MSMEs registered in the databank.
• My MSME: In order to facilitate the enterprises to enjoy benefits of various schemes, the MSME office launched a web-based application module in the form of a mobile app called My MSME. This allows enterprises to make their applications and check for schemes on their mobile phone using the app.
• MSME Sampark: Launched in 2018, the MSME Sampark portal is a digital platform wherein jobseekers and recruiters can register themselves for mutual beneficial interactions.
• Digital Payment: As part of the Digital India initiative, the Ministry of MSME has taken numerous initiaves to digitally enable the entire MSME ecosystem  all MSME offices have been digitally empowered, efforts have been taken to spread awareness on the benefits of digital mode of payment such as BHIM, UPI and Bharat QR Code.

To encourage local production, the government is working on policies to increase MSME exports and lower imports. In addition, Rs. 200 crore (US$ 28.4 million) scheme has been sanctioned to set up 12 technology centres, which are expected to be completed by 2021.

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 for December 2020 is Rs. 1 = US$ 0.014

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