The MSME sector is the backbone of the Indian economy, driving employment, innovation, and exports, but faces challenges related to credit access, technology adoption, and skilled workforce, requiring continued government support and focus on digitalization and sustainability for resilient growth.
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India's changing trade policy, emphasizing domestic manufacturing through "Make in India" and promoting exports, presents both opportunities for MSMEs to capitalize on import substitution and challenges like intense competition and limited access to resources.
Micro, Small, and Medium Enterprises (MSMEs) are businesses in the non-farming sector that engage in manufacturing, processing, or preserving goods.
The Ministry of Micro, Small, and Medium Enterprises (MSMEs) was formed in 2007 by merging the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries.
Government classifies them based on investment and annual turnover.
Economic Engine: MSMEs contribute about 29% to GDP, 40% of exports, and employs over 60% of the workforce. (NITI Aayog report)
Employment Creator: 6.44 crore MSMEs, with an employment of 26.77 crore are registered on Udyam Registration Portal and Udyam Assist Platform (UAP).
Industrial Supply Chains: Supplying raw materials, components, and services to large corporations, strengthening the entire industrial ecosystem.
Innovation and Entrepreneurship: Hotbed of innovation, allows businesses to adapt swiftly to market changes. India, the third-largest in the world, is dominated by MSMEs.
Social Inclusion: Providing economic opportunities to a diverse range of entrepreneurs, including women and marginalized people.
Import Substitution: MSMEs are at the center of the 'Make in India' and 'Atmanirbhar Bharat' initiatives.
Balanced Regional Development: By setting up in rural, semi-urban, and tier-2 cities, they create local employment and prevent the migration.
Capital Intensity: MSMEs require lower capital investment to start and operate compared to large corporations, encourages entrepreneurship.
Custodians of Cultural Heritage: Handicraft and handloom sectors, comprised almost entirely of micro and small enterprises. For e.g enterprises producing Kanchipuram sarees or Banarasi silk are also keepers of a living heritage.
Sustainability: Leveraging local resources, including raw materials and talent, minimizes transportation costs, reduces waste, and supports local economies.
Economic Shock Absorbers: Due to their smaller scale, MSMEs demonstrate resilience during economic downturns, shift their operations more quickly than large corporations.
Pradhan Mantri MUDRA Yojana (PMMY): Provides collateral-free loans up to Rs 20 lakh to non-corporate, non-farm small/micro-enterprises.
Self-Reliant India (SRI) Fund: Provides equity infusion for MSMEs with high growth potential, helping them scale up and attract investment.
Zero Defect Zero Effect (ZED) Certification: ZED-certified MSMEs are recognized as responsible manufacturers and are eligible for various benefits, including concessions in bank processing fees and preference in government contracts.
Udyam Registration Portal: Provides MSMEs with a permanent registration number and a certificate, simplifies access to all government schemes.
MSME SAMADHAAN Portal: MSMEs can file complaints about delayed payments from buyers, facilitates the resolution of payment disputes.
CHAMPIONS Portal: An AI-powered, single-window grievance redressal system, assists MSMEs by resolving their issues related to finance, raw materials, and permissions.
Government e-Marketplace (GeM): An online platform for MSMEs to sell directly to government departments.
A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE): Establishes a network of Livelihood Business Incubators (LBIs) and Technology Business Incubators (TBIs) to promote a culture of innovation and promote agri-based rural enterprises.
Interest Subvention Scheme for MSMEs: Provides a direct 2% interest subsidy on fresh or incremental loans to all GST-registered MSMEs.
Public Procurement Policy for MSEs: Mandatory policy requires central government departments and PSUs to procure at least 25% of their total annual purchases from MSMEs.
International Cooperation Scheme: Provides financial assistance to MSMEs for participating in international exhibitions, trade fairs, and buyer-seller meets.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI): Develops clusters of traditional industries (e.g., handicrafts, handloom, khadi) by providing them with common facility centers, new machinery, and market linkages.
PM Vishwakarma scheme: Provides comprehensive support, including access to collateral-free credit, skill training (with a stipend of ₹500 per day), modern tools (with a toolkit incentive of ₹15,000), digital transaction incentives, and market linkage support.
Prime Minister's Employment Generation Programme (PMEGP): Offers credit-linked subsidies to promote self-employment through micro-enterprises in the non-farm sector in both rural and urban areas.
Credit Gap and High Cost of Finance: The Standing Committee on Finance noted that credit gap in the MSME sector is estimated to be around Rs 20-25 lakh crore.
Vicious Cycle of Delayed Payments: Data from the MSME Samadhaan portal reveals that over Rs 10.7 lakh crore in payments were stuck as of late 2024.
Intense Competition and Pricing Pressure: MSMEs face intense competition from large domestic corporations with massive economies of scale and from cheap imported goods, specially from china.
Technology Adoption Gap: Majority of MSMEs use outdated technology, hindering their productivity and competitiveness. A study by Vodafone Idea also found that only 12% of MSMEs have achieved full digitalization.
Skill Gap: Mismatch between the skills of the available workforce and the evolving needs of the industry.
Infrastructure Deficiencies: According to the Economic Survey 2022-23, logistics costs in India is in the range of 14-18% of GDP against the global benchmark of 8%.
Heavy Regulatory and Compliance Burden: Industry estimates suggest that MSME owners spend 10-15% of their time on compliance-related activities, including GST, labor laws, and environmental clearances, diverting focus from core business.
Supply Chain Inefficiencies: MSMEs have weak bargaining power with both suppliers and logistics providers. They are unable to secure bulk discounts on raw materials and pay higher charges compared to large corporations.
Limited Branding and Market Outreach: A NASSCOM report highlighted that while many MSMEs have an online presence, less than 15% use digital marketing tools strategically to build a brand or expand their customer base.
Poor Quality Control and Lack of Standardization: Many MSMEs, especially in traditional or unorganized sectors, struggle with maintaining quality, which limits their access to markets (both domestic and export) and makes it difficult to get repeat orders or build a reputation.
Inadequate Research & Development (R&D) and Innovation: A study by the Ministry of MSME indicated that less than 5% of MSMEs engage in formal R&D activities, hampers their ability to develop new products, improve processes, or adapt to evolving market demands, making them less competitive in the long run.
Driving Innovation through Collaboration: Establish MSME innovation hubs, connect small businesses with industry experts, researchers, and mentors.
Transforming Transactions with Blockchain: Developing a decentralized, blockchain-based platform, to mitigate the risk of payment disputes and delays, ensuring a more stable and predictable cash flow.
Promote Digital Connectivity: Move beyond basic digital adoption to full integration, leveraging the Open Network for Digital Commerce (ONDC) to reach new customers, utilizing AI for inventory management and customer analytics, and adopting cloud-based solutions for operational efficiency.
Unlock Diverse Financing: Explore alternative financing channels, tapping into fintech lending platforms, which offer quicker and more flexible credit.
Support Sustainable and Ethical Practices: Adopt eco-friendly production methods like using renewable energy, implement waste reduction strategies, and promote circular economy principles, to comply with international regulations, and gain a competitive edge in the global market.
Cultivating a Skilled and Resilient Workforce: Invest in upskilling and reskilling employees, especially in areas like data analytics, digital marketing, and advanced manufacturing.
Integrate into Global Value Chains (GVCs): Government's Production Linked Incentive (PLI) schemes in sectors like electronics and pharmaceuticals offer a direct pathway.
Leverage Government Procurement: Register on the Government e-Marketplace (GeM) portal. With the government mandating that public sector undertakings procure at least 25% of their requirements from MSMEs, GeM offers a massive, dedicated market.
Promote In-House Innovation and Protect IP: Move beyond adopting technology to creating it. Invest in small-scale R&D to develop unique products and processes. Government schemes offering subsidies on IP registration fees, securing a long-term competitive advantage.
Harness Advanced Logistics and Infrastructure: Utilize the benefits of National Logistics Policy and infrastructure upgrades (like dedicated freight corridors and improved road networks). Partnering with tech-enabled logistics platforms to reduce transportation costs and delivery times.
Empower the Rural and Semi-Urban Ecosystem: Focus on building capacity in Tier-2 and Tier-3 cities and rural areas, creating localized supply chains and leveraging digital tools to connect rural enterprises with urban markets.
Build a Strong Brand Identity: Invest in low-cost, high-impact digital marketing to build a distinct brand identity. Using social media, content marketing, and engaging directly with customers and command better pricing power.
Source: THE HINDU
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PRACTICE QUESTION Q. Discuss the role of MSMEs in achieving the 'Atmanirbhar Bharat' vision. 150 words |
MSMEs are enterprises classified based on their investment in plant and machinery/equipment and annual turnover, with distinct categories for micro, small, and medium enterprises in both manufacturing and service sectors.
Udyam Registration is the online process for MSMEs to register and obtain recognition, enabling them to access government schemes and benefits.
PMMY aims to provide loans up to Rs 20 lakh to non-corporate, non-farm small and micro-enterprises.
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