What is MSME - Meaning, Features, Role, Importance in India

MSME

In India, MSMEs contribute nearly 8% of the country’s GDP, around 45% of the manufacturing output, and approximately 40% of the country’s exports. It won’t be wrong to refer them as the ‘Backbone of the country.’

The Government of India has introduced MSME or Micro, Small, and Medium Enterprises in agreement with Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. These enterprises primarily engaged in the production, manufacturing, processing, or preservation of goods and commodities.

MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. It not only generates employment opportunities but also works hand-in-hand towards the development of the nation’s backward and rural areas. According to the annual report by the Government (2018-19), there are around 6,08,41,245 MSMEs in India.

MSMEs Redefined

A proposal was made to redefine MSMEs by the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing enterprises, based on their annual turnover.

Classification of enterprises into micro, small and medium enterprises (in Rs)

Kind of enterprise

Act of 2006

Bill of 2018

 

Manufacturing

Services

All enterprises

 

Investment towards plant & machinery

Investment towards equipment

Annual Turnover

Micro

25 lacs

10 lacs

5 Cr

Small

25 lacs to 5 Cr

10 lacs to 2 Cr

5 Cr to 75 Cr

Medium

5 Cr to 10 Cr

2 Cr to 5 Cr

75 Cr to 250 Cr

Benefits of the above-proposed reclassification

According to the proposed reclassification or the new classification, there would be no need for frequent inspections to check the investment in plant and machinery. Also, the operations of MSMEs would be transparent, non-discriminatory, and objective in nature.

Highlights of new MSMEs

‘Atma Nirbhar Bharat Abhiyan’ or the Self-Reliant India Scheme of 2020 by the Government of India has given a new definition for MSMEs.

Following are a few highlighting features of new MSMEs –

  1. A provision of Collateral Free Loans to MSMEs
  2. An arrangement of loans to MSMEs worth of Rs. 3 lac crores
  3. An offer for MSMEs to get a Moratorium period of 12 months
  4. Consideration of Manufacturing and Service MSMEs as the same entities
  5. MSM is a granted a repayment Tenure of 48 months
  6. MSMEs are assured a 100% Credit Guarantee
  7. Reclassification of MSMEs will benefit approximately 45 Lac units.

Features of MSMEs

Following are some of the essential elements of MSMEs –

  1. MSMEs work for the welfare of the workers and artisans. They help them by giving employment and by providing loans and other services.
  2. MSMEs provide credit limit or funding support to banks.
  3. They promote the development of entrepreneurship as well as up-gradation of skills by launching specialized training centers for the same.
  4. They support the up-grading of developmental technology, infrastructure development, and the modernization of the sector as a whole
  5. MSMEs are known to provide reasonable assistance for improved access to the domestic as well as export markets.
  6. They also offer modern testing facilities and quality certification services.
  7. Following the recent trends, MSMEs now support product development, design innovation, intervention, and packaging.

Role of MSMEs in Indian Economy

Since its formation, the MSME segment has proven to be a highly dynamic Indian economy sector. MSMEs produce and manufacture a variety of products for both domestic as well as international markets. They have helped promote the growth and development of khadi, village, and coir industries. They have collaborated and worked with the concerned ministries, state governments, and stakeholders towards the upbringing of rural areas.

MSMEs have played an essential role in providing employment opportunities in rural areas. They have helped in the industrialization of these areas with a low capital cost compared to the large industries. Acting as a complementary unit to large sectors, the MSME sector has enormously contributed to its socio-economic development.

MSMEs also contribute and play an essential role in the country’s development in different areas like the requirement of low investment, flexibility in operations, mobility through the locations, low rate of imports, and a high contribution to domestic production.

With the capability and capacity to develop appropriate local technology, provide fierce competition in domestic and international markets, technology-savvy industries, a contribution towards creating defense materials, and generating new entrepreneurs by providing knowledge, training, and skill up-gradation through specialized training centers.

The below-mentioned data, represented in a tabular format, is by the Central Statistics Office (CSO) and Ministry of Statistics & Program Implementation.

Contribution of MSMEs in Country’s Economy at Current Price

Year

MSME- Addition of Gross Value

Growth (%)

Total Addition of Gross Value

Share of MSME in GVA (%)

Total GDP

Share of

MSME in

GDP (in %)

2011-12

2622574

8106946

32.35

8736329

30

2012-13

3020528

15.17

9202692

32.82

9944013

30.40

2013-14

3389922

12.23

10363153

32.71

11233522

30.20

2014-15

3704956

9.29

11504279

32.21

12467959

29.70

2015-16

4025595

8.65

12566646

32.03

13764037

29.20

2016-17

4405753

9.44

13841591

31.83

15253714

28.90

Source: Central Statistics Office (CSO), Ministry of Statistics & Program Implementation

Importance of MSMEs for the Indian Economy

Across the globe, MSMEs are accepted as a means of economic growth and for promoting equitable development. They are known to generate the highest rate of growth in the economy. MSMEs have driven India to new heights through requirements of low investment, flexible operations, and the capacity to develop appropriate native technology.

  1. MSMEs employ around 120 million persons, becoming the second-largest employment generating sector after agriculture.
  2. With approximately 45 lac units throughout the country, it contributes about 6.11% of GDP from manufacturing and 24.63% of the GDP from service activities.
  3. MSME ministry targets to increase its contribution towards GDP by up to 50% by 2025 as India moves ahead to become a $5 trillion economy
  4. Contributing around 45% of overall Indian exports
  5. MSMEs promote all-inclusive growth by providing employment opportunities, especially to people belonging to weaker sections of the society in rural areas.
  6. MSMEs in tier-2 and tier-3 cities help in creating opportunities for people to use banking services and products, which can amount to the final inclusion of the contribution of MSMEs for the economy.
  7. MSMEs promote innovation by providing an opportunity to budding entrepreneurs to help them build creative products hey and thereby boost competition in business and fuel the growth.

The Indian MSME sector provides silent support to the national economy and acts as a defense against global economic shock and adversities. Hence, we can say that India is propelling towards a robust global economy through a silent revolution powered by MSMEs.

Learn More:

Covid-19 Relief: Government announces for MSMEs Rs 3-lakh Crore Collateral Free Loans

MSME & Small Businesses – How Can They Scale-up Business Online

Government MSME Schemes for Entrepreneurs

MSME/PSB Loans Within 59 Minutes: is it really possible?

MSME Registration in India – Process and Benefits

Maintaining a Credit Score for a SME/MSME

Top 5 Government Loan Schemes for Small Businesses in India

Small Scale Industries in India (SSI) – Types, Registration, Advantages, Fees

What is MSME? FAQs:

1. What is an MSME Form?

MSME Form I is a form filed for giving details with the ROC concerning payment, which has been outstanding for more than 45 days towards the services availed from the MSME in question. The filing of the Form in the intervals is as mentioned below: Initial Return; or Regular Half Yearly Returns

2. What does the deemed date of acceptance of goods and services mean?

The deemed date of acceptance means, in case of no objection is made by the buyer in writing as regards a receipt of goods or services within 15 (fifteen) days from the day of the goods delivery or the services rendered.

3. Who can apply online for MSME registration?

Any entrepreneur who has a valid Aadhaar Number can apply for online MSME Registration.

4. Why is a credit rating important for MSMEs?

To facilitate credit flow to the MSME sector and enhance the comfort level of the lending institutions, reputed credit rating agencies do the credit rating of MSME units. This rating should be encouraged. Furthermore, advice to banks is to consider these ratings based on availability and thus make an appropriate structure of interest rates depending on ratings assigned to borrowing MSME units.


MSME News:

Cabinet Approves $808 mn for ‘Raising and Accelerating MSME Performance’

On Wednesday, the Union Cabinet approved a World Bank-assisted Rs 6,062.45 crore initiative on “Raising and Accelerating MSME Performance” (RAMP), which would begin in FY 2022-33. The World Bank would lend Rs.3750 crore or USD 500 million, while the Indian government will finance the remaining Rs.2312.45 crore or USD 308 million. RAMP is a World Bank-supported Central Sector scheme supporting the Ministry of Micro, Small, and Medium Enterprises’ COVID Resilience and Recovery Interventions (MoMSME).

The initiative seeks to improve market and credit access, build institutions and governance at the federal and state levels, improve federal-state connections and collaborations, resolve late payments, and help MSMEs become green. On the competitiveness front, the RAMP initiative will address the general and COVID-related difficulties in the MSME sector. Furthermore, the program will strengthen the underserved areas of capacity building, mentoring, skill development, quality enhancement, technical advancement, digitalization, outreach, and marketing promotion.

News Updated Date: 13-04-2022

Pandemic Lockdown Affects MSMEs Causing Rs. 20,000 Crores Rise in Bad Loans Last Year

The industrial sector was the worst-hit area in the COVID pandemic enforced lockdown, MSME being the most afflicted. Though the government announced several loan restricting schemes and packages to cut the losses, the loans defaulted by the micro, small and medium enterprises increased by about 20 crores from the previous two years. Loans are termed bad loans to nonperforming assets, NPA when their principal becomes overdue by 90 days. And the bad loans of public sector banks have been over 0ne lakh crores. The RBI, through its ECLGS emergency credit line guarantee scheme, announced 3 lakh crore unsecured loans to MSMEs to uplift the deteriorating sector. Along with this, RBI also classified it under the priority sector for permitted bank lenders. Despite all these efforts and revival packages, sources say it has not benefited the units since they were already in huge debt.

News Updated Date: 24-03-2022

Government urges steel manufacturers to reassess the high prices

In the wake of the pandemic, the increasing steel input prices have created problems for MSMEs. The Micro, Small & Medium Enterprises using steel as an input for manufacturing seek government help. 

At a recent meeting, Piyush Goyal, Commerce & Industry Minister, urged the steel manufacturers to address the issue. The minister emphasized the need for a cost-effective supply of steel to small industries. 

According to the EEPC report, iron and steel export reached 136%. It was estimated to be US$ 2.2 billion. The government has taken several initiatives to lend to the MSME sector.

  1. To promote export and ensure raw material security for the steel sector, the government launched PLI (Production Linked Incentive) scheme. 
  2. The government lowered customs duty to 7.5% on stainless steel, which relieved MSMEs. 

India has now started crawling out of the clutches of the pandemic. A steep hike in the price of raw materials has pushed the MSME sector backward. However, after Goyal urged to consider assistance for small enterprises, the stakeholders assured to find an affordable solution to the problem.

Updated Date: 05-01-2022

MSME is to be promoted jointly by BSE and all India MSME Association

On Tuesday, BSE, along with the All-India MSME Association, announced to promote and encourage leading MSMEs and start-ups. BSE and AIMA MSME will jointly evaluate the SME platforms along with encouraging the investors in MSME. 

Ajay Thakur, Head BSE MSME, and start-ups commented that SMEs and MSMEs are important for the country, and investing in them is vital. By making people aware, they can be encouraged to invest in the listed entities. Therefore, both institutes will host countrywide roadshows and events to bring awareness. 

Avinash Dalal, AIMA MSME Director, expressed his hope that this pact will achieve growth, development and the MSME sector will eventually witness the progress. 

BSE launched its SME platform in 2012 after taking approval from SEBI. 353 companies had been listed on BSE’s SME platform, out of which 122 migrated to the main board of the BSE. It remains the decision-maker of the whole segment with 61% shares to its name.

Updated Date: 08-12-2021

MSMEs – the foundation of sustainability agenda

Major economies globally, including India, have taken consistent actions in the energy transition to keep the temperature rise below 2 degrees. However, recent climate change has shown the need to implement sustainability goals. 

MSMEs- a critical part of the Sustainable Economic Development Plan

MSMEs contribute approximately 30% to the GDP of India. MSMEs face a lot of challenges, and with the pandemic, their problems have only increased. With financing and regulatory burdens, their focus on a low-carbon economy is low. Hence, the 63 million MSMEs, which employ 60 million people, need significant support to implement energy efficiency norms.

How is the government helping the MSME sector to attain sustainability?

Although the tax cut and credit support initiatives introduced in the Union Budget were a big step, there are a few more schemes that the government has initiated for the MSME sector:

  1. Various schemes and packages offered under the government’s program ‘Atmanirbhar Bharat’ safeguard MSMEs from economic hardships.
  2. To enable the growth of MSMEs, Green industrial clusters and parks are set up. It will ensure smooth operation and provide infrastructure.
  3. The addition of segments with an efficient implementation plan for sustainability-related efforts is required. 

To promote sustainable growth, MSMEs should be encouraged to measure and minimize emissions. These value chains would have to be incentivised by their suppliers to reduce their carbon footprint. For India to adopt the net-zero goals, the MSME sector’s inclusion is necessary.

Updated Date: 18-11-2021

MSMEs herald the arrival of Golden period with the introduction of MSMEs

Financial Innovation in the private sector is rapidly increasing with the enhancement in digital public infrastructure. Digital payments have achieved critical mass with the recent tally of digital payments crossing 4 Lakh crore per month. FinTech when introduced with MSME ecosystems will have rolling ball momentum in exports, employments and the rural economy will be boosted. The citadel of digitization and electronic payments has solved the dual problems of delay in payments and credit inaccessibility.

Cash flow cycle of MSMEs can be optimally maintained by conducting linkages among micro industry and institutional sources. Union Minister Nitin Gadkari also acknowledged the presence of COVID recession in the financial health of MSMEs. Appropriate safeguards are being incorporated into the FinTech apps to remove any bottlenecks in the dispute resolution process. Credit rating systems are integrated into the fintech apps so as to increase the incentives to buyers through invoice financing and TReDS platforms from NBFCs and Banks.

Updated Date: 28-09-2021

Promoting MSME in Kerala

While inaugurating the MSME Workshop series that is organized by the Kerala Management Association, Mr. Mohammed Hanish, the principal secretary of industries, said that the main feature of this sector is that all entrepreneurs or MSMEs have the strength and freedom to sell their products themselves.

He added that the total number of MSMEs in Kerala have just doubled than what it was five years back. The state govt. is further strengthening this sector through disbursing loans under Mudra and Atma Nirbhar Bharat loan schemes. This has contributed greatly towards attracting youth towards entrepreneurship. Automatic licenses are being issued by Kerala Govt. to promote the ease of doing business. He further added the process for initiating MSME ventures will be made more simple in the coming few months.

G S Prakash who is the Joint Director of MSME Development Institute, told that if anyone wishes to initiate an MSME project, then one can register free online through Udyam registration.

Updated Date: 17-08-2021