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.
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
Investment towards plant & machinery
Investment towards equipment
25 lacs to 5 Cr
10 lacs to 2 Cr
5 Cr to 75 Cr
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 –
- A provision of Collateral Free Loans to MSMEs
- An arrangement of loans to MSMEs worth of Rs. 3 lac crores
- An offer for MSMEs to get a Moratorium period of 12 months
- Consideration of Manufacturing and Service MSMEs as the same entities
- MSM is a granted a repayment Tenure of 48 months
- MSMEs are assured a 100% Credit Guarantee
- Reclassification of MSMEs will benefit approximately 45 Lac units.
Features of MSMEs
Following are some of the essential elements of MSMEs –
- MSMEs work for the welfare of the workers and artisans. They help them by giving employment and by providing loans and other services.
- MSMEs provide credit limit or funding support to banks.
- They promote the development of entrepreneurship as well as up-gradation of skills by launching specialized training centers for the same.
- They support the up-grading of developmental technology, infrastructure development, and the modernization of the sector as a whole
- MSMEs are known to provide reasonable assistance for improved access to the domestic as well as export markets.
- They also offer modern testing facilities and quality certification services.
- 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
MSME- Addition of Gross Value
Total Addition of Gross Value
Share of MSME in GVA (%)
GDP (in %)
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.
- MSMEs employ around 120 million persons, becoming the second-largest employment generating sector after agriculture.
- 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.
- 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
- Contributing around 45% of overall Indian exports
- MSMEs promote all-inclusive growth by providing employment opportunities, especially to people belonging to weaker sections of the society in rural areas.
- 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.
- 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.
What is MSME? FAQs:
1. What is an MSME Form?
2. What does the deemed date of acceptance of goods and services mean?
3. Who can apply online for MSME registration?
4. Why is a credit rating important for MSMEs?
Assam Signs Mous With CGTMSE And SIDBI Venture Capital To Revitalize The MSME Sector
The Assam government inked memorandums of understanding with SIDBI Venture Capital for Assam Startup Venture Fund and Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) on Monday to revitalize the MSME sector in the state.
According to the SIDBI estimate, support of Rs 100 crore will result in a portfolio creation of Rs 5000 crore, and the state government will need to provide an annual fund of between Rs 22 crore and Rs 26 crore over the following three years.
SIDBI Venture Capital Fund (SVCL) intended to serve as an investment manager for the proposed Assam Start-up Venture Capital Fund following another MoU inked with SIDBI.
News Updated Date: 29th September 20202
MSMEs sees a growth of INR 52,800 Cr in 2022 – 2023
It has been noted that the growth of MSMEs have been increased by a margin of 14 percent till the mid of July. The credit data for MSMEs also indicates that there is a great improvement in all the sectors. As per the SBI research team in the financial year 2023 both the credit and deposits will increase in double digits thereby boosting the economy.
With the rise in inflation the boost of MSMEs would help both the middle and lower class to maintain a substantial flow of money. The report of SBI has also stated that the retail loans have been increased by INR 1.34 lakh during the same period.
News Updated Date: 08th August 20202
$100 Bn Potential of Rural India to be unlocked by MSMEs
The International Finance Corporation just made it clear that there are 55.8 million MSMEs responsible for employing about 124 million people in India. And out of these, about 60% belong to rural areas of the country. It must be noted that the MSME sector makes up for about 31% of India’s GDP and 45% of the country’s exports.
Now, it has been reported that MSMEs are on their way to unlock a $100 Bn Potential of Rural India very soon. One of the avenues to enable that would be the easy loans which offer provisioning of productivity-enhancing offerings. Some other avenues can be risk mitigants and farm mechanization services.
News Updated Date: 28th June 20202
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.
- To promote export and ensure raw material security for the steel sector, the government launched PLI (Production Linked Incentive) scheme.
- 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:
- Various schemes and packages offered under the government’s program ‘Atmanirbhar Bharat’ safeguard MSMEs from economic hardships.
- To enable the growth of MSMEs, Green industrial clusters and parks are set up. It will ensure smooth operation and provide infrastructure.
- 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