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:

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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.

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MSME News:

84,23,452 Employed In MSMEs Sector In FY 2022-23: Centre Says

The government offers companies, particularly MSMEs, automatic loans of Rs 5 lakh crore without any kind of collateral, Rs 50,000 crore in equity infusion through the MSME Self-Reliant India Fund, and no international bidding for purchases up to Rs 200 crore. Using information from the Ministry of Statistics and Program Implementation, Bhanu Pratap Singh Verma claimed that in 2020–21, the manufacturing MSME gross value-added share of the overall India manufacturing GVA was 38.47%. The minister stated that compared to 30.50 percent in 2019–20, MSME GVA comprised 26.83 percent of India’s GDP in 2020–21. The Udyam registration portal reports that 2,078,882 MSMEs were created in 2021–2022.

News Updated Date: 4th January 2023

Rajasthan MSME Policy 2022 Is Released With A Target Of 20,000 Units

On Saturday, Shakuntala Rawat, the Industries and Commerce Minister of Rajasthan, released the new MSME Policy 2022. This policy offers financial and technical compensation with a conducive regulatory framework. The terms will embrace the contribution of MSMEs to the GSDP and exports as well.

The state government provided an MSME policy that envisages the setup of 20,000 new units designed with a cumulative investment of Rs 10,000 crores. It also incorporates employment generation for around 1 lakh people. This figure and information were officially confirmed by the Department of Information and Public Relations of Rajasthan.

The policy in favor of Micro, Small & Medium Enterprises also proposed to assist 9,000 MSMEs in acquiring Zero Defect Zero Effect (ZED) certification. Prime Minister Narendra Modi introduced the ZED certification for the following reasons-

  • Minimize wastage in the manufacturing process significantly,
  • Improve the productivity of MSMEs, 
  • Amplify the environmental presence, 
  • Save energy while exploring the markets. 

This was all for the improvement and to boost MSMEs’ competitiveness notably. This policy intends to offer better marketing arrangements to uplift and create new job opportunities. As per the Chief Secretary- Vinu Gupta, the MSMEs domain is quite condemning for last-mile industrial development. It also plays a crucial role in employment generation in the state.

Additionally, the Ministry 2021-22 annual report in terms of MSMEs states:

  • Rajasthan occupied the ninth-highest population of MSMEs
  • The state was honored with 26.87 lakh enterprises
  • It even contributed around 4% to the overall MSME base worth 6.33 crore throughout India
  • Considering employment, Rajasthan MSMEs enrolled almost 46.33 lakh people.

News Updated Date: 24th November 2022

Cabinet Of Uttar Pradesh Approves The MSME Promotion Policy 2022

Uttar Pradesh cabinet launched bioenergy projects on Tuesday and approved the Micro Small Medium Enterprises Promotion Policy (MSME) 2022 and States Bioenergy Policy 2022. Additionally, it has endorsed a plan to restructure the State Planning Commission into the State Transformation Commission (STC) on the Niti Aayog model. The new MSME development policy selects 5 acres or more of land in each village panchayat to support MSMEs in villages. In addition, the policy calls for five acres of land or more to be chosen and developed as industrial clusters to aid MSMEs. A leasing rate of Rs. 1 per acre would also be levied to provide land for such projects.

News Updated Date: 13th October 20202

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.

  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

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