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 MSME 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.