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Pankaj Tyagi
| Updated: 20 Jan, 2022 | Category: MSME

MSME Sector in India: Potential and Future Prospects

MSME sector

MSME sector is acknowledged as the prominent pillar of the Indian economy owing to their massive contribution to GDP, exports, and job creation. In India, most small and micro enterprises belong to the agro and food sectors. On the contrary, the medium-sized enterprises belong to the pharmaceutical, auto, and chemical sectors. The MSME sector has been working in coordination with several state governments, ministries, and stakeholders to boost Indian’s Rural Economy.

Analyzing the Prowess of MSME sector in India

  • Presently, India has around 6.3 crore MSMEs. According to the date of the MSME Ministry, as of Nov 26, 2021, the MSME registration portal (presently known as the Udyam Registration portal) registered 5,767,734 MSMEs. The bifurcation of the registration figure is as follow;
  1. Micro-enterprises = 5,441,220
  2. Small Enterprises = 293,555
  3. Midsized enterprises = 32,959
  • The MSME sector contribution toward the nation’s GDP[1] stood at 29 percent. This growth is credited to the ever-increasing demand in domestic as well as international markets.
  • The BSE SME platform is projected to witness more than sixty small and medium enterprises entering the market in one year (FY 2021-22) to bring up equity funds catering to business needs.
  • The initial public offering route has seen 16 SMEs making market entry; they procured Rs 100 crore (US$ 13.74 million) in 2020.
  • MSMEs are being incentivized to trade their offerings on the e-commerce portal, especially via GeM i.e., Government e-Marketplace. It is a government-backed portal that enables Ministries and PSUs to source their procurement.
  • As on Nov 26, 2021, the GeM portal has secured around 8.16 million orders worth Rs 159,483 crore from 3.1 million registered sellers. The said quantum of order had served more than 55,929 buyer organizations.

How is MSME Sector boosting the Indian Economy?

  • The MSME sector is giving a much-needed boost to the Indian Economy. Around 63 mn MSMEs operating pan India contributed 30.5% to the nation’s GDP in FY 2019 and 30% in FY2020.
  • It has also created ample job opportunities across different sectors. As per the Ministry of Statistics & PI data released in 2016, the MSME sector had created around 111 million jobs in India.
  • When contrasted with the large entities, MSMEs have played a prominent role in the industrialization of rural areas without conceding too much capital cost.
  • The sector has made considerable contributions to the nation’s socio-economic growth and supported prominent industries. Presently, the MSME sector accounts for 40 percent of the nation’s overall export and around 25 percent of GDP from the service sector.

Potential Stimulants that is helping MSME sector grow at Healthy rate

Amicable industrial policies: Relaxed industrial policies have played a key role in boosting the MSME sector in India. The amicable norms pertaining to labor and regulatory requirements have enabled this sector to grow healthy.

Encouragement of FDIs: The influx of overseas players has poured considerable investment into the MSME sector. This aids MSMEs in adopting better technologies and resources, thereby ensuring improved productivity and competitiveness in the given marketplace.

Technology: The advent of cutting-edge technologies and improved production methods have aided MSMEs in improving their overall supply chain and productivity.

Access to capital: Several credit schemes launched by GOI are backing up MSMEs with adequate financial support to meet productivity needs with ease and maintain a healthy interplay with suppliers.

The government schemes like Credit Linked Capital Subsidy and Credit Guarantee Trust Fund for Micro & Small Enterprises are presently in action and facilitating easy funding without any hassle.

Analyzing Government’s Efforts to Promote MSME Sector in India

Intending to speed up the growth of the MSME sector in India, GOI has released the following schemes and policies to serve such a purpose.

Prime Minister Employment Generation Program (PMEGP)

PMEGP aims at strengthening employment standing in the rural region of the country. For this purpose, the scheme facilitates necessary fiscal aid (within a given threshold of Rs 10 lakh-Rs 25 lakhs) to the upcoming project in rural areas. This will aid in preventing the migration of rural youth to urban areas.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)

CGTMSE is a joint initiative of SIDBI and MSME ministry. The scheme ensures the availability of collateral-free credit for micro and small industries operating pan India. Access to the said scheme is available to existing and new entities that belong to the MSME sector.

Interest Subvention Scheme

This RBI-driven scheme focuses on deducting interest rates over the new and incremental term loan acquired by MSMEs. As per Interest Subvention Scheme, the relaxation of 2 percent shall be provided to all MSMEs over the said loans.

Credit Linked Capital Subsidy Scheme (CLCSS)

The government introduced CLCSS two decades back to facilitate Technology Up-gradation to Micro & Small Enterprises. The scheme seeks to render technology up-gradation to SSI units in a particular product category via induction of robust and advanced technologies for which the government extends capital subsidy.

NABARD, a government institution, is assigned as a frontline nodal agency under the scheme for channelizing subsidy via Commercial Banks, RRBs, and Cooperative Banks.

The GOI has also rolled out various policies to boost the MSME sector in India. Key policies include:

  • SAMBHAV, a national-level awareness initiative to incentivize economic growth
  • Collateral-free loans up to Rs. 3,00,000 crore for the MSME sector to procure raw materials, fulfill operational liabilities & restart business
  • Empowering MSMEs to retain more business opportunities by mitigating unfair competition from overseas players. Given this, the finance ministry has disallowed foreign players to participate in government procurement tenders worth up to Rs 200 crores.
  • Enabling MSMEs to maintain consistency within the production and entire supply chain by penalizing public sector units failing to clear MSMEs dues within 45 days timeline
  • The GOI has also rolled out various campaigns such as Startup India, Skill India, Made in India, and Digital India to promote the sector’s growth and improve productivity.

Role of Digitalization in the growth of MSME sector 

  • The MSME sector has witnessed remarkable development over the past few decades, despite the lack of advanced technologies.
  • It has capabilities to scale up through smart use of technology and deployment of e-marketplace and digitalization in manufacturing processes. GOI has taken an array of measures in this regard. These include;
  • The MSME ministry has outlined a plan to digitize the overall administration system to make it more effective, secure, and result-oriented.
  • The ministry has invested Rs 200 crores in setting up 20 tech facilities and Rs 20 crores for 100 extension centers.
  • The sector has witnessed a sharp spike in growth owing to increased internet penetration and consumers’ inclination towards digital payments, supported by B2C e-commerce players.
  • MSMEs are establishing strategic collaboration with Fintechs to access hassle-free financing.
  • Digitalization shall instill transparency across the supply chain & enable MSMEs to scale up operations.

Conclusion

India is most likely to become a 5 trillion Economy by FY 2025, and MSMEs shall play a pivotal role in this regard. To attain this monumental figure, the MSME sector must have an adequate and consistent backup of funds and resources. Needless to say, the government has to play a vital role in this regard by providing necessary aid and scheme to this sector.

The government is making a constant endeavor to incentivize this sector by introducing export-based initiatives and other growth-driven schemes. The sector is yet to achieve its full potential despite witnessing consistent growth in the past few years. This slow surging growth is mainly attributed to dependence on lackluster technologies, reluctance to boost R&D activities, and lack of quality standard certification.

The schemes like ‘AatmaNirbhar Bharat’ have witnessed a considerable push towards boosting home-grown industries via an array of measures such as subsidies, incentives, and fiscal aid. The ultimate objective is to improve the manufacturing & export potential of domestic firms so as to put them at the center stage of global supply chains.

Read our Article:WBIDC chairman urges MSMEs to prioritize IPR and Quality Certification

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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