MSME SECTOR

MSME SECTOR

The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country. In India, the sector has gained significant importance due to its contribution to Gross Domestic Product (GDP) of the country and exports. The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.

 

According to the provisions of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two classes i.e. Manufacturing Enterprises and Service Enterprises.

 

The enterprises are further categorized based on investment in equipment and annual turnover.

 

Criteria	Manufacturing		Service
	Turnover	Investment	Turnover	Investment
Micro	Rs. 5 crore	Less than Rs. 25 lakh	Rs. 5 crore	Less than Rs. 10 lakh
Small	Rs. 50 crore	More than Rs. 25 lakh but less than Rs. 5 crore	Rs. 50 crore	More than Rs. 10 lakh but less than Rs. 2 crore
Medium	Rs. 250 crore	More than Rs. 5 crore but less than Rs. 10 crore	Rs. 250 crore	More than Rs. 2 crore but does not exceed Rs. 5 crore

 

India has approximately 6.3 crore MSMEs. As per the MSME Ministry data, as of May 16, 2021, the Udyam Registration portal registered 30,00,822 MSMEs, which replaced the former process of filing for Udyog Aadhaar Memorandum (UAM). Registered micro-enterprises stood at 28 lakh (93%), followed by small enterprises at 1.78 lakh (6%) and midsized enterprises at 24,657 (1%). The Indian MSMEs sector contributes about 29% towards the GDP through its national and international trade. 

 

The BSE SME (small and medium enterprises) platform is expected to witness >60 SMEs to enter the market in one year (2021-22) to bring up equity funds for meeting their business requirements. The initial public offering (IPO) route witnessed 16 SMEs enter the market; they raised Rs. 100 crore in 2020.

 

MSMEs are being encouraged to market their products on the e-commerce site, especially through Government e-Marketplace (GeM), owned and run by the government, wherefrom Ministries and PSUs (public sector undertakings) source their procurement. The platform has recorded transactions worth Rs. 55,048 crore until September 2020.

 

Domestic business requires a strong financial stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes.

  

MSME Ministry has four statutory bodies namely, Khadi and Village Industries Commission (KVIC) who is responsible for promoting and developing khadi and village industries for providing employment opportunities in rural areas, thereby strengthening the rural economy, Coir Board in charge of promoting overall development of the coir industry and improving living conditions of workers in this industry, National Small Industries Corporation Limited (NSIC) responsible for promoting, aiding and fostering growth of micro and small enterprises in the country, generally on commercial basis, National Institute for Micro, Small and Medium Enterprises, (NI-MSME) incharge of enterprise promotion and entrepreneurship development, enabling enterprise creation, performing diagnostic development studies for policy formulation, etc. and lastly, Mahatma Gandhi Institute for Rural Industrialisation (MGIRI) responsible for accelerating rural industrialisation for sustainable village economy, attract professionals and experts to Gram Swaraj, empower traditional artisans, encourage innovation through pilot study/field trials and R&D for alternative technology using local resources. New online system of MSME/Udyam Registration launched by the Union MSME Ministry, w.e.f. July 01, 2020, successfully registered >1.1 million MSMEs until November 2020.

The Government of India has designed various policies for the growth of MSMEs in the country.

 

Budget allocation for MSMEs in FY22 more than doubled to Rs. 15,700 crore vis-à-vis Rs. 7,572 crore in FY21.

 

The government also announced Rs. 3 lakh crore collateral-free automatic loans for businesses.

 

In Union Budget 2021, the government announced funds worth Rs. 10,000 crore for ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers, giving a major boost to the sector.

 

The BSE SME (small and medium enterprises) platform is expected to witness >60 SMEs to enter the market in one year (2021-22) to bring up equity funds for meeting their business requirements. The initial public offering (IPO) route witnessed 16 SMEs enter the market; they raised Rs. 100 crore (US$ 13.74 million) in 2020.

 

In May 2021, Emergency Credit Line Guarantee Scheme (ECLGS) expanded ‘ECLGS 4.0’ for onsite oxygen generation, wider coverage of ECLGS 3.0 and increase in tenor for ECLGS 1.0. In May 2021, the sanctioned loan amount disbursed stands at Rs. 2.54 lakh crore, an increase of 53% from Rs. 165,886 crore in January 2021.

 

In May 2021, IDBI Bank announced the introduction of its fully digitised loan processing system, with >50 products for MSMEs and agriculture.

 

In May 2021, BSE, a stock exchange platfom, collaborated with Dun & Bradstreet Information Services India to establish an ecosystem for small and medium enterprises for promotions and boosting growth.

 

In May 2021, CSIR-CMERI handed over a technology for Oxygen Enrichment Unit to two MSMEs to enhance the technology capabilities of companies.

 

In May 2021, NI-MSME (the National Institute for Micro, Small and Medium Enterprises, Hyderabad) signed an MoU with IIM Nagpur for collaboration in the areas of MSME development, training, research & consulting and entrepreneurship.

 

In May 2021, Flipkart, through its financing programme, expanded benefits for MSME sellers. Under the new financing programme, the sellers can avail loan at an interest of 9% and raise credit for funds worth Rs. 5 lakh to Rs. 5 crore.

 

In March 2021, Spoton Logistics announced customisable logistics solutions for MSMEs. As part of this, the company has also enhanced its logistics hubs in locations such as Hyderabad, Bengaluru, Calcutta, Delhi, Ambala, Kochi, Chennai, Patna and Ranchi.

 

In April 2021, the non-banking finance companies (NBFCs) requested the Reserve Bank of India to extend the one-time restructuring scheme of MSME advances till March 31, 2022, as these players are unable to revive their businesses.

 

In March 2021, the Ministry of MSME, through the Development Commissioner (DC-MSME) implemented the Technology Centre Systems Program (TCSP) to establish 15 new Technology Centres (TC). The centres provide assistance to the industry predominantly MSMEs in General Engineering, Automotive, Fragrance & Flavour and ESDM sectors.

 

In March 2021, the Finance Ministry allowed private retirement funds to invest up to 5% in Category I & II AIFs regulated by SEBI; this will help widen the fundraising options for MSMEs and expand the domestic pool of capital.

 

Category 1 AIFs consists of infrastructure, venture capital, angel and social venture funds. Category II AIFs covers funds where at least 51% of the size can be invested in either infrastructure, SMEs, venture capital or social welfare entities.

 

In March 2021, MSME support and development organization, National Small Industries Corporation (NSIC) announced that they will assist MSMEs working with the Agricultural and Processed Food Products Export Development Authority (APEDA) across multiple areas.

 

The NSIC, through an MoU with APEDA, will help its MSME members in exploring the export potential of their agricultural and processed foods products. Additionally, APEDA members will get access to NSIC schemes, which would help them address issues pertaining to technology adoption, skills, product quality, and market access.

 

The relationship will also support promotion of green & sustainable manufacturing technology for MSME clusters, enabling units to switch to sustainable and green production processes and products.

 

In February 2021, Walmart's Vriddhi program was extended to Uttar Pradesh, with launch of an e-institute to facilitate small businesses in granting access to skills and competencies across online and offline platforms such as Flipkart's marketplace and Walmart's global supply chain. The company stated that this new e-institute will benefit 50,000 MSMEs across the country to expand domestically and globally.

 

The Ministry of MSME runs numerous schemes targeted at providing credit and financial assistances, skill development training, infrastructure development, marketing assistance, technological and quality upgradation and other services for MSMEs across the country.

 

The Government of India has envisioned doubling the Indian economy to US$ 5 trillion in five years. In order to achieve this goal, career opportunities for the young population have been generated and MSMEs have the potential to serve as a key employment generator. Therefore, the government has taken up promotion of MSMEs in order to create new jobs in the sector. Further, the government aims to enhance MSME’s share in exports and its contribution to GDP.

 

In order to achieve these targets, the government should invest in providing more back-end services to improve performance of the MSME sector as it supplies goods and services to big industrial enterprises. Lack of technology-based production activities and low investment in R&D activities are bottlenecks hindering the sector to become competent. Globally available technology could be subsidized by the government so that the product quality of MSME players can be improved using the existing resources. This also requires the help of academic institutions in the form of providing research and development (R&D) services for product innovation.

MSME covers only manufacturing and service industries. Trading companies are not covered by the scheme. MSME is to support startups with subsidies and benefits, trading companies are just like middlemen, a link between manufacturer and customer. Hence not covered under the scheme.

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