The Micro, Small, and Medium Enterprises (MSMEs) sector is defined by units with cumulative investments ranging between 25 lakhs to 10 crores for manufacturing and between 10 lakhs to 5 crores for services.
This sector holds significant importance as it contributes to 48% of India’s exports, employs nearly 40% of the country’s workforce, and contributes 31% to the GDP.
Often referred to as the growth engine of the nation, the MSME sector offers various benefits:
- The MSME sector provides ample opportunities for both self-employment and wage-employment outside the agricultural sector, reducing disguised unemployment in the primary sector.
- MSMEs contribute to building an inclusive and sustainable society by creating livelihoods at a low cost, promoting balanced regional development, and fostering environmentally sustainable practices.
- The MSME sector showcases diversity in terms of its size, technological advancements, range of products and services, and target markets.
- By establishing India as a global manufacturing hub, the MSME sector can enhance the country’s presence in global supply chains.
- MSMEs have the potential to play a crucial role in driving an export-led growth trajectory for the Indian economy, as demonstrated by their contribution of 48% to Indian exports.
Despite its importance for the overall economic growth, the MSME sector faces numerous challenges:
- Insufficient and untimely access to finance hampers the sector’s ability to compete globally, particularly in the context of free trade agreements.
- Inadequate access to modern technology results in low productivity, competitiveness, and increased input costs, thereby compromising output.
- Poor marketing and branding strategies impede the scalability of MSME operations, which is crucial in a globalized world where opportunities arise and fade quickly.
- High regulatory and compliance costs often lead enterprises to remain small to take advantage of regulatory concessions.
- Issues related to labor laws, research and development, and infrastructure pose constraints on the growth and development of the MSME sector.
- Delayed payment of dues to MSMEs restricts their ability to reinvest in their assets, as exemplified by the impact of COVID-19 lockdowns on formal sector units’ payments to MSMEs.
To revive the MSME sector, concerted steps need to be taken, including:
- Incentivizing the growth of ‘Dwarf’ micro, small, and medium-sized enterprises with fewer than 100 workers, as highlighted in the Economic Survey-2019, to address the missing middle challenge.
- Providing MSMEs with access to the latest technology to enhance their competitiveness and efficiency, such as incorporating AI interventions for improved packaging operations (e.g., ASPIRE scheme).
- Establishing Common Facility Centers in each MSME cluster to ensure the availability of raw materials, marketing support, and smooth movement of goods and services (e.g., SFURTI scheme).
- Strengthening credit availability for the MSME sector to enable sustainable operations, utilizing initiatives like the Credit Guarantee Trust Fund, Mudra Yojna, and 59 minutes loan.
- Implementing measures to ensure timely payment of dues to the MSME sector, considering that more than 10 lakh rupees are estimated to be stuck in delayed payments.
Conclusion:
Reviving the MSME sector requires a stakeholder approach, with initiatives like MSME Sambandh and Samadhan, the zero defect zero effect model, and the 25% public procurement policy serving as prudent measures in this direction.