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.
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.