MSME Insight: Economic pillar of developing India


    The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country and has grown a lot in the last five years. In India, the sector has gained significant importance and value raised up due to its contribution to the Gross Domestic Product (GDP) of the country and its exports. The sector has also contributed immensely with respect to entrepreneurship and inspiring youth to start their own business especially in semi-urban and rural areas of the country.

    Micro, Small and Medium Enterprises (MSME) are classified into two classes i.e. Manufacturing Enterprises and Service Enterprises. MSME has emerged as the growth engine of the economy with a vast network of about 6.33 crore enterprises contributing 30 per cent of the nominal GDP and 48 per cent to exports, according to RBI Governor Shaktikanta Das. 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 the Udyog Aadhaar Memorandum.

    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 small and medium enterprises on the platform are expected to witness >60 SMEs entering 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.

    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 (US$ 7.5 billion) until September 2020.

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

    The GOI 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 (US$ 2.14 billion) vis-à-vis Rs. 7,572 crore (US$ 1.03 billion) in FY21. The government also announced Rs. 3 lakh crore (US$ 40.85 billion) collateral-free automatic loans for businesses. In Union Budget 2021, the government announced funds worth Rs. 10,000 crore (US$ 1.36 billion) for the ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers, giving a major boost to the sector.

    MSMEs contribute 30% of India’s GDP. The share of MSME-related products in total exports from India during 2018-19 is 48%. The estimated number of workers in unincorporated non-agriculture MSMEs in the country is 11 crore. MSMEs have helped promote the growth and development of khadi, village, and coir industries. MSMEs have played an essential role in providing employment opportunities in rural areas.

    In the financial year 2020, the total number of MSMEs in the country was more than 63 million. Survey reports have shown that disruptions caused by the Covid-19 pandemic have impacted MSMEs earnings by 20-50%, micro and small enterprises faced the maximum heat, mainly due to liquidity crunch. Enterprises working in essential commodity businesses were better off in terms of interrupted but predictable cash flows.

    As the rotation of capital has again started, will soon boost the economic condition of the MSME Sector. Reports say MSME industry is one of the fastest-growing industry and have potential to execute the motive of government and their policies.