By Rajnish Goenka, Chairman, MSME Development Forum
The Micro, Small and Medium Enterprises (MSME) sector has emerged as a major growth multiplier of the Indian economy. The sector contributes significantly to the country’s economic growth by fostering entrepreneurship and generating large employment opportunities at comparatively lower capital cost. It plays an important role in socio-economic development too by integrating the nation’s backward and rural areas to the mainstream.
MSMEs’ place in the economy
MSME sector in India is the second largest employment generator after agriculture, and acts as a breeding ground for entrepreneurs and innovators with considerable support in strengthening business ecosystems.
· India has 633.88 lakh unincorporated non-agriculture MSMEs engaged in different economic activities (196.65 lakh in manufacturing, 0.03 lakh in non-captive electricity generation and transmission , 230.35 lakh in trade and 206.85 lakh in other services). Rural India with 324.88 lakh units accounts for 51.25% share in total number of enterprises.
· Total employment in MSMEs was estimated at a huge 110 million in 2017-18. Indian MSMEs produce more than 6,000 different products for local and global consumers.
· According to DGCIS the export value of MSME related products in India accounted for over 49.4% of total exports during 2020-21. MSMEs exposed to higher levels of integration with global value and supply chains are playing a critical role in global trade systems.
· In 2019 the sector contributed 29% to India’s overall GDP. Describing the MSME sector as the backbone of the Indian economy, the government aims to increase the sector’s contribution to 50% of GDP.
The contribution to GDP apart, MSMEs act as a catalyst for socio-economic development of the country. Since more than half (324.88 lakh units) of the MSMEs operate from rural India they play a big role in intertwining the rural and urban economies and societies.
Redefining of MSME
To meet the need of the changing ecosystem the definition of MSME was changed in 2020. Earlier they were defined on the basis of investments but the revised definitions include turnover of the company too. A micro enterprise is now defined as one whose capital investment does not exceed one crore rupees and turnover does not exceed five crore rupees. Capital investment and turnover of a small enterprise will not exceed Rs 10 crore and Rs 50 crore, respectively while the capital investment and turnover of a medium enterprise will not surpass Rs 50 crore and Rs 250 crore
Budget 2022-23
In her last two budgets Nirmala Sitharaman has taken special care to help the sector coming out of the impact of Covid-19 pandemic that saw a large number of MSMEs either shut down or fell sick. While FM has continued with most of the schemes undertaken in 2021-22 to help the sector’s revival, she has proposed some new schemes and has extended the scope of the earlier ones in her last Budget.
· The Emergency Credit Line Guarantee Scheme extended (ECLGS) till March 2023.Tthe outlay of the fund increased to Rs 5 lakh crore to expand the number of beneficiaries.
· On similar lines, revamping of the Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE) will provide additional credit of Rs 2 lakh crore.
· Accelerating MSME Performance or RAMP – with an outlay of Rs 6,000 crore over five years envisages helping to improve the competitiveness of MSMEs, enabling them to become part of global value chains.
· Linking of portals – Udyam, e-Shram, National Career Services and Atma Nirbhar Skilled Employer-Employee mapping – will help in formalising skilling, credit facilitation and recruitment services for the MSMEs.
· Increased focus on digital banking, payments and fintech will also provide opportunities for improving liquidity for MSMEs
Global competitiveness
About a half of India’s export is accounted for by the MSME sector. This clearly shows the importance of the sector in India’s external trade. In fact, experts believe that export earnings of MSMEs can increase manifolds as there is tremendous potential for the sector to get integrated into the global value chain due to their manufacturing cost advantage. To achieve high growth, the two most significant interventions required are related to credit assistance and technology upgradation.
Most Indian MSMEs, however, are grappling with a lack of competitiveness, especially when compared to global counterparts. The issue is structural – about 99% of MSMEs continue to be micro-enterprises with limited means. Besides, lack of capital, scarcity of skilled workforce and lack of awareness of the global market often impede the sector’s competitiveness in the global sphere. The government with the aim to increase MSMEs’ value added to 50% of GDP has, however, come out with some schemes to address the issue,
· Financial Support to MSMEs in ZED Certification Scheme. It focussed on existing and new manufacturing units, ZED or Zero Defect and Zero Effect to encourage manufacturers to create better products, with high quality and zero defects. The scheme will provide both financial support, and technology and tools to ensure zero defects in their products.
· Credit Linked Capital Subsidy for Technology Upgradation (CLCSS). The government is aware that technology is the tool that can propel Indian MSMEs to compete in the global market. This Scheme provides financial help to MSMEs to upgrade their technology and implement state of the art technological platforms for their business.
· The government has established 52 Export Facilitation Centers (EFCs) across the country to provide requisite mentoring and handholding support to MSMEs in exporting their products and services to the foreign market.
· A comprehensive B2B Portal-MSME Mart has been introduced, which is a one stop digital solution to all business needs of MSMEs and aims towards providing next generation services to MSMEs and make them competitive in a global market.
Maybe, these schemes will help MSMEs to improve global competitiveness, but before that, the government has to address their basic problem of fund scarcity. Another significant issue is the non-availability of adequate raw materials in time and at reasonable prices.
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