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MSMEs-The Catalyst of Development

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  • Published
    2nd Sep, 2020
  • Micro, Small and Medium Enterprises (MSMEs) are amongst the life line for the self reliance in the rural India. Today, MSMEs are the strongest drivers of economic development, innovation and employment for the global economy.
  • As per the data gathered by the International Council for Small Business (ICSB), formal and informal MSMEs make up over 90 percent of all firms and account and on average, for 70 percent of total employment and 50 percent of the world GDP.
  • In developing countries like India, where majority of the population resides in the rural areas, these MSMEs are crucial - socially and economically.
  • Because, these enterprises are wide dispersed across rural areas, they are extremely important for rural economic development.
  • Further, these enterprises play a key role as a place for entrepreneurship and business skill development, especially in rural areas due to their easy accessibility.
  • In the emerging markets, most formal jobs are generated by SMEs, which create seven out of 10 jobs. However, there is a need for infusion of more funds for realising the optimum potential of this sector in our economy and also in employment generation.

Growth and Development of MSMEs

  • The MSME sector also contributes in a significant way to the growth of the Indian economy.
  • The sector contributes about 45 percent to manufacturing output, more than 40 percent of exports, over 28 percent of the GDP while creating employment for about 111million people.
  • The MSME sector tends to play a great role in employability in the rural areas to augment the agro-based economy.
  • The MSME sector in India is exceedingly heterogeneous,however, the sector has the potential to grow at a faster pace. To provide impetus to the manufacturing sector, the recent National Manufacturing Policy envisaged raising the share of manufacturing sector in GDP from 16 percent at present to 25 percent by the end of 2022.
  • The MSMED Act, 2006has legal framework for identifying the concept of 'enterprise' which includes entities both in manufacturing and service sectors and has categorized the enterprises into three tiers viz., Micro, Small and Medium.

Presently, the Ministry of Micro Small and Medium Enterprises is implementing the following programmes for the growth and development of MSME sector in the country.

  • Prime Minister's Employment Generation Programme: This is a credit-linked subsidy programme aimed at generating self-employment opportunities through establishment of micro-enterprises in the non-farm sector by helping traditional artisans and unemployed youth.
  • Scheme of Fund for Regeneration of Traditional Industries: It is a cluster-based scheme for development of khadi, village industries and coir clusters by providing them with improved equipments,common facilities center,businessdevelopment services, training, capacity building and design and marketing support, etc.
  • A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship: This scheme was launched in 2015 to set up a network of technology centres, to set up incubation centres, to accelerate entrepreneurship and also to promote start-ups for innovation and entrepreneurship in agro-industry.
  • Coir Board: The Ministry of MSME, through Coir Board,is also implementing various Schemes/ programmes to assist entrepreneurs to set up new MSMEs in all coconut producing States.
  • Credit Guarantee Scheme for Micro and Small Enterprises: The scheme facilitates credit to the MSE units by covering collateral- free credit facility (term loan and /or working capital) extended by eligible lending institutions to new and existing micro and small enterprises.
  • Credit linked Capital Subsidy Scheme: This scheme facilitates technology upgradation of small scale industries, including agro & rural industrial units by providing 15 percent upfront capital subsidy, limited to maximum of Rs.15 lakhs.
  • Micro and Small Enterprises-Cluster Development Programme: Under this scheme, the Cluster Development approach has been adopted as a key strategy for enhancing the productivity and competitiveness as well as capacity building of Micro and Small Enterprises (MSEs) and their collectives in the country.
  • Solar Charkha Mission: Launched on 27 June 2018, it is a programme that aims to contribute towards India's rural unemployment issue. The mission provides training in producing cloth to rural people which in turn, allows them to earn a better livelihood. Another appealing factor of this programme is that the looms and spindles used during the training are completely powered by solar energy.

Bracing the Challenge of COVID-19 Pandemic

  • COVID-19 pandemic is impacting the MSME sector because small companies tend to be vulnerableduring an economic crisis becausethey have fewer resources with which to adapt to a changing context.
  • After 14 years since the MSME Development Act came into existence in 2006, a revision in MSME definition was announced in the Aatmanirbhar Bharat package on 13th May, 2020.
  • Now, in the definition, limit of micro manufacturing and services units has been increased to Rs. one crore of investment and Rs. five crore of turnover. The limit of small unit has been increased to Rs. 10 crore of investment and Rs 50 crore of turnover. Similarly, the limit of medium unit has been to Rs. 20 crore of investment and Rs. 100 crore of turnover.
  • The new definition will pave way for strengthening the growth of the MSMEs. In one of such new benefits, the provision of excluding the exports from counting of turnover will export more and encourage the MSMEs to more without fearing to lose the benefits of a MSME unit.
  • Ministry of MSME has put in place a very strong handholding mechanism for MSMEs and for this a new web portal in the name of Champions - Creation and Harmonious Application of Modern Processes for Increasing the Output and National Strength-www.champions.gov.in has been launched recently.

e-Commerce Vital for Higher Growth of MSMEs

  • India is the fastest growing market for the e-commerce sector and the revenue from the sector is expected to increase from USD 39 billion in 2017 to USD 120 billion in 2020, growing at an annual rate of 51 percent, the highest in the world.
  • The leading e-commerce companies in India are also helping to tackle some of the challenges that MSMEs face in adopting e-commerce technologies like assisting MSMEs in funding, training and adoption of technology and encouraging them to engage with customers on a real-time basis.
  • State Bank of India is working on setting up an e-commerce portal for marketing ofproducts manufactured by micro, small and medium enterprises (MSMEs) in the country.

The Road Ahead

  • There is need to create skill training hubs in each district of the country with a dedicated nodal office in each district by roping in all the stakeholders.
  • There is need to establish higher institutions of learning to impart knowledge and skills that can train the manpower in the efficient management of resources, human resource issues, tax laws, labour laws, etc.
  • Innovations, infusion of new technologies, skilled manpower and availability of finances in the MSMEs can transform the lives in the rural landscape of the country.

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