Micro Small Medium Enterprises(MSME)

Context:

In order to enhance the capacity building of domestic industry, particularly MSMEs and make them export-ready, government has increased engagement with Micro, small and Medium Enterprises so as to address the concerns regarding the implementation of Quality Control Orders.

UPSC Relevance:

Significance of MSMEs in India’s Growth trajectory and Related challenges.

PYQ:

Q: Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the government in this regard. (2023).

What are MSMEs?

Current status:

• The sector contributes almost 8% of the country’s GDP, around 45% of manufacturing production, and about 40% of exports.
• > 99% of MSMEs are in ‘Micro’ sector, 94% of MSME are unregistered with the government, 55% of MSME in rural areas.

Significance of MSME sector in India:

• Rural Development- MSMEs have contributed significantly to development of rural industries with minimal capital cost, leading to socio-economic growth of rural areas.
• Economic growth and export promotion- With around 8% contribution to India’s GDP, 45% to manufacturing production and about 40% of exports, MSMEs hold immense potential to take Indian economy to new heights.
• Employment intensive growth model- Many of the MSMEs are highly labour intensive such as the textiles, and MSMEs account for second highest employment generation after agriculture sector.
• Inclusive growth- by growth of underdeveloped region and sections such women have higher labour force participation rate in MSMEs, also schedule castes and schedule tribes.
• Growth of sunrise sectors such as electronics industry, chemicals, leather, textiles, food processing and others.
• Strategic importance as MSMEs have significant role to play in success of Make in India scheme, start up India, stand up India, indigenous defence production, foreign trade policy.

Issues with MSME sector:

• Financial issues: only around 16% of MSMEs have access to formal channels of finance.
• Technological issues: MSMEs have struggled with outdated technologies and low productivity.
• Dwarf firm issues whereby micro and small firms dominate presence in MSME sectors, with firms greater than ten years old but still in failing to transition in higher category of industries.
• Informalization: Many MSMEs operate without a formal registration, with around 86% of manufacturing MSMEs remaining unregistered.
• NPA issue: As per the Reserve Bank of India (RBI), bad loans of MSMEs account for 9.6% of gross advances, up from 8.2% in 2020.

Way forward:

• Capacity building through enterprise development centres at the district level to provide handholding support.
• Sinha committee recommendation for MSMEs:
  • Creating Institutional framework in the form of National Council for MSMEs for coordination.
  • GeM Portal, with mandatory procurement from MSMEs through the portal.
  • Addressing delays in payment to MSMEs such as through MSME Samadhan, increasing the number of facilitation councils at state level.
  • Improvement in ease of business by replacing multiple registrations by Unique Enterprise identifier (UEI).
  • Improving access to finance by strengthening TReDS platform, enhancing loan limit under MUDRA, specialised banks for PSL lending to MSMEs.
• Economic survey 2018-19 has suggested for incentivising ‘infant’ firms rather than ‘small’ firms.

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