MSMEs : A growth engine for Indian economy

*Prof.Parul Sharda(M.B.Khalsa,College,Indore),parul_2307!ahoo."o.#n
**$r.M.$.Panga(Med#%"aps #ns&#&u&e of &e"hno%'anage'en&),panga(2)red#*'a#l."o'
Abstract
Micro, Small & Medium Enterprises sector constitute the growth engine of the countrys economy.It account for
almost 45% of manufacturing output, 5% of the num!er of industrial unit, 4"% of the e#port and pro$ide
employment to almost %" million people ma&ing it largest source of employment after the agriculture sector.'ith the
help of (o$ernment support, the MSMEs lead to entrepreneurial de$elopment and di$ersification of the industrial
sector, and also pro$ide depth to industrial !ase of the economy.More employment opportunities are generated and
the capital cost per employee is low.'ith the Ser$ices sector dominating the MSME, and M)*s outsourcing their
$arious re+uirements to Indian ser$ice pro$iders, the scope for MSME finance has increased e$en further.
Key Words ,Micro,Small and Medium Scale enterprises-MSME.s/,Entrepreneurial de$elopment,(o$ernment support.
Introduction
The Micro, Small and Medium scale enterprises(MSMEs) today playing a pivotal role in the
economic and social development of Indian economy. The development of this sector came
about primarily due to the vision of our late Prime Minister a!aharlal "ehru !ho sought to
develop core industry and have a supporting sector in the form of small scale enterprises. SMEs
sector has emerged as a dynamic and vibrant sector of the economy. The MSME sector
contributes significantly to the country#s manufacturing output, employment and e$ports and is
credited !ith generating the highest employment gro!th as !ell as accounting for a ma%or share
of industrial production and e$ports.
MSMEs have been globally considered as an engine of economic gro!th and as &ey instruments
for promoting e'uitable development.MSMEs contribution towards GDP was
17% in year 2011, and raised to 22% in year 2012. The ma%or advantage of
the sector is its employment potential at lo! capital cost. The labour intensity of the MSME
sector is much higher than that of large enterprises. MSMEs constitute more than ()* of total
enterprises in most of the economies and are credited !ith generating the highest rates of
employment gro!th and account for a ma%or share of industrial production and e$ports. In India
too, MSMEs play an essential role in the overall industrial economy of the country. In recent
years, the MSME sector has consistently registered higher gro!th rate compared !ith the
overall industrial sector. +ith its agility and dynamism, the sector has sho!n admirable
innovativeness and adaptability to survive the recent economic do!nturn and recession.
The MSME sector in India is highly heterogeneous in terms of the si,e of the enterprises, variety
of products and services, and levels of technology. The sector not only plays a critical role in
providing employment opportunities at comparatively lo!er capital cost than large industries
but also helps in industriali,ation of rural and bac&!ard areas, reducing regional imbalances and
assuring more e'uitable distribution of national income and !ealth. MSMEs complement large
industries as ancillary units and contribute enormously to the socioeconomic development of the
country.
Highlights of MSME Sector.
MSMEs account for about -.* of India#s manufacturing output.
/ MSMEs account for about -)* of India#s total e$ports.
/ The sector is pro%ected to employ about 01 mn people in more than 12 mn units spread across
the country.
/ MSMEs manufacture more than 3,))) products ranging from traditional to high tech items.
/ 4or 4522, total production coming from MSME sector !as pro%ected at 6 2),(.0.3 bn, an
increase of more than 22* over the previous year.
Definition of MSME
Enterprises are broadly classified in t!o categories7
i) Manufacturing and,
ii) Those engaged in providing8 rendering of services
9oth categories of enterprises are then classified into Micro, Small and Medium scale
enterprises based on their investments on plants and machineries ( for manufacturing
enterprises ) or on e'uipments ( in case of enterprises providing or rendering
services).The present ceiling on investments to be classified as micro, small or medium
enterprises is as under7
Classification of MSMEs based on the MSMED Act 2!
Classification In"estment ceiling for #lant$ Machinery or E%ui&ments
Manufacturing enter&rises Ser"ice Enter&rises
Micro :pto :S; 3<.)) :pto :S; <.)))
Small 9et!een :S; 3)))) to :S;
2.<. million.
9et!een :S; <.))) and
:S; ).. million.
Medium 9et!een :S; 2.<. million =
:S; <.. million.
9et!een :S; ).. million
and :S; 2.<. million.
'iterature (e"iew
Sa))an *indal +2,2-,President ,> ne!s paper >SS?@A>M , stated that BSMEsC contribution
to national D;P is pro%ected to go up to by a minimum of .* and touch <<* share of IndiaCs
D;P by <)2<, since over ..* of SMEs are aggressively upgrading themselves
technologically to reduce their input costs and increase production and e$ports, says a Paper
brought out by >SS?@A>M. SMEs share to national e$ports currently is estimated at around
1E* !hich !ill surge to over --* in ne$t . years. The main reason of SMEs doing
e$ceedingly !ell in ne$t -F. years !ould be because over ..* of SMEs !ould have absorbed
technological upgradation to their units.B
(a)i" Sodhi$ +2,-$ ;irector, ?nline 9usiness, Microsoft @orporation (India) Pvt. Gtd.said
that BThere are more than E million SMEs in India today F small companies that churn out
auto components or electronic parts, garments or leather goods F ma&ing manufacturing the
biggest engine for %ob creation in our economy. They are responsible for about 3) per cent of
IndiaCs e$ports, and about -) million !or&ers are employed by the manufacturing sector.B
.irendra./umar.0hare$.i)ay.#.1ani+22-,Productivity Dro!th in MSMECs through
Technology Incubation, discusses that,BMSMECs &no!n as seedbeds for innovation and
entrepreneurship. >n organi,ed support system has been prevailing in India for startups and
sustainable gro!th since independence. Ao!ever the economic reforms li&e Giberali,ation,
Privati,ation and Dlobali,ation on one hand and formation of +orld Trade ?rgani,ation on
the other hand had a negative impact on the performance of these enterprises.B
Debi.S.Saini and #awan.S.3udhwar +24-: The analysis sho!s that indigenous
realities in AHM in Indian SMEs relate mainly to the provision of financial, emotional and
social support to the !or&forceI employee involvement (EI) practicesI recruitmentI s&ill
developmentI managing employee relationsI and managing visFJFvis labor la! frame!or&.
The paper argues that in the sphere of people management in SMEs, the !illingness to
innovate and formali,e the AH systems is constrained by a &ind of bounded rationality, i.e.,
the o!ners of SMEs mostly believe that they are already doing !hat is humanly possible in
this regard. The analysis has an important message for concerned practitionersKin order to
reali,e their full potential and to progress to!ards fulfilling their visionI SMEs eventually
have to intert!ine indigeni,ation and formali,ation for their people management approaches.
Dr. 0aushalesh 'al +5ctober 26-: It is !ell &no!n that survival of SMEs is very crucial
for Indian economy. >ny adverse impact on the gro!th of firms !ill have serious
implications on the employment and foreign trade. The findings of the study suggest that
government needs to provide basic and technological infrastructure to SMEs !ithout !hich
firms cannot use I@Ts (Information and @ommunication Technologies) effectively. >nd
!ithout adoption of appropriate I@Ts firms may not remain competitive in the era of
liberali,ation and globali,ation.
Singh$ (a)esh 0.7 8arg$ Suresh 0.7 Deshmu/h$ S.8. +24-: Small and Medium
Enterprises (SMEs) are considered engines for economic gro!th, not only in India but all
over the !orld. They account for E)* of global economic gro!th. Mar&et conditions have
dramatically changed for Indian SMEs after economic reforms. SMEs are regularly facing
ne! challenges in terms of cost, 'uality, delivery, fle$ibility and human resource development
for their survival and gro!th. In the conte$t of a dynamic mar&et scenario, they have to
formulate their strategies for developing various capabilities and competencies to satisfy their
domestic as !ell as global customers. 4or longFterm competitiveness, SMEs have to focus on
all aspects of organi,ational functions such as assets, strategy development, processes and
their performance. It is observed that to be competitive, SMEs should have clarity of mission
and should proactively develop their human resources and competencies to meet fast
changing customer re'uirements.
5b)ecti"e of the Study
I. To study the overall scenario of MSMECs
II. To study the contribution of Dovernment to!ards MSMECs in gro!th of Indian Economy.
MSMEs 9 8D# and II# growth rates
MSMEs have outperformed IIP and D;P gro!th rates in the past five years. The domestic
MSME sector has outpaced industrial and D;P gro!th. ;uring 452<, total production of
MSMEs !as pro%ected to gro! at 22.-E* compared to industrial and D;P gro!th of E.<*
and E.-* respectively.
In 4522, total production of MSMEs !as e'uivalent to about 2-.<E* of India#s D;P (at
current mar&et prices). The total production of MSMEs for 4522 !as 2),(.0.3 bn (at <))2F)<
prices). 9et!een 45)0 and 4522, the sector #s total production gre! at a @>DH of 22..*,
clearly indicating the substantial contribution of MSMEs to the Indian economy.
Com&aring the growth rate of MSMEs with II# and 8D#
)ote, 012", 3ro$isional, 0122, 3ro4ected
Source, 5nnual 6eport 7"22827 of Ministry of Micro, Small & Medium Enterprises, (oI Economic Sur$ey 7"22827
:i;ed in"estment and em&loyment in MSME segment registered mutual growth
Productivity of the MSME sector has been improving tremendously and cont i nuos l y !ith
fi$ed investment and employment gro!ing consistently in the past couple of years. This is a
direct indication of the efforts in the sector to integrate the !or& force !ith technological
enhancements to increase production. 4i$ed investment in the MSME sector bet!een 45)0
and 4522 has gro!n at 22.-E* @>DH and employment gre! more than .* year of year
:i;ed in"estment .s em&loyment in MSMEs
)ote, 012", 3ro$isional, 0122, 3ro4ected
Source, 5nnual 6eport 7"22827 of Ministry of Micro, Small & Medium Enterprises, (oI Economic Sur$ey 7"22827
#S3<s+#ublic Sector ban/s- 9=he largest lender to MSME<s:
The MSME sector has been accorded high priority in the industrial policy o!ing to its vital
role in the economy. ;uring 4522, the total outstanding credit by ban&s to MSMEs in India
stood at 6 -,E.(.-1 bn, and has gro!n at a @>DH of 1(.E* during 45)0F4522.
>mong ban& categories, public and private sector ban&s have registered impressive gro!th of
1..<E* and 13.2-* in MSE lending in 4522. Ao!ever, Public Sector 9an&s (PS9s) account
for a ma%or share compared to private and foreign ban&s. ;uring 4522, total priority sector
advances by PS9s gre! by 2(.2* yFoFy to 6 2),<E3.2. bn, as against 6 E,310.00 bn in 452).
Total advances provided by the PS9s to the MSE sector for 4522 gre! by 1..1* yFoFy to 6
1,033.<. bn. >dvances to MSE formed around 10* of the total priority sector advances of
PS9s, versus the 1<* share during 452). Moreover, the share of MSE credit to net ban& credit
stood at (.( * in <)22 against 21.-* in <)2)
Source7 >nnual Heport <)22F2< of Ministry of Micro, Small = Medium
enterprises, DoI, >nnual Heport <)2)F22 of Heserve 9an& of India
MSMEs play a highly constructive role in an economy. This is evident from the economic
and socioeconomic benefits by the developed and the developing !orld.
Ma)or initiati"es underta/en by the go"ernment in :>,2 to re"itali?e the MSME sector:
/ 9SE and "SE got the approval for SME platforms from SE9I and have been operational. This
!ill serve as an opportunity for Indian SMEs to raise funds from capital mar&ets.
/ To achieve the overall target set by the Prime Minister #s "ational @ouncil on S&ill
;evelopment, Ministry of MSME and the agencies conducted the s&ill development
programmes for -0E,))) persons during 452<. ;uring 4521, the Ministry aims to provide
training to .0<,))) people through its various programmes for development of selfFemployment
opportunities as !ell as !age employment opportunities in the country.
/ To improve the productivity, competitiveness and capacity building of MSMEs, the
Dovernment of India has adopted a clusterFbased approach. ;uring >prFan <)2<, the
government has ta&en E ne! clusters for diagnostic study, . for soft interventions, and - for
setting up of common facility centers. Till an <)2<, the government has ta&en total -00 clusters
for diagnostic study, soft interventions and hard interventions and 21- infrastructure
development pro%ects.
Source, Economic Sur$ey 7"22927
Sna&shot of 3udget 2,29,@ for MSME Sector
/ >vailability of e'uity to the MSME sector, the Dovernment has set up an India ?pportunities
Lenture 4und !ith SI;9I !orth 6 .) bn.
/ >llocation for the Prime Minister #s Employment Deneration Programme increased by <1*
from 6 2).10 bn to 6 2<.03 bn.
/ :nder the Public Procurement Policy for Micro and Small Enterprises (MSEs), Ministries and
@entral Public Sector Enterprises (@PSEs) are re'uired to ma&e a minimum of <)* of their
annual purchase from MSEs. ?f this purchase, -* to be earmar&ed for procurement from MSEs
o!ned by S@8ST entrepreneurs.
/ Increase in the turnover limit from 6 3 mn to 6 2) mn for SMEs for compulsory ta$ audit of
accounts and for presumptive ta$ation.
/ E$emption of capital gains ta$ on sale of a residential property, if the sale consideration is
used for subscription in e'uity of a manufacturing SME company for purchase of ne! plant and
machinery.
/ Heduction in the basic customs duty to <..* !ith concessional @L; of 3* on specified parts,
components and ra! materials for the manufacture of medical devices such as disposables and
instruments.
/ 4ull e$emption from basic customs duty and @L; to specified ra! materials for the manufacture
of coronary stents and heart valves.
/ Heduction in the e$cise duty from 2)* to 3* on matches manufactured by semiFmechanised
units.
Source, :&; 6esearch
5utloo/
> dynamic global economic scenario has thro!n up various opportunities and challenges to the
MSME sector in India. ?n the one hand, numerous opportunities have opened up for this sector
to enhance productivity and loo& at ne! national and international mar&ets. ?n the other hand,
these opportunities compel the MSMEs to upgrade their competences to contend !ith
competition since obsolescence is rapid !ith ne! products being launched at an incredible
pace and are available !orld!ide in a short time.
0ey Challenges faced by the MSME Sector:
/ Gac& of availability of ade'uate and timely credit
/ Aigh cost of credit
/ @ollateral re'uirements
/ Gimited access to e'uity capital
/ Procurement of ra! material at a competitive cost
/ Problems of storage, designing, pac&aging and product display
/ Gac& of access to global mar&ets
/ Inade'uate infrastructure facilities, including po!er, !ater, roads
/ Go! technology levels and lac& of access to modern technology
/ Gac& of s&illed manpo!er for manufacturing, services, mar&eting, etc
/ Multiplicity of labour la!s and complicated procedures associated !ith compliance of such
la!s
Conclusion
;espite the various challenges it has been facing, the MSME sector has sho!n admirable
innovation, adaptability and resilience to survive the recent economic do!nturn and recession.
it can be concluded that, the MSME sector output contributes a ma%or share to the total e$ports
from India (direct as !ell as indirect e$ports) and is the second largest employer of human
resources after agriculture. The development of Small Scale Sector has therefore been assigned
an important role in IndiaCs national plans.
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