Assignment on writing an Article Review (BSM).

Article Title: MSMEs’ Role in Economic Growth and its challenges- in case of
India

Student name Daniel Luelsseged, ID Number M/1625/21

Authors of the 10 Articles underused, please see the reference

article
Year of the article 2017 to 2021, Only Five Years Span

Publisher of the Different Journals, which all published Articles

article
Course title Business Research & Methodology (MBA 621)_

Course manager Dr. Dawit (PhD)

October 2021

Abstract
This paper critically reviews the contribution made by Micro Small and Medium Enterprises
(MSME) with respect to Economic Growth and its challenges in India. To do that, I used 10
articles to know details about the role of MSMEs in economic growth in case of India where the
plenty sources of reference available in the web page and published in different journals. The
time of the reviewed articles are within the latest of 5 years when they published, so I used the
period in between 2017 and 2021. While reviewing the main finding that I found is that, Micro
Small and Medium Enterprises (MSME) sector has emerged as highly dynamic sector of Indian
Economy over last few decades, specifically MSMEs have potential in balancing distribution of
income, reduction of poverty, generation of employment, growth in export, development of
entrepreneurship, development of industry and rural economy. But, Indian MSMEs are with
plenty of challenges, like availability of finance, upgraded technology, lack of formal
registration, competitive market environment and compliance issues.

Keywords: MSME, Micro, Small, and Medium Enterprises, Economic growth, challenges

1. Introduction: subject background and motivation/justification

India’s Micro, Small and Medium Enterprises (MSMEs) sector has appeared as a vibrant and
dynamic sector for the Indian economy. And, MSME has been recognized as a catalyst in
promoting the growth and development. MSMEs are playing a pivotal role in creating a huge
amount of employment at meager cost of capital in comparison to large industries, helping in
establishment of industries in economically backward regions and truncating regional
inequalities, promising justifiable dispersion of national income and wealth. (Gade, Surendar.
2018).

Indian Micro, Small, and Medium Enterprises (MSMEs) base are the largest in the world after
China. This sector provides a wide range of services and products. It is engaged in the
manufacturing of over 6,000 products ranging from traditional to hi-tech items. The government
of India latest ‘’Make in India‟ push, along with a significant jump in the FDI flows, the Indian
MSMEs sector is poised for rapid growth and integration with major global value chains. In
accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED)
Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes.
(Pawar, A., & Sangvikar, B. V. 2019, October)
The role of MSMEs in economic development of Indian economy as Micro, Small and Medium
Enterprises (MSMEs) play an important role in the economic development of a country due to
their contribution to production, exports and employment. The sector contributes 8 per cent to
the country's GDP, 45 per cent to industrial products and 40 per cent to the country's exports. It
employs 60 million people in 28.5 million enterprises. It is noteworthy that the MSME sector has
maintained a higher growth rate over the last one decade than the general industrial sector.
According to the survey, exports from these enterprises are on the rise despite rising raw material
prices, sluggish global demand and fierce international competition. Today, the field produces a
wide range of products, from simple consumer goods to high-purity, complex finished products.
It has become a major supplier of consumer goods, as well as a manufacturer of electronic and
electrical appliances, medicines and pharmaceuticals. The momentum for the sector is likely to
have a multiplier effect on economic growth. According to the MSMED Act, MSMEs are
determined on the basis of their investment in plants, machinery and equipment for service
providers. (Gaikwad, A., & Dhokare, C. S. (2020).

In India, the MSMEs accounts for 32% of the total export value, and 40% of the output value of
the manufacturing sector of the country. (Chalid Imran Musa and Muhammad Hasan (2018).
Micro, Small and Medium Enterprises play a significant role in the socio economic development
of a nation. They have a commendable role in generating employment opportunities for the
youths of the nation. Their share in exports is increasing at a rapid pace and they make a
significant contribution towards the national GDP. More than 90 percent of the manufacturing
units in India come under the purview of the MSME Sector. Biswas, A., Srivastava, S., &
Kumar, R. (2018).

The MSMEs contribute significantly in the development of Indian economy through export
production, domestic production, low investment requirements, operational flexibility,
technology oriented enterprises etc. The SMEs are complimentary to large industries operating in
the economy & contribute significantly in the development of the country. On an average this
sector has almost 36 million units that provide employment to about 80 million individuals. This
sector through the production of 6000 products contributes 8% to GDP of the country. It
constitutes the 45% portion of the total manufacturing output and 40% of the total exports of the
country. (Kumar, V. (2017)
The Indian MSME are recognized as a major contributor in the economic growth. It is said to be
the backbone of the Indian economy. It has provided resilience to ward off global economic
shocks and adversities. Nearly, 20% of the Indian MSME are based out in the rural areas of India
and continues to provide employment opportunities to nearly 40% of the India’s labor force.
According to Reserve Bank of India (2017), in the year 2015–16, the MSME sector comprised of
more than 51 million enterprises employing more than 117 million persons. Mukherjee, S.
(2018). Around 50% MSME are owned by rural people and hence increases the standard of
living of people. (Gade, Surendar. (2018).

The MSME sector in India takes less capital per unit of labour, traditional skill, local resources
etc. It also plays an important role in economic development with their effective, efficient,
flexible and innovative entrepreneurial spirit. (Chakrabartty, K. (2017).

The Micro Small and Medium Enterprises have been defined under MSME Act, 2006.
According to the Act, MSME have been broadly classified in two categories: the one is,
enterprises engaged in the manufacturing and production of goods pertaining to any industry;
and the other two is, enterprises engaged in providing or rendering services. MSMEs contribute
around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities as well
as 33.4% of India’s manufacturing output. They have provided employment to around 120
million persons and contribute around 45% of the overall exports from India. (Pandit, S. (2017).

Despite its significance on economy, there has been worry that SMEs have not realized its
maximum capacity yet which has restricted their growth and brought various insufficiencies.
SMEs are facing several constrains that hamper their competence to achieve full potential level
of production. It has been identified that SMEs have many internal and external challenges in
terms of production, marketing, non-availability of financial resources and raw material, lack of
skilled labour, insufficient infrastructures and inadequate government policies and supports
(Aruna, 2015; Mathai, 2015). While summing up the discussion, several studies have proved positive
association between SMEs and economic growth for developing economies. (Mujahid, N., & Begam,
A. (2019).
 2. Material and method: information about data source, statistical
method and other analysis

Most of the reviewed articles which used to do my article review on the title ‘’MSMEs’ Role in
Economic Growth and its challenges- in case of India.’’ used different materials and methods to
did and beautify their respective articles. Which are in general category all reviewed articles used
quantitative research methodology. And, based on the nature of the research, descriptive and
analytical researches underused. In particular, discussed below.

2.1. Data Source

This article review has taken time series data from 2017 to 2021 for India. All variables have
been gathered from ten (10) articles which reviewed. The reviewed articles used broadly
secondary data and average primary data. Some source of secondary data are national and
international sources such as World Development Indicator (WDI), Economic Survey of India
and Indian Bureau of Statistics (IBS), department of MSMEs & various other published reports
like annual reports of Ministry of Micro, Small and Medium Enterprises of India, government
policy, magazine, Journals, Books and available official websites.

2.2. Statically Method and Other Analysis

According to Biswas, A., Srivastava, S., & Kumar, R. (2018) he used to have done his article, he
adopted a descriptive survey design and is extensively based upon the literature survey method.
Therefore, his study includes the usage of Primary data as well as the Secondary data.

The study of Kumar, V. (2017) is also based on secondary data that has been collected from
various secondary sources such as magazines, annual reports, department of MSMEs & various
other published reports. The data has been presented in the form of table and interpretations have
been made in light of the objectives of the study.

Chakrabartty, K. (2017) used in his study are secondary in nature and have been compiled from
various annual reports of MSMEs published by Ministry of Micro, small and medium
enterprises, Govt. of India. So, he does not used primary data.
Chalid Imran Musa and Muhammad Hasan (2018). Used in his research secondary as well as
primary data research method and he used to analysis his research econometric analysis tools.

Pawar, A., & Sangvikar, B. V. (2019, October). The data collection for the study is mostly from
secondary sources by way of access to various Government policies/programs including
published Annual Reports, Journals, Books and available official websites.

Despite the rest article authors named, Gade, Surendar. (2018), Gaikwad, A., & Dhokare, C. S.
(2020), Mukherjee, S. (2018), Pandit, S. (2017) And Mujahid, N., & Begam, A. (2019) not well
mentioned their methods in their article, my article review understood that they are used
quantitative data analysis as the other researchers aforementioned above and used dominantly
secondary data.

3. Body

Gade, Surendar. (2018) attempted to examine the contribution of MSMEs Sector in the nation’s
growth and also the areas which are required to strengthen the MSMEs sector to its continuous
contribution to the development of India. The MSMEs are providing uniform development to the
society and can be a strong mean to utilize the natural resources of India. The MSMEs are very
helpful to remove the regional imbalances if it is establish in the underdeveloped areas. The
MSMEs are providing more employment per unit. If this contribution is to be sustained, then
their uniqueness needs to be nurtured in an overt and explicit manner. The author recommend the
few areas where state and central governments are required to focus on to strengthen MSMEs
sector, which are technology and environment, Access to markets, Infrastructural bottlenecks,
Mentoring and Advocacy, Access to Credit, Globalization, Procedures, and exit mechanism.
And, conclude that Interventions should remove the hurdles for growth in future. They must
encourage a flawless movement from small to medium to large.

Gaikwad, A., & Dhokare, C. S. (2020) examined the importance of MSMEs has been recognized
in countries around the world for their significant contribution to the achievement of various
socio-economic goals such as high economic growth and employment, output, entrepreneurship
development, promotion and export support. And his study concluded that this sector makes a
significant contribution to employment, exports and output. Furthermore the author have
explored that Micro, small and medium-sized enterprises contribute to India's economic
development in various ways, such as job creation in rural and urban areas, by providing goods
and services at affordable prices. However, government assistance is needed to minimize
transaction costs for technology upgrades, market penetration, infrastructure upgrades, etc. The
MSMEs sector is often called the "growth engine" for developing countries. Furthermore,
Chakrabartty, K. (2017) examined the contribution made by Micro Small and Medium
Enterprises (MSME) with respect to entrepreneurship development and employment generation.
He found that MSME sector has been able to create employment opportunity within the sector
but it fails to absorb the semi-skilled and un-skilled migrated labour forces from agriculture and
other sector. And entrepreneurship development is an effective tool for employment generation,
innovation of new product and diversity among various social groups in an economy.

Chalid Imran Musa and Muhammad Hasan (2018) have analyzed the influence of characteristics
(social, economic, demographic) of the MSMEs workers. The author utilized quantitative with
econometric analysis tools to investigate his study. The results showed the influence of economy
(income and work experience) and demographics (age and gender) are very significant to the
working hours of the MSMEs workers, while the social characteristics (education) is not
significantly affect. In addition, income and age have a negative effect, while education, work
experience, and gender have a positive effect on working hours. Moreover, the authors have
observed that, his results of this research may still be developed, either by researchers themselves
or other researchers because the problems faced by MSMEs sectors is very complex. In addition,
the policies pursued by the government that concerns the sector, there is still much more to
obtain a deeper scientific research.

According to Biswas, A., Srivastava, S., & Kumar, R. (2018) The MSMEs need credit for
expansion, modernization, diversification and to manage their day to day activities of the
business. Even after making such an enormous contribution to the Indian economy, they are
neglected by most of the banks and financial institutions. It is very difficult for a MSME unit to
avail long term bank loan at an affordable rate, whereas, large enterprises can easily avail long
term bank credit at lower interest rates. The authors adopted a descriptive survey design and is
extensively based upon the literature survey method to have done their study. The authors
investigated the behind of unsatisfied need of MSMEs in getting the financial services. So, In
most of the cases, banks require transparent information regarding the financial health of the firm
and the manner, in which most of the MSMEs operate, makes banks doubtful regarding their
financial condition. Majority of the MSMEs do not maintain proper financial statements of their
transactions and operate in an opaque manner. The opaqueness of the firms makes it very
difficult for them to avail formal credit. As the result the authors’ descriptive survey confirmed
that the MSMEs are much more credit constrained than the large enterprises.

Kumar, V. (2017) have explored the role of MSMEs in providing employment opportunities &
push towards the inclusive development of the country. And the author used secondary data that
has been collected from various secondary sources such as magazines, annual reports,
department of MSMEs & various other published reports. According to the author, The MSME
sector in India is growing at good pace & even is providing employment opportunities to masses
of the people. The contribution of Manufacturing Sector as well as Service Sector of MSMEs in
significant to the total GDP of the Country. And the author detail revealed that the challenges of
MSMEs that hindered them to contribute more to employment and to national GDP, those
challenges are, lack of technical support, lack of training initiatives for the entrepreneurs,
difficulty in getting the financial support, inadequate infrastructure support, lack of expertise in
marketing of the products, absence & non-affordability of advanced technology, severe
competition from the national & International Players, absence of target markets for the products
produced, inadequate support from the banking system for credit facility, scarcity of skilled
labour, and Inadequate information. Pandit, S. (2017) also examined the opportunities and
challenges for Indian MSMEs in respect of Tax challenge. And, Mujahid, N., & Begam, A.
(2019) also endorsed that the MSMEs account for a major share of industrial production,
creation of employment and contribution to the GDP.

According to Mukherjee, S. (2018) absence of appropriate technology will reduce the potential
of MSMEs, lower the demand for the product (lower sales), switching to superior quality (from
rivals) and lower profit margin (sometimes loses). There should be a strong focus on
implementing the new age technology, through better awareness, adopting of best practices,
developing (indigenous technology) as well as technological collaboration with global partners.
The government of India has been launching several MSME schemes related to technology from
time to time. However, more needs to be done. And, the author have detail observed
globalization which is proving to be a advantage in a more efficient allocation of resources
across countries, including increase in productivity, efficiency, average incomes, wages, greater
competition, lower prices, increased product variety and quality. Globalization is providing
organizations with a superior competitive position and lowering the operating costs. Lastly,
globalization has led to diversification of resources, creation of new investment opportunities by
opening up additional markets, and accessing new raw materials and resources. And, the author
recommend the Indian MSMEs to use new age technologies, to produce quality products and
produce more product in the given time, through which the MSMEs can compute international
market.

Furthermore, Pawar, A., & Sangvikar, B. V. (2019, October) observed that, MSME is the
backbone of any economy and It offers good employment opportunities, nurture the locally
available entrepreneurial skills, help in balanced growth and improve overall economic
conditions. The performance of the MSME sector has shown steady growth during the past few
years. A major threat before MSMEs is globalization. Among service units, marketing and
environmental problems play a crucial role. Availability of vast natural resources and labour is a
great boon for the promotion of entrepreneurs in India. MSMEs in the developing and needs
support and handholding from the government with policies, schemes and funding.
 4. Conclusion

MSMEs can be benefit and a hope for Indian economy in near future. The MSMEs are providing
uniform development to the society and can be a strong mean to utilize the natural resources of
India. The MSMEs are very helpful to remove the regional imbalances if it is establish in the
underdeveloped areas. The MSMEs are providing more employment per unit. If this contribution
is to be sustained, then their uniqueness needs to be nurtured in an overt and explicit manner.
And MSMEs in Indian economy have shown that a significant benefit, positive impact in gaining
macro economies like employment opportunity, import substitution. And, the contribution made
by MSME sector in developing entrepreneurship is an effective tool for employment generation,
innovation of new product and diversity among various social groups in an economy.

Despite that, the MSMEs contribution is so significant in Indian economy, the MSMEs are still
in many challenges in lack of technical support, lack of training initiatives for the entrepreneurs,
difficulty in getting the financial support, inadequate infrastructure support, lack of expertise in
marketing of the products, absence & non-affordability of advanced technology, severe
competition from the national & international players, absence of target markets for the products
produced, inadequate support from the banking system for credit facility, scarcity of skilled
labour, and inadequate information. So, the government should design new policy to resolve or
to easy this challenges and to get more boon from MSMEs than before.
References 
1. Gade, Surendar. (2018). MSMEs' Role in Economic Growth -a Study on India's
Perspective. International Journal of Pure and Applied Mathematics. 118. 1727-
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2. Gaikwad, A., & Dhokare, C. S. (2020). India: A Growth opportunities for
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4. Biswas, A., Srivastava, S., & Kumar, R. (2018). A study of the factors influencing
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