MSMEs in India

What is MSME ?
• Micro, small and medium enterprises
• MSMEs across industries ranging from textile
manufacturers, auto component manufacturers, IP
solutions, logistics solutions providers

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Importance of MSMEs in India
• Contributor to GDP – the MSME sector contributes 27% of the country’s GDP.
• Employment – Provides employment to over 11.10 crore people. 40% of
employment is provided by this sector.
• Low capital expenditure - The labor intensity of MSMEs is much higher than that
of large enterprises. It generates large employment at a low capital cost.
• Contributor to exports- For the last five years, the MSME sector has been
contributing to 50% of the exports. Indian exporters have already brought in
significant international business and solidified trade relations across the world.

• Wide production base – the MSME segment in India alone is estimated to

have 6.3 crore units and produce over 8000 products. The share of this sector
in the manufacturing output is 33%.

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Importance of MSMEs in India
• Promotion of industrial development in rural areas -
Around 50% of the total MSMEs operate in rural areas
• Use of traditional or inherited skills
• Use of local resources and mobilization of resources -
97% of the total employment in the MSME sector comes
from the micro-segment.
• Maximum opportunities for employment outside the
agriculture sector – overdependency on agriculture is
reduced

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Micro, Small and Medium
Enterprises Development Act, 2006
• The Act came into force on 16 June, 2006.
• Provides the first-ever legal framework for
recognition of the concept of enterprises
• Provides for the formation of the National Board
of Micro, Small and Medium Enterprises
• Head office of the Board is in Delhi

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Two types of enterprises

Manufacturing Enterprises
• investment in plants and machinery and
engaged in the manufacture or the production
of goods pertaining to any industry

Service Enterprises
• investments and engage in providing services.
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 Manufacturing Enterprises and Enterprises
rendering Services
Micro Small Medium
Investment in Plant and Not more than Rs.1 crore Not more than Rs.10 Not more than Rs.50 crore
Machinery or crore
Equipment
Annual Turnover not more than Rs. 5 crore not more than Rs. 50 crore not more than Rs. 250
crore
Wef 1/7/2020

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Objectives of the Act
• To facilitate the promotion and enhance the development of
micro, small and medium enterprises and for the matters
connected with them.
• To provide for the establishment of a National Micro, Small,
Medium Enterprises Board, a high level forum consisting of
stakeholders for participative review for proposal and
recommendation on the policies.
• Examine the factors which are affecting the promotion and
development of various enterprises and take initiatives to
review the policies of the Central Government and enhance
the competitiveness of each such enterprise.
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Objectives of the Act
• Make the recommendation based on reviewing and
advising the Central Government on the use of the
funds.
• To promote e-governance for empowering citizens,
promoting sustainable growth and enhancing efficiency
through digital services for more inclusive growth.
• Establishment of specific funds for the promotion,
development and enhancing the competitiveness of
these enterprises and notification of scheme programs
for the purpose.
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Features of the Act
• Establishment of specific Funds for the promotion,
development, and enhancing the competitiveness of these
enterprises
• notification of schemes/programs for this purpose
• progressive credit policies and practices
• preference in Government procurements to products and
services of the micro and small enterprises
• more effective mechanisms for mitigating the problems of
delayed payments to micro and small enterprises
• simplification of the process of closure of business
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Credit support
• the Reserve Bank of India (RBI) has issued guidelines
to the public sector banks to ensure 20 per cent year-
on-year growth in credit to the SME
• The Small Industries Development Bank of India
(SIDBI) will scale up and strengthen its credit
operations for micro-enterprises
• Credit Guarantee Fund Scheme - providing guarantee to
enable SMEs to access credit

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Fiscal support
• Increase in the General Excise Exemption (GEE) limit
• Extending the time limit for payment of excise duty

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Support for Cluster Based Development:
• A cluster is a group of enterprises located within an
identifiable and as far as practicable, contiguous area
and producing same/similar products/services.
• Common facility center- design center, effluent
treatment plants, R & D labs
• Infrastructure Development Center – creation of
common facilities like roads, drainage facilities, power,
etc.

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Technologies and Quality Upgradation Support
• Technology Mission established with a view to
assisting micro, small and medium enterprises
(MSMEs) in technology upgradation, energy
conservation and pollution mitigation.
• Training centers

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Marketing Support
• National Manufacturing Competitiveness Programme
(NMCP)

The objective of NMCP is to develop global competitiveness among

Indian MSMEs. This program targets at enhancing the entire value
chain of the MSME sector
Building awareness on Intellectual Property Rights (IPR)
Promotion of ICT in Indian manufacturing sector

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Empowerment of Women-Owned Enterprises:
• Under the Credit Guarantee Fund Scheme, 80 per cent
guarantee cover will be provided to micro and small enterprises
operated and/or owned by women.
• financial assistance of up to 90 per cent of the cost, subject to
ceiling of Rs. 9 crore, provided for clusters developed
exclusively for micro and small enterprises operated and/or
owned by women
• 50 per cent concession in fees would be given to women
candidates in entrepreneurship/ management development
programmes conducted by SISIs.

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Strengthening of Prime Minister’s Rozgar
Yojana (PMRY):
• Introduced in 1993,
• Has been one of the important credit-linked subsidy schemes to
generate self-employment opportunities for the educated youth
by assisting them in setting up viable micro-enterprises

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Strengthening of Data Base for MSME Sector:
• statistics and information will be collected in respect of the
number of units, employment, rate of growth, the share of GDP,
the value of production, the extent of sickness/closure, and all
other relevant parameters of micro, small and medium
enterprises

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Post covid Measures under Atma Nirbhar
Bharat policy
• Rs 20,000 crore subordinate debt for stressed MSMEs
• Rs 50,000 crore equity infusion through MSME Fund of Funds
(SRI Fund)
• 3-lakh crore Emergency Credit Line Guarantee Scheme
(ECLGS) for businesses, including SMEs- increased to Rs 5-lakh
crore in Union Budget 2022-23
• no global tenders for government procurement up to Rs 200
crore.

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Other Steps taken by the government
• National Manufacturing Competitive Programme
(NMCP 2007-08- This programme was started
with the aims of enhancing the competitiveness
of the Indian manufacturing sector by reducing
their manufacturing cost through better space
utilization, scientific inventory management and
reduced engineering time.
• Public Procurement Policy 2012 in which each
minister shall set an annual goal and procure a
minimum of 20% of MSME within three years.

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Advantages of registering under the Act
1.Under Section 15 and Section 16 of the Act, it is
mentioned if the buyer fails to make payment of the
amount to the MSME supplier within 45 days, then he
shall be liable to pay compound interest with monthly
rate of that amount which is three times of the bank
rate notified by Reserve Bank of India.
2.Various tax rebates are offered to MSMEs.
3.Registration with National Small Industries
Corporation (NSIC), subsidy on NSIC performance
and credit ranking, and financial assistance for
setting up testing facilities.
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Advantages of registering under the Act
1.Easy finance availability from banks without any
collateral requirement (any property given as a
security against a loan).
2.However, if one is registered under MSMED Act,
2006, it is specifically instructed to the bank to
provide loans at lower interest rates than usual. Also,
one can avail of benefits from several banking
institutions for their financial needs.
3.Reservation policies to manufacturing or production
sector enterprises. They can also register for
purchase by the government.
4.Higher preferences are given to the MSMEs for
government license and certification.

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Problems faced
• Absence of adequate and timely banking finance _the
formal banking system supplies less than one-third of the
credit to MSMEs than its potential needs because of a lack
of finance. banks dither from extending loans to MSMEs
because of the high ratio of bad loans
• Lack of market knowledge.
• Non-availability of suitable technology and low production
capacity.
• Inefficient market strategy as no one is there to guide
them
• Non-availability of skilled labour at an affordable cost.
• Delayed payment –from their buyers (includes government as
well) or things like GST refunds.

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Future Prospects
• https://icsb.org/toptrends2022/

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• https://www.youtube.com/watch?v=arraylhvaL8

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Opportunities and future prospects for
mSMEs
• China Plus One policy
• Make in India
• Digital India
• Skill India
• Start-up India
• Stand-up India

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Opportunities and future prospects for
MSMEs
• Opportunity in terms of global demand for value-added products and
services. Technology Upgradation Fund for the plastic processing sector.
• Building Brand India
• Ecommerce - The open-source e-commerce ecosystem – Open Network
for Digital Commerce (ONDC), which was announced by the Ministry of
Commerce last month, would encourage easy digital adoption by small
businesses that are yet to get onboard online commerce network.
Independent of any single or unique e-commerce platform

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Opportunities and future prospects for
MSMEs
• Indigenisation and import substitution –
a. many products across consumer sectors like electronic white goods, lighting,
and consumables that are not technology-intensive
b. b. there is potential to incentivize investments in high technology areas in
order to develop capabilities in high engineering import substitution and
indigenization in many areas of healthcare, automotive, defence, electronics,
and telecom.
• Public procurement - Priority sectors like healthcare, education and
infrastructure are likely to see even greater investment from the government
and PSEs.
• Indian Handicraft items are also increasingly being exported from India, and are
much sought after products in the international market
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• https://blog.ipleaders.in/an-analysis-of-micro-small-and-medium-
enterprises-development-act-2006/
• https://www.yourarticlelibrary.com/law/salient-features-of-on-
msmed-act-2006-explained/41018
• https://msme.gov.in/know-about-msme
• https://assets.kpmg/content/dam/kpmg/pdf/2016/03/The-new-
wave-Indian-MSME.pdf

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