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Development of MSMEs in India: challenges vs. Govt policies

Article in International Journal of Technology Policy and Management · January 2023

DOI: 10.1504/IJTPM.2023.132621

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Int. J. Technology, Policy and Management, Vol. 23, No. 3, 2023 245

Development of MSMEs in India: challenges vs. Govt

policies

Pooja Nanda
School of Business Sushant University,
Sector 55, Gurugram – 122003, Haryana, India
Email: poojan73@gmail.com

Vikas Kumar*
Central University of Haryana,
Jant-Pali, Mahendergarh – 123031,
Haryana, India
Email: prof.vikaskumar@gmail.com
*Corresponding author

Abstract: Micro, small and medium enterprises (MSMEs) have been

recognised as a global engine for growth and employment. They are a major
contributor to gross domestic product (GDP), exports and jobs, playing a
crucial role in improving the socio-economic profile of a country. Thus, it is
vital to increase the competitiveness of MSMEs through the creation of an
efficient legal, regulatory and administrative system. This can enhance their
accessibility to finance, technology and skilled human resource. Present work
highlights the challenges faced by MSMEs in India and their associated impact.
The aspects covered include the technology, human resource, operations and
policies. These challenges have been mapped to the policies and schemes of
Govt of India, which can contribute to the development of MSMEs. Need for
the effective implementation of policies as well as better coverage of MSMEs
have been recommended.

Keywords: MSME; MICRO, small and medium enterprise; technology

adoption; Govt policy; small business; Make in India.

Reference to this paper should be made as follows: Nanda, P. and Kumar, V.

(2023) ‘Development of MSMEs in India: challenges vs. Govt policies’,
Int. J. Technology, Policy and Management, Vol. 23, No. 3, pp.245–267.

Biographical notes: Pooja Nanda is currently working as an Associate

Professor at Sushant University, Gurugram, India. She received her Master’s in
Business Administration from Punjab Technical University, Punjab, India and
PhD in Management from Sharda. She has published research papers in a
number of international journals and presented many research papers in various
national and international conferences. She is a regular reviewer for a number
of international journals [International Journal of Rough Sets and Data
Analysis (IJRSDA) and International Journal of Curriculum Development and
Learning Measurement (IJCDLM)]. She is a life time member of Centre for
Education Growth and Research (CEGR) and Society for Education and
Research Development (SERD). Her areas of interest include: information
systems, web technologies, database management systems, data sciences, social
media analytics, and business analytics.

Copyright © 2023 Inderscience Enterprises Ltd.

246 P. Nanda and V. Kumar

Vikas Kumar received his MSc in Electronics from Kurukshetra University,

Haryana, India. This was followed by MSc in Computer Science and further
PhD from the same university. He is a life member of Indian Science Congress
Association, Computer Society of India, IETE, ICEIE, IPA, VEDA, IVS and
Magnetic Society of India. Along with 15 books, he has more than 100 research
papers to his credit in various national and international conferences and
journals. Presently, he is serving at Central University of Haryana, India and is
a Visiting Professor at the Indian Institute of Management, Indore and
University of Northern Iowa, USA.

1 Introduction

Micro, small and medium enterprises (MSMEs) formulate a very competitive and
productive industry group in India. They are important due to their job creation potential,
low capital and technical requirements, use of conventional skills and efficient utilisation
of resources (Kumar and Vidhyalakshmi, 2012). The MSME sector has played a vital
role in the country’s economic development. Because of its contribution to exports and
the country’s gross domestic product (GDP), it has gained major significance in India.
According to an IBEF analysis from 2021, India’s MSME sector generated roughly 29%
of GDP through domestic and international commerce. In the years 2021–2022, the SME
platform is expected to see more than 60 SMEs enter the market in order to raise equity
financing to meet their business needs. In June 2021, the Bombay Stock Exchange (BSE)
announced that it has partnered with the Electronics and Computer Software Export
Promotion Council (ESC) to raise awareness about the benefits of listing among small
firms and start-ups (IBEF, 2021).
MSMEs also help in industrialisation of rural and backward areas and diminishing the
regional imbalances. They however formulate a rather heterogeneous group, as
enterprises vary in size, capital investment and structure, product and service range and
the level of technology being used. MSMEs have also been granted a major role in Indian
planning for both economic and political purposes. Currently, there are more than
63 million MSMEs, comprising around 45% of the total industrial output and employing
around 110 million people (https:/msme.gov.in/sites/default/files/MSMEINSIDER-JAN-
2019-ENGLISH.pdf). In the Indian context, according to Directorate General of
Commercial Intelligence and Statistics (DGCIS) data, the value of MSME related
products was USD 1,47,390.08 million and the nationwide export share of MSME
related products was 48.56% in 2017–2018 (https://msme.gov.in/sites/default/files/
MSMEINSIDER-JAN-2019-ENGLISH.pdf). Whereas, MSME’s budget allocation for
2018–2019 was Rs. 3790 crores for credit support, capital and interest subsidies, and
inventions (http://ciisme.in/pdf/MSME-report-theme-paper.pdf).
MSMEs have been playing a continuous and significant role in the expansion of
Indian economy. In the last ten years, this sector has shown immense growth in number
of total units, manufacturing, hiring people, and exports. Availability of appropriate
support systems and frameworks enhance the ability of this sector in contributing much
more by portraying its immense potential. Employment opportunities are provided by
MSMEs at comparatively lower capital costs along with their role in supporting the
system of large enterprises as secondary units of growth. In Figure 1, a comparison of
 Development of MSMEs in India: challenges vs. Govt policies 247

sixteen years from 2000 till 2016 has been depicted between MSME growth rate and
overall industrial sector growth rate.

Figure 1 Comparison between overall industry growth rate and MSME growth rate
Overall Industry Growth Rate(%) MSME Growth Rate (%)

14 13 12.8
12.32 12.6
11.6
12 10.8
10.3 10.4
GROWTH RATE I N PERCENTAGE

9.64
10 9.1
8.68 8.4 8.5 8.56
8 8.2
7.8 7.62
8 7.4
7 6.7 6.85 6.76 6.54 6.6
6.1
5.7 5.6
6 5
4.4 4.4

4
2.7

0
2 0 0 0- 0 1 2 0 0 1- 0 2 2 0 0 2 - 0 3 2 0 0 3 - 0 4 2 0 0 4 - 0 5 2 0 0 5 - 0 6 2 0 0 6 - 0 7 2 0 0 7 - 08 2 0 0 8 - 09 2 0 0 9 - 10 2 0 1 0- 1 1 2 0 1 1- 1 2 2 0 1 2- 1 3 2 0 1 3 - 1 4 2 0 1 4 - 1 5 2 0 1 5 - 1 6
YEARS

Source: Annual Reports of Ministry of MSME (2015–2016)

From 2000 to 2006, a yearly industrial growth of 5–8% was observed in India. However,
the performance of MSME sector improved during 2003–2009 with a recorded growth
rate of over 10% during 2008–2009, which can be attributed to MSMED 2006 Act. On
the other hand, MSME growth once again fell down sharply with only 4–7% growth post
global financial crisis in the year 2008. Subsequently, a twofold growth was recorded for
4–5 years, before slowdown of growth rate to around 6% during 2015–2016. These
changes suggest that MSMEs are closely affected by the Govt policy and international
environment. A competitive global market, combined with an emphasis on domestic
policy will create opportunities for MSMEs to globalise.
However, a fair policy framework is required for their growth, incubation, and entry
into the global arena. Today’s global economic environment and challenges have forced
many countries to take action to support micro-sized companies. This too has prompted
the need to evaluate a strategy in India to improve its overall capabilities and provide
support to the MSME industry. The need of the hour is definitely to help this sector in
transforming the challenges into opportunities to achieve new milestones.

2 Challenges faced by MSMEs

Though, MSMEs constitute a vital ingredient for the fiscal growth of India, the segment
has not been receiving adequate backing from the respective government sections, banks,
financial bodies and corporates. Yadav and Tripathi (2018) identified that some of the
major challenges faced by MSMEs include: deficiency of entrepreneurial, managerial and
marketing skills; lack of availability of information and knowledge; problems in getting
financial resources; technical tools and knowledge etc. Although, the challenges can
depend upon the specific focus and segment of enterprise some of the common
challenges faced by MSMEs in India can be considered as:
248 P. Nanda and V. Kumar

2.1 Access to finance

Every company requires funds to meet the costs, however many of the MSME proprietors
are deficient of the money required for operating and establishing the firm, hence the
alternative left is borrowing. Most MSMEs face a range of obstacles, including regulatory
barriers and tax burdens, financial access difficulties and a lack of general guidance or
assistance (Atkinson, 2017). Due to lack of financial knowledge, the MSME sector
suffers a lack of availability of finance. The structured method of lending funds to
MSME company often plagues some problems. Structured loan utilisation is not a simple
process. Because of various formalities and paperwork requirements, banks are involved
in a long and complicated process. Most MSME entrepreneurs lack this type of
documentation expertise and understanding (Khatri, 2019). Despite the actions of the
finance ministry, MSMEs’ credit rating is itself a daunting practice. There has been a
presentation of credit ensure support for guarantee free obligation up to INR 10 million.
The leading source of finance, according to International Finance Corporation, is the
informal sector, 95% of which comes from non-institutional sources such as families,
friends, relatives, etc. (Saini, 2014). Commercial credit, chit funds and money lenders
falling under the category of institutional networks are likely to remain costly and charge
interest rates ranging from 25% to 60% per annum (Saini, 2014). Other issues as
explained by Yadav and Tripathi (2018) include poor or non-accessible financing of
loans, difficulties in accessing financial resources or lack of capital, lack of adequate and
timely bank loans, limited access to private equity, highly inadequate credit flow etc.
At aggregate level, in 2019, the banking sector had a credit outstanding of around
INR 17.4 trillion to MSMEs. Thus, following the removal of
a sick undertakings
b new undertakings with less than one year of activity
c micro-service undertakings that prefer financing from the informal sector, the
sustainable and adjustable debt demand was estimated at INR 36.7 trillion.
That is 53% of the overall market for debt. In the automotive sector, the credit deficit was
49.7% of the adjustable credit deficit (https://www.intellecap.com/wp-content/uploads/
2019/04/Financing-Indias-MSMEs-Estimation-of-Debt-Requireme-nt-of-MSMEs-in_
India.pdf).

2.2 Technology adoption

Technology innovation is considered as an important factor in a knowledge-based society
that regulates national and corporate competition equally (Saurabh and Kumar, 2017).
The main sources of technological innovations are the academic world, research and
development by organisations and individual vision etc. However, technology transfer
remains a significant challenge (Nayar and Kumar, 2018). Several governmental agencies
such as the Department of Science and Technology (DST), the Department of Scientific
and Industrial Research (DSIR), the Department of Biotechnology (DBT) and the
Department of Electronics and Information Technology (DeiTY) have sponsored start-
ups and innovation industries. A few of them were also provided with funding of
approximately Rs.60 crores to incorporate the seed support system (SSS) for incubator
startups. Since 1992, DSIR has provided industry funding for the production and
 Development of MSMEs in India: challenges vs. Govt policies 249

demonstration of emerging technologies by over Rs.225 crores, and since 1998 funding
for individual innovators by over Rs.25 crores. Since 2012, the Biotechnology Industry
Research Assessments Council (BIRAC) under DBT has provided funding to
entrepreneurs, startups, MSMEs, and translational organisations for Rs. 677 crores.
Under the Technology Incubation and Entrepreneur Growth Scheme (TIDE), DeiTY has
funded 27 TIDE centers in the field of Electronics and ICT until March 2017 to improve
technology incubation centers in higher learning institutions. The outlay for rising TIDE
center for the whole period was Rs.55 lakhs. Rs.32.12 crores had been issued at TIDE
centers so far. There is certainly a need for increased assistance to put more and more
state-of-the-art and accessible technology to the market for the benefit of society
(https://pib.gov.in/newsite/mbErel.aspx?relid = 147892). Yadav and Tripathi (2018)
mentioned some issues related to technology. These are restricted communication
networks, low levels of technology, inaccessible information and knowledge,
unavailability of investment technology equipment and proficiency, nonexistence of
access to modern technology and insufficient intellectual property security.

2.3 Administrative incompetence

In most of MSMEs, owners are themselves managing the organisations (Ayodeji and
Kumar, 2019). MSMEs are generally unable to acquire human resources with strong
managerial capabilities because these are linked to companies that have broad attractive
packages that are not feasible for MSMEs. MSMEs are suffering from insufficient and
untrained staffing problem required for successful internationalisation. There is a
shortage of sector specific skilled workers at every level (Khatri, 2019). Therefore, they
many times lack the ability to make well-versed decisions. They have a tendency to
miscalculate the required financial amount, use unsatisfactory production technology or
take incorrect management decisions. This incompetency of the managers becomes a
very noteworthy factor which hinders the progress of MSMEs in India. This needs to be
sorted out to achieve future growth. Green and Martinez (2011) were of the opinion that
most of the time it has been observed that MSME players are not willing to invest on
training and development as they think that this is something on which they are wasting
their money.

2.4 Lack of awareness

Risk is a huge factor which affects the performance of any small business. The lack of
knowledge about how to handle risks, availability of new schemes and their likely
benefits is one of the key reasons why schemes are steadily in taken. The existing method
of distribution of information is constrained in its outreach. A better communication
strategy and the use of new age media instruments are needed. Also, there exist several
formalities and paperwork specifications and the banks are engaged in a lengthy and
complicated process. Many MSME entrepreneurs lack the expertise and understanding of
this kind of documentation (Khatri, 2019). Also, individuals with their companies
registered as MSMEs are unaware of all the schemes offered at present (Saini, 2014).
A basic purpose behind moderate acknowledgment of utilisation of plans being lack of
information about plans and their likely advantages (Ali and Hussain, 2014). In 2014, the
Union Budget assigned an initial amount of 100 crores for “Start Up Village
Entrepreneurship Programme” and encouraged rural youth to be a part of such local
250 P. Nanda and V. Kumar

entrepreneurship programs. It can therefore be concluded that a bulk of business persons

are either ignorant of the existing welfares or do not find them within their reach.

2.5 Plastic ban policy (https://swachhindia.ndtv.com)

Plastic pollution is negatively affecting water and marine life, along with food chain and
public health. In 2017–2018, India produced 26,000 tons of plastic waste per day (TPD)
according to the Central Pollution Control Board 60% of this has been recycled. The
majority ended in the rivers, in landfills or streams (economictimes, 2019). According to
the Association of All India Plastic Manufacturers (AIPMA), the plastics industry in
India has over 30 000 units and an annual turnover of Rs 2.25 lakh crores. More than four
million employees work in this field today. Global initiatives are being taken to decrease
or eradicate the consumption of single-use plastic. Many areas, nations, towns and
companies have restricted the usage and sale of single-use plastics, the main focus being
plastic straws and plastic bags. Around 90% of the industrial units in India fall into the
MSME category (https://iasscore.in/current-affairs/mains/creation-of-vibrant-smes-for-
defence-corridors_). It has been proposed by the state government to immediately ban
sale of plastic bags as well as plastic packaging materials. The Prime Minister of India
declared that by 2022, India would remove single-use plastics (thehindu, 2020). Also,
that the manufacturing of such material would harmfully affect the entire public people
involved in the industry including manufacturers, employees, dealers, consumers
(business-standard, 2018). As per the same report, over 50,000 MSMEs were on the
verge of closure in Maharashtra due to the plastic ban policy. This prohibition on single-
use plastic would impact a large number of micro small and medium businesses.

2.6 Brick and kiln policy (http://www.indiaenvironmentportal.org.in/category/

2082/thesaurus/bricks/)
Bricks used commonly as fired clay remain to be the most essential building materials in
India. Their usage as wall material in housing and commercial buildings cannot be
ignored. Other usage of the same includes road and canal construction. The number of
kilns existing in India approximate to 100,000 kilns (https://shaktifoundation.in/wp-
content/uploads/2017/06/SDA-2012-Enabling-Policies-in-The-Indian.pdf). The Central
Pollution Control Board (CPCB) issued a directive in June, 2017, which issued
instructions to all brick kilns in the country to adopt and induce draft technology for
controlling environmental pollution from brick kilns. The objective behind this policy is
control of release of greenhouse-effect gases from the ovens. By doing this, there would
be a restrain on climate change due to industrial emissions. Efforts are being done on
increasing energy efficiency, presenting substitutes and fewer polluting fuels, refining the
artisanal ovens and raising the quality of the final product. Kilns with higher production
intensities and resources can changeover to fixed chimney type but the small and medium
scale entrepreneurs are bound by limitations of environmental regulation and no feasible
financial option to changeover. The order of PCB was met with wide protests from the
brick owners who claimed that contractors were not easily available and those who were
available were mentioning heavy rates (https://www.downtoearth.org.in/blog/pollution/
punjab-extends-time-for-brick-kiln-conversion-to-september-63532).
 Development of MSMEs in India: challenges vs. Govt policies 251

2.7 Waste management

There is a grave problem of industrial waste and this is increasing rapidly (Gupta, 2020).
Although, accurate figures to date are difficult to obtain, India produces annually around
51.1 MMT of waste, with around 7.46 MMT of hazardous waste derived from 43,936
industries. Nearly 3.41 MMT (46%) are landfilled, 0.69 MMT (9%) incinerated, and 3.35
MMT (45%) recycled. Gujarat is the largest producer with some 7751 hazardous waste
producing plants contributing 28.76% of the country’s waste generation (Karthikeyan
et al., 2018). The global annual cost of this needed solid waste management is projected
to rise to $375 billion from the current $205 billion, with the cost of such management
the most significantly in low-income countries (https://blog.quantela.com/waste-manage
ment-a-solution-every-city-needs/). Most cities do not collect all the waste generated, and
only a fraction of the waste collected is properly disposed. Inadequate storage and
disposal of industrial waste is a source of contamination of water, land and air and poses
risks to human health and climate. Globalisation, rapid urbanisation, and economic
development in the emerging metropolitan cities could worsen this situation further over
the next few decades. The waste produced by rural areas is much less as compared to the
urban areas. It is very essential for industries and firms to decrease their environmental
submission and separate out waste before discarding. There are high costs associated with
procuring and operating waste management solutions. The best suited technology is
required for this. Increased pressure is faced by micro, small and medium sized
enterprises (MSMEs) when dealing with waste items, since they often lack the resources
or expertise required for the same (Katriou et al., 2011). MSMEs typically have no staff
concerned with environmental problems. Compliance with environmental regulations is
tougher for them than it is for larger corporations. Measures are usually taken to reduce
costs but not to protect the environment. Environmental planning, if any, is only of short-
term limit in most cases and is implemented as required (Železnik-Logar, 2011).

2.8 Infrastructure
Bottlenecks in infrastructure affect MSMEs’ competitiveness and raising their ability to
expand into both domestic and global markets. Small and medium-sized businesses are
constantly facing the infrastructure issue, which constrains their day-to-day business
operations as well as their prospects for future growth. The infrastructure required by
businesses includes all types of transport facilities, such as railways, rivers, roads and
airways relevant to the business’ suitability, as well as properly defined
telecommunications networks and sufficient power supply (http://www.msmedithrissur.
gov.in/infrastructure). The inadequacy of any of these facilities can seriously damage the
value chain process of the company, i.e., the production, consumption and distribution of
small and medium-sized enterprise (SME) products. The inadequate availability of basic
facilities such as work sheds, tool rooms, laboratories for product testing, electricity, rural
broadband and hubs for innovation acts as a restrain to the sector’s growth. MSME
cluster production has been largely limited to government entities with low private
investment rates (https://www.rbi.org.in/Scripts/PublicationReportDetails.aspx?UrlPage=
&ID = 924). The shortage of infrastructure has extreme effects on trading companies as
freight and handling charges required to be paid are very high. This infrastructure needs
to be updated for handling the updated technology and other latest processes.
252 P. Nanda and V. Kumar

2.9 Competition
In general, micro, SMEs suffer from low competitiveness in terms of expertise, creativity,
prudent expenditure, market activity and good management, which are important factors
in higher quality standards. The larger enterprises have higher cost advantages due to
their scale of operations and thus decrease the prices of their products. These enterprises
also shell out a huge sum in promotion of their brand via marketing campaigns, suppliers
or other means. The MSMEs with less resources and financial budgets are not able to do
such widespread marketing which makes them less competitive. Due to globalisation,
increased trade and production of low cost products from countries like Vienna, China
and Thailand, MSMEs have to face a tough competition. Companies are demonstrating
eminent goods and stuffs at lowest costs. Hence, it becomes very challenging to contest
with the international corporations (Ali and Hussain, 2014).

2.10 Macroeconomic uncertainty

It has been claimed that MSMEs are more susceptible to economic emergency in
comparison to the other industrial sector owing to their small magnitude, restricted
resources, funds, knowledge and technical limitations (Cheah and Cheah, 2005). The
managers who can analyse and predict the crisis can prepare themselves suitably to
remain unaffected or lessen the effect of crisis. Mathai (2015) was of the opinion that for
MSMEs, skilled labour force required for raw materials and other inputs are not
adequately available on the market. It is very difficult to manufacture the goods at
reasonable prices because of the unavailability of these materials. The macroeconomic
uncertainty affects also depend on the category of the enterprise. For example, as
indicated by the proprietor of Sattviko eateries. According to him, individuals don’t quit
eating food during an emergency therefore the vast majority of the food business stays
safe from the emergency (Saini, 2014).

2.11 Research and development

So as to participate in the international market, MSMEs need to continuously transform
and work according to continually changing consumer demands. With globalisation, a
crucial need has arisen for existence of a dynamic and self-sustaining culture of
innovation (FICCI MSME Summit, 2012). As per a similar report by FICCI,
transforming firms in India make a portion of just 19%. India holds 62nd position on the
Worldwide Invention Index and eighth in salary group after China, Moldova, Jordan,
Thailand, Vietnam, Ukraine, and Guyana (FICCI MSME Summit, 2012). However, a
major problem that exists is the lack, concern and importance shown by many of the
MSME owners towards Research & Development. Besides, there is scarcity of
knowledge, lack of education, capital and even capability for setting up a research and
development department. MSMEs typically lack the financial and personnel resources to
conduct formal and sophisticated Research & Development. The quality and access to
resources is key to technologies focused on Research & Development. A company’s
ability to use laboratories and testing facilities within or outside the premises has a huge
effect on its ability to produce advances in R&D. Nearly 50–60% of creative small and
medium-sized companies, respectively, do not have access to sufficient facilities and
research laboratories and see it as an innovation barrier (Pachouri and Sharma, 2016).
 Development of MSMEs in India: challenges vs. Govt policies 253

2.12 Lack of skilled labour

After agriculture, MSMEs in India are the second largest employer to generate over one
million jobs a year. But MSMEs do have high incidences of mortality and sick data.
MSMEs in India also cite unemployment and the shortage of skilled labour as major
constraints. But they also fail to understand that people are at the center of profitable
businesses and believe that managing the workforce is a matter that even large companies
require special attention (economictimes, 2019). The challenges faced by MSMEs are
unique, and apart from improving Indian workforce skills through training, work-based
learning, including learning opportunities in MSMEs, it is important to also have the
skills that MSMEs require. Similarly, MSMEs must also meet young people’s
expectations by offering decent working conditions and performance linked
remuneration. Attracting talent is a challenge for small and medium-sized companies and
thus innovation in the workforce is important for better retention. The concern shown by
MSMEs regarding training and development programs for growth and expansion is very
low (Ali and Hussain, 2014). Hence, there is lack of skilled manpower available for
MSMEs. The possessors are only concerned of the groundbreaking methods of
production. The schemes initiated by the government for skill development are also not
sufficient. Hence, they are left with no choice than to employ unskilled people and give
practical training. Another challenge that is faced by MSMEs is retaining employees as
there is no formal contract signed between the company and the employee.

2.13 Corruption
One of the most damaging corruption activities aimed at small and medium-sized
businesses is government corruption, which not only affects the public sector (Ezebilo et
al., 2019). This involves bending rules, i.e., granting a public office holder preferential
treatment of the briber (Van den Berg and Noorderhaven, 2016). India ranks 80th in
terms of the least corrupt country by its alleged rate of corruption in the public sector out
of 180 nations, according to the 2019 Transparency International Corruption
Perceptions Index (https://tradingeconomics.com/india/corruption-rank). While corruption
affects the economy of a country, and this comes from the summation of countless
numbers of micro- and macro-level interactions. In addition, corruption-related costs and
benefits stem from relationships among various economic performers, such as MSME
managers and other government officials (Ezebilo et al., 2019). Sharma and Mitra (2015)
found in an Indian analysis, the effect of bribe payment on the performance of firms, that
bribe payments are decreasing productivity and technical quality. A report by United
Nations Industrial Development Organization in 2007 said that smaller firms get affected
by corruption more easily. This may be because very high proportions of annual revenues
are paid by them as bribes to public officers to get things done easily. The frequency of
this being done is higher in smaller companies than large companies (UNIDO Vienna,
2007). De Rosa et al. (2010) found a major adverse relationship between corruption and
the profitability of the company. Bribes paid out to bank officials by MSME owners or
managers increase the likelihood of securing loans (Ahmad, 2013). This eventually may
lead to unsuccessful policies, ineffectual administration and mistreatment of the smaller
firms.
Technology status of an MSME is essentially a firm’s ability to take advantage of
technology as a driver of growth and competitiveness. The challenges faced in adopting
254 P. Nanda and V. Kumar

information technology by MSMEs have numerous issues including cost unaffordability,

unavailability of maintenance systems, missing skill sets and training (http://ficci.in/
spdocument/20433/New-Age-Technologies-for-Business-Development-and-Ease.pdf).
This has given way to IT resolutions to innovate products and services that are
appropriate, reasonable and take care of the everyday problems of the MSMEs. As social
media, mobile phones, and cloud computing are the new technologies now, MSMEs can
take help of these platforms (Kumar et al., 2022). Adoption of latest and affordable IT
technologies by MSMEs may be helpful for them in making strategic decisions. MSMEs
have now started investing in social media and cloud platforms using mobile technology
to renovate their businesses (Kumar and Saurabh, 2020). By going digital, these firms
have now made their presence in the online world. The scheme would be used for
developing skills to concentrate on new-age technologies such as Artificial Intelligence
(AI), Internet of Things, Big Data, 3D Printing, Virtual Reality and Robotics.
Furthermore, under this scheme, companies with an annual turnover of more than Rs. 50
crores would provide digital payment methods at low cost (Economic Times, 2019).

3 Opportunities through Govt policies

Indian Government has made admirable efforts to motivate MSMEs to resolve the
obstacles, by launching a number of initiatives and coming-up with specific policies.
Importance of creating infrastructure, technology adoption and enhancing research &
development has been recognised by the Govt to create a number of support programs for
this sector. MSMEs may possibly look forward to new opportunities which may be in the
form of government strategies and technical improvements. Some of these opportunities
have been identified as:

3.1 Make-in-India policy

The Make in India movement launched by the government of India in 2014 has been
started with an aim to develop India as a manufacturing powerhouse (https://www.
pmindia.gov.in/en/major_initiatives/make-in-india/). The objective of the policy is to
attract funds from across the world and reinforce India’s manufacturing sector. This may
be achieved by encouraging exports, promoting Foreign Direct Investments (FDI),
increasing industrial productivity, and reducing the barriers in doing a business. Through
this, the government is hopeful of aggregating the percentage of manufacturing in GDP
leading to creation of millions of jobs especially in MSMEs. The new program has been
started with an intention to promote investments, enhance invention, boost skillfulness,
protect intellectual property and invest in development of industrial infrastructure in the
country. The scheme is projected to be precisely important for the economic growth of
India as it intends at making use of the current talent base of the country by creating extra
working opportunities and empowering secondary and tertiary sector. By abolishing the
unnecessary laws and making administrative processes easier, the government tends to
increase transparency. This would help the country increase its ranking on the business
 Development of MSMEs in India: challenges vs. Govt policies 255

index. Recognising the potential of this sector for the nation’s growth, the Government of
India has taken a variety of key steps through its various agencies to improve the MSME
sector and encourage innovation and capacity building in that field. Some of the major
initiatives taken under this strategy include: availability of a 24×7 e-Biz platform to apply
for an industrial license & industrial entrepreneur memorandum, extension of the
duration of the industrial license extended to three years, major components of the list of
defense goods exempted from industrial licensing, legalisation of dual-use objects with
military and civil applications, electronic reporting of receiving environmental
clearances, filing of all online returns by single form, etc. With the Make in India
Scheme, India is among the top destinations in the world in terms of FDI, garnering $49
billion in 2019 inflows, according to UNCTAD. India now represents 85% of all FDIs
entering South Asia. There are six major sectors which have really boosted under the
make in India Policy. These six sectors include Automotive Sector, Electronics System
Design and Engineering, Renewable Energy, Roads and Highways, Pharmaceuticals and
Food Processing. (https://www.makeinindia.com/six-superstar-sectors-boosting-make-in-
india). The initiative aims to raise the share from the current 16–25% of GDP in the
manufacturing sector by 2025 and to create 100 million additional jobs in the
manufacturing sector by 2022. ((https://www.thehindubusinessline.com/opinion/columns/
making-make-in-india-work/article30627351.ece#). In the Ease of Doing Business
Report 2018, India ranked 100 of the 190 countries evaluated by the Doing Business
Team with an increase of 30 ranks over its rank of 130 as per 2017 report (Srivastava,
2019). This study was first published in 2003 to provide an assessment of objective
metrics of business rules and their enforcement across 190 economies based on ten
characteristics that affect a business’ life cycle. The strategy is the first of its type for
MSMEs in the manufacturing sector, as it addresses issues such as legislation,
infrastructure, capacity building, technology, capital availability, exit mechanisms, and
other sector-related growth drivers. The report evaluates countries based on ten key
criteria. India’s score increased from 67.23 last year to 71.0 in 2020 (https://www.
drishtiias.com/daily-updates/daily-news-analysis/ease-of-doing-business-2020). This is
attributable to the fact that the government not only introduced and implemented a
detailed regulatory reform plan in the Central Government’s Ministries/Departments, but
also in the States through active engagements with State Governments, as regulatory
burden on a business has a significant impact on its performance. The Finance Bill, 2021,
also includes several revisions targeted at lowering compliance costs and enhancing the
ease of doing business. Regulations impose both time and expense in order to ensure
compliance, and they have an impact on business competitiveness. (https://indiacsr.in/
ease-of-doing-business-in-india/)For the MSME market, for all (Goods and Service Tax)
GST-registered MSMEs, Rs 350 crore has been allocated to fresh or incremental loans
under the Interest Subsidy Scheme for 2019–2020. In 2019–2020, 100 new clusters were
established under the SFURTI (Scheme of Fund for the Upgradation and Regeneration of
Traditional Industries) to permit 50,000 artisans for joining the economic value chain.
The target sectors being clusters of Bamboo, Honey, and Khadi. A scheme for promotion
of Innovation, Rural Industry and Entrepreneurship Development Scheme (ASPIRE) was
established in 2019–2020 for the establishment of 80 Livelihood Business Incubators
(LBIs) and 20 Technology Business Incubators (TBIs) (economictimes, 2019).
256 P. Nanda and V. Kumar

3.2 MSME Samadhaan

MSME Delayed Payment Portal (http://samadhaan.msme.gov.in)
The policy was launched in 2017. This web portal allows any Micro or Small enterprise
having a valid Aadhaar number to directly apply online regarding delayed payments by
the buyer. Micro and Small Enterprise Facilitation Councils (MSEFC) have been set up
by the states. As per the provisions under the MSMED Act 2006, these councils are being
made responsible for examining the cases being filed by the MSME unit and would
accordingly issue necessary instructions to the buying unit for payment of pending dues
along with interest. The MSEFC centers are supposed to conduct regular meetings to
ensure that the payment issues are resolved within maximum 90 days. The policy
considerably expedites the monitoring of the delayed payment effectively. The details
available on the portal can be viewed in unrestricted domains which puts an ethical stress
on the failing organisations (Kumar and Nanda, 2019). MSMEs have filed 18,509
applications related to pending payments since the date of the launch of MSME
Samadhaan portal in 2017. These cases include Rs. 4797 crores. This platform has also
helped to mutually settle the overdue payments between seller and buyer. 1407 Joint
settlement cases amounting to Rs. 00.53 crores were completed in 2018–2019. The
Platform has given MSMEs the power to directly file their pending payment cases. This
is controlled by the respective ministries and governments of the states. The platform has
granted MSMEs the power to directly file their overdue payment cases. This is
supervised by the respective ministries and the governors of the states (MSME Annual
Reports, 2018–2019).

3.3 MUDRA bank

Micro Units Development and Refinance Agency (https://www.mudra.org.in/)
Mudra bank is a financial loan scheme started in 2015 under the Pradhan Mantri Mudra
Yojana (PMMY). The agency provides loans up to Rs. 10 lakhs to the non-corporate,
non-agriculture based small and micro enterprises. The scheme also offers other
development and promotional support in terms of technology and refinancing. These
initiatives have facilitated in upgrading the competitiveness of MSMEs and have also
supported in improving their capacity and efficiency. Through this facility confidence is
also instilled among upcoming entrepreneurs for handling risks in implementation of new
ideas. Also, several reports have shown that these policies are helping to revive many
MSME units, especially in the rural areas, that were closing down owing to financial
constraints and other challenges. After the launch of the scheme, MLIs (Member Lending
Institutions) have extended over 15 crore loans amounting to Rs 7.59 trillion under the
PMMY till 2019. Out of these, 73% of the loans under the PMMY were applied to female
borrowers (business-standard, 2019).

3.4 ASPIRE
A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship
(https://aspire.msme.gov.in)
This plan was propelled by legislature of India in 2015 to advance a culture of business
enterprise in India. The plan expects to set up a system of innovation centers and
 Development of MSMEs in India: challenges vs. Govt policies 257

incubation centers to expand enterprise and advancement of new companies for

development in agro industry. It also facilitates creation of new employments and reduce
joblessness. The scheme in addition also aims at economic development at the district
level. It enables inventive business solutions for unattended societal needs. This scheme
was launched with an initial budget of 200 crores (https://msme.gov.in/sites/default/
files/ASPIRE_EN.pdf). The scheme supports in promoting innovation in giving a
competitive edge to MSME sector. These initiatives were started in 2015 with a goal to
help new businesses progress for development in the country and agriculture-based
industry with a backup of Rs.210 crores. For the establishment of 80 Livelihood Business
Incubators (LBIs) and 20 Technology Business Incubators (TBIs) in 2019–2020, the
ASPIRE Scheme has been integrated to develop 75,000 skilled entrepreneurs in the
agricultural and rural sector (economic times, 2019).

3.5 Fintech firms (https://www.smeventure.com › Finance)

Many Investors have significantly started paying attention to the MSME sector. One such
choice being the Fintech loan specialists launched in 2011, which have begun utilising
computerised innovation for quicker, simpler and modest lending. In India, the field of
financial technology (fintech) has seen exponential growth over a few years. The Indian
government (GOI) has guided development through the implementation of creative start-
up environment, friendly government regulations and policies, and a wide customer base.
There are currently 400 fintech firms operating in India and each quarter that number is
growing. The GOI developed the regulatory framework of the country and encouraged
new companies to take the lead in the finance industry and make a mark. Over 125
fintech start-ups have emerged successfully in 2018 (https://www.fintechfutures.com/
2019/01/initiatives-by-indias-government-to-boost-fintech/). With the rise in number of
Fintech lenders, MSMEs nowadays have better opportunities to get accessible and
reasonable financing options. MSMEs every time were worried about their cash flows
gaps, which could only be overcome by taking a loan from the traditional money lenders.
However, with more facilities available now, MSMEs would be able to enhance speed
and transparency of their business and concentrate better on their business. As per a
report by economic times (2019) on Indian Fintech ecosystem, a three-times growth was
recorded in the number of Fintech startups during the period 2015 to 2018. More than
1300 new startups increased from 730 already in existence due to this scheme
(economictimes, 2019).

3.6 Design clinic (http://www.dcmsme.gov.in/schemes/DesignClinic.htm)

This policy of a design clinic for MSMEs started in 2010, is an exclusive and aspiring
design intermediation scheme by the MSME ministry. The scheme has been proposed to
build a dynamic forum that can provide expert solutions to problems in real time
architecture. The scheme aims at developing a sustainable design eco-system for the
MSME sector through ongoing learning and skills growth, taking the industrial design
community closer to the MSME industry. This also emphasises on developing an
administrative structure for the industry’s design requirement, raising awareness of the
value of design and creating design learning in the MSME market, and increasing the
competitiveness of local products and services through design. This scheme offers 200
industry clusters the benefit of creating a dynamic platform to provide expert solutions to
258 P. Nanda and V. Kumar

real-time design problems and add value to existing products. Under the Ministry of
Human Resource Development (MHRD), Industry Organisations, Social Enterprises, Self
Help Groups working to provide design assistance to MSME entrepreneurs including
rural and art-based enterprises, design scheme was implemented for various technical
institutions. In addition to 4 already run by the National Design Institute (NID), more
than 80 new design centers have been opened at different locations (https://pib.gov.in/
Pressreleaseshare.aspx?PRID = 1597315,2019). The programs are intended to instill a
creative and revolutionary approach to product growth. Long-term strategies are expected
to increase cost-effective approaches and create incentives for recognising existing
product interest (https://www.designclinicsmsme.org/). The target of the scheme is to
equip businesses with skills for refining, assessing and examining design related
interventions. According to the 2018–2019 Annual MSME Report (Annual Report,
2018–2019), this scheme has benefited 49 MSMEs (https:/msme.gov.in/design-clinic)
and the expenditure on it was Rs 1.19 crores. The overall expenditure of the Rs.73.58
crores Design Clinic Scheme, receives a Rs.49.08 assistance from the Government of
India, to be issued at different stages of development (https://www.design
clinicsmsme.org/).

3.7 Intellectual property management (http://www.dcmsme.gov.in/

schemes/IPRDetail.html)
This new initiative, which was launched in 2012, is dedicated to helping MSMEs set up
their own Intellectual Property Management System. IPR protection plays a key role in
obtaining competitive advantage in terms of technological benefit in order to achieve
faster economic growth in a market based economy. It reduces the related IP risks and
future litigation costs as they aim to break into the international market. To enhance
industrial competitiveness, the government of India has launched Intellectual Property
Rights (IPRs) scheme, which has now emerged as a strategic business tool. The
implementation of IPR tools can be used as a strategic instrument to improve knowledge
of patents, trademarks, product design, geographical indication, copyright, trade secrets,
integrated circuit model designs, plant breeder rights, etc. (http://www.dcmsme.gov.in/
schemes/Guidelines-UK.pdf). All businesses are facing fierce competition on the
marketplace, and over time the number of competitors and the intensity of that
competition only rises. This scheme enhances MSME’s awareness of IPRs to take action
to protect their business ideas and strategies. Using MSMEs’ IPR tools effectively will
help them update technology and increase competitiveness. The small firms or startups
who have limited resources and manpower would be able to sustain and survive in
today’s extremely competitive world only by continuous innovation for growth and
development. In order to survive and continuously come up with new ideas, it is
important that their IPRs are protected. According to the 2019 report, over 60 new IP
Facilitation Centers have been set up in various parts of the country to have one IP lawyer
to help MSMEs apply for and register their trademarks and patents. This resulted in an
estimated total operating cost of USD 27 million and a rise in total output to the value of
USD 1.3 billion (https://www.wto.org/english/tratop_e/trips_e/16_ip_and_innovation_
inclusive_innovation_and_msme_trade.pdf). The Startups Intellectual Property Security
(SIPP) scheme is designed to help secure creative startups’ copyrights, trademarks and
designs (ipindia, 2017).
 Development of MSMEs in India: challenges vs. Govt policies 259

3.8 Clusters leading firms to long-term sustainable growth (https://www.ibef.

org/download/SMEs-Role-in-Indian-Manufacturing.pdf)
Clusters are sector-specific and regional densities of enterprises, in particular SMEs,
faced with common opportunities and threats that can provide a basis for the creation of
inter – organisational cooperation and specialisation and cooperation between local
educational institutions to promote local production, innovation and collective learning
(http://laghu-udyog.gov.in/clusters/clus/ovrclus.htm). Indian development clusters which
started in 2011, have grown up with a wide economic footprint. These clusters constitute
40% of national industrial production and 35% of direct exports. The government
allocated Rs 227.90 crore for the financial year 2020 cluster development program.
Under the Cluster Growth Programme, the MSME Ministry increased the productivity
and profitability of 35 clusters, in the financial year 2019 including 17 clusters, from 13
clusters in the financial year 2018, and just five in 2017 and zero in 2016
(https:/www.financialexpress.com/industry/sme/msme-other-5 trillion-economy-govt-
sets-up-these-many-msme-clusters-as-it-eyes-50-gdp-share-from-small-usinesbs/17784
84/). Some of the leading manufacturing clusters are the Panipat cluster, which comprises
75% of the country’s blankets, The Tirpur cluster, which manufactures cotton hosiery,
accounts for 80%. The Agra footwear cluster also includes 800 registered and 6000
unregistered companies with a combined capacity of about 1,50,000 pairs of shoes per
day, contributing USD 60 million to exports. Ludhiana has produced multiple product
clusters and produces 95% of woolen knitwear in the country, 60% of total bicycle and
bicycle parts and 85% of sewing parts. Indo Danish Tool House, Jamshedpur organised 8
loan camps in collaboration with nationalised banks, SIDBI, NSIC, MSME – DIs,
industry associations with Rs 74.31 crores, sanctioned to 262 recipients in East
Singhbhum Auto Cluster, Jharkhand. (https://msme.gov.in/sites/default/files/MSMEINSI
DER-JAN-2019-ENGLISH.pdf).

3.9 National Manufacturing Competitiveness Programme (NMCP)

(www.dcmsme.gov.in)
The NMCP program of the Government of India was started in 2016 for development of
overall viability among Indian MSMEs. In all, ten components have been directed under
this scheme which would help in enhancing the entire significance sequence of the
MSME sector. This program offers a vivacious development through eight parts which
incorporate hatcheries, protected innovation alertness, quality control, innovation
advancement, advertising support, structure capability and progression of ICT (Shaik et
al., 2017). The program must be executed through the open private organisation approach
with physical and fiscal cooperation of the MSME part. The Ministry of MSME has
implemented “Enabling Manufacturing Sector to be Competitive through Quality
Management Standards (QMS) and Quality Technology Tools (QTT)” for improving the
quality of goods in the MSME sector and raising awareness of the quality of companies
in the MSME sector. The QMS and QTT scheme has since been mixed with the
qualification program Zero Defect Zero Effect (ZED) w.e.f. October 2016. Under the
scheme 27,755 MSMEs have been assisted with Rs 10.35 crores expenditure till date
(https://pib.gov.in/newsite/PrintRelease.aspx?relid = 160776).
260 P. Nanda and V. Kumar

3.10 Small industries development organisation (SIDO) (www.laghu-

udyog.gov.in)
The SIDO founded in 1954 was formed in several areas for the creation of many small-
scale entities. There is a regional office of Small Scale Industries (SSI), and a nodal
agency concerned with the identification of the needs of SSI units, the management and
evaluation of policies and programs for the elevation of small industries. Throughout the
years, its job has advanced into an association for help and speeding up for the small
ventures’ division. The autonomous bodies are Tool Rooms, Training Institutions and
Centers for project cum process creation. SIDO has acknowledged the transformed world
and is currently focusing on providing financial, marketing, technology and infrastructure
support to SSIs. In the nation’s unemployment crisis, over 5.87 lakh jobs were generated
under Prime Minister’s Employment Generation Program (PMEGP) in 2019
(https://www.grainmart.in/news/over-5-87-lakh-jobs-created-in-2019-under-pmegp-
scheme/).

3.11 National board for micro, small and medium enterprises (NBMSME)
(http://dcmsme.gov.in/BriefNoteNBMSME.htm)
The National Board for Micro, Small and Medium Enterprises (NBMSME) was
established by the government in 2007 in compliance with the MSMEs Development Act
of 2006 and its regulations. It discusses the factors influencing the development
and promotion of MSMEs, reviews current policies and programs, and makes
recommendations to the government, while formulating growth policies and programs for
MSMEs. There are 30 MSME District Institutions (DIs) throughout the country
developed in state capital and other industrial cities. Such institutions’ main activities
include assistance or consultation for prospective entrepreneurs, current units, preparation
of State Industrial Profiles, preparation or updating of District Industrial Capacity
Surveys, entrepreneurship development programs, motivational campaigns, management
development programs, etc. This organisation carries out subject-related awareness
programs in which people belonging to the sector are taught and informed at different
levels about existing policies and programs and other issues related to the MSME Sector.
These include awareness raising programs such as World Trade Organization involving
measures to globalisation and governments, patent related issues, and so on. The views
shared are taken care of when the policies and services are framed or modified. The 20
non-official members of the Board talk about MSMEs’ industrial relations from all over
the country, while the remaining 27 individuals include parliamentarians, ministers of six
state governments, RBI officials, banks, and so on.

3.12 Training centers (TCs) (https://msme.gov.in/about-us/training-institutes)

In order to give the necessary stimulus for the expansion of industry in India, the Ministry
has built technological centres across the country, many of which were formed through
bilateral collaboration between the governments of Germany, Denmark, and the United
Nations. Historically, they were known as Tool Rooms and Technology Development
Centers (Annual MSME Report, 2018–2019). MSME-TCs conduct training programs
that focus on hands-on practical exposure to the newest machinery and equipment in
order to provide skill training to trainees from all walks of life. These TCs focus on the
 Development of MSMEs in India: challenges vs. Govt policies 261

integrated growth of connected industry segments by providing high-quality tools, skilled

staff, and consulting services in tooling and related fields. Several past trainees have
started their own businesses to help the country’s social and economic development.
A total of 37 pupils were eligible to compete in the state-level Skill competition at the
regional level. In various skill categories, 9 students earned medals at the national level.
India’s talent show for 2018. Finally, two MSME TC students represented our country in
the 2019 World Skill Competition in Kazan, Russia (Annual MSME Report, 2018–2019).
During the month of December 2018, the Ministry of MSME established 18 Technology
Centers that trained 16,904 trainees and supported 3048 units for research, testing,
calibration, and consulting services (https://msme.gov.in/sites/default/files/MSMEINS
IDER-JAN-2019-ENGLISH.pdf).

3.13 National institute for entrepreneurship and small business development

(NIESBUD) (https://www.niesbud.nic.in)
This is an important association set up by Ministry of MSMEs in 1983. The body is been
made liable for arranging, preparing and administering the undertakings of different
foundations or organisations engaged with enterprise advancement particularly small
scale industries and entrepreneurs. Its main achievements incorporate evolvement of
successful preparing plans and approaches, homogenising model prospectuses for
preparing different recognised gatherings, surrounding logical choice methodology.
Moreover, some more duties include structuring of preparing material, manuals and
apparatuses, speeding up and helping central or state or other organisations in building up
enterprise advancement programs, preparing programs for advertisers, teachers and
businesspersons and undertaking exploration and trade encounters internationally.

3.14 Udyami helpline

‘Udyami helpline’ is a call center of the Ministry of MSME which started in 2010. This
toll-free number has been created as a single-point facility for providing wide range of
information and guidance assistance regarding setting up an enterprise, provision of
accessing loans from banks, project profiles and several other initiatives being
implemented by the Government for the promotion of MSMEs. Udyami offers
information to the budding entrepreneurs regarding project profiles, Khadi and Village
Industries Commission (KVIC). It also contributes in giving information about many
other official procedures mandatory for setting up of an enterprise, receiving loans from
banks, and availability of funding under different schemes of the ministry. Complaints
can also be lodged by MSMEs with central and state government agencies by assistance
of this helpline.

3.15 Incubation centers (https://my.msme.gov.in/MyMsme/Reg/COM_

IncubationForm.aspx)
This Scheme which was started in 2007, gives visionaries opportunities in supporting
their latest creative concepts for producing new creative goods. The scheme aims to
promote and establish world-class incubation centers in India in specific sectors such as
manufacturing, transportation, energy, health, education, agriculture, water and sanitation
etc. The State government has established Incubators in collaboration with prominent
262 P. Nanda and V. Kumar

institutes such as IIT-Kanpur, IIT-BHU, IIM Lucknow (Noida), and KNIT Sultanpur
with the purpose of boosting innovation and entrepreneurship. Uttar Pradesh is set to
become home to the country’s largest incubator. Host Institutes are eligible for a capital
grant of up to 50% for IT infrastructure setup, up to a maximum of INR 25 lakhs, under
the policy initiative (https://www.startupindia.gov.in/content/sih/en/compendium_of_
good_practices/incubationsupport.html). Such incubation centers will fund and promote
creative start-ups based on technology that have an application and/or effect in the core
economic sectors. Host Institutions (HI) are able to discuss new and fresh ideas from
various sectors that can be business people from every direction. Grant-in-aid support of
up to Rs. 10 crores will be provided in two (or more) annual instalments to top
performing Established Incubation Centers in India selected through this Scheme
(https://aim.gov.in/pdf/EIC_guidelines_2019.pdf). The key objective of this scheme is to
encourage & support the unused creativeness of individual and to endorse adoption of
latest technologies in manufacturing in addition to knowledge based innovative MSMEs.
The components under this scheme comprise mentoring support in business and
technology, business networking, fund assistance, and entire professional assistance in
making the enterprise successful in achievement of greater growth. New enterprises,
which are technology based are usually classified into high risk and high growth projects,
and hence a facilitating environment is required by them to expand the prospects of
success. India has the 3rd highest number of incubators with over 250 incubators present
in India in 2019 (https://www.s-ge.com/sites/default/files/publication/free/startup-
ecosystem-india-incubators-accelerators-23-01-2019.pdf). Seed capital upto Rs. 1 crore
have been provided to start up entrepreneurs under the scheme (https://pib.gov.in/
Pressreleaseshare.aspx?PRID = 1597315). The Technology Development Board (TDB)
has given Rs. 100 lakhs of funding to 36 Technology Business Incubators (TBIs) and
Science & Technology Entrepreneur Parks (STEPs) each as a grant. It has aggregated Rs.
3600 lakhs for Incubator Start-ups under the Seed Support Program to incubate and
graduate new innovations by successful marketing. Apart from serving as a bridge
between technology growth and marketing, the assistance is provided to build techno-
entrepreneurs. The grant is intended to help startups as appropriate primarily for product
development, research & testing promotion, mentoring, technical consulting, patent
filing, manpower and other area.

3.16 Atal innovation mission (https://www.aim.gov.in/)

The Atal Innovation Mission (AIM) is India’s leading initiative which was launched in
2016 to foster an innovation and entrepreneurship culture in the country. The goal is to
develop new programs and policies to encourage innovation in various economic sectors,
provide forums and collaborative opportunities for various stakeholders, raise awareness
and create a monitoring mechanism for the country’s innovation ecosystem. AIM’s
long-term objectives include the establishment and promotion of national Small Business
Innovation Research and Development (AIM SBIR) for SMEs/MSMEs/Start-ups and
developments in science and technology rejuvenation in major country research
institutions such as CSIR (Council of Scientific Industrial Research), Agri Research
(ICAR) and Medical Research (ICMR) aligned with national socioeconomic needs.
(https:/niti.gov.in/aim). AIM has shortlisted 102 incubators till date, covering 23 states of
the country out of which 47 are already funded. More than 620 startups have been
incubated in AICs/EICs out of which above 100 are women led startups. AIM has
 Development of MSMEs in India: challenges vs. Govt policies 263

provided above 6 crores of seed fund for the same. Through these more than 150 startups
have been supported to build business sustainability (https://aim.gov.in/AIM_
Brochure.pdf). AIM has been running the Atal Tinkering Lab (ATL) program for the last
four years. ATL is a cutting-edge space in a school that aims to foster curiosity and
innovation in young minds in grades 6 to 12 across the country using 21st-century tools
and technologies such as the Internet of Things, 3D printing, rapid prototyping tools,
robotics, miniaturised electronics, do-it-yourself kits, and more. The goal is to encourage
children in the ATL and surrounding neighbourhoods to develop a problem-solving,
innovative mentality. AIM has chosen 10,000 schools in 680 + districts across the
country for the construction of ATLs to far. Until now, approximately 7000 schools have
received funding, and over 2 million kids have access to ATLs (https://aim.gov.in/
overview.php).
The outcomes of various government initiatives have been summarised in Table 1.

Table 1 Outcomes of the government initiatives for MSMEs

S. No. Policy initiative Launch year Outcome

1 Small Industries
Development
Organisation (SIDO)
2 NIESBUD
3 National Board for
Micro, Small and
Medium Enterprises
4 Incubation Centre
Initiative
5 Design Clinic
6 Udyami Helpline
7 Fintech Firms
8 Clusters
9 Intellectual property
1958 Over 5.87 lakh jobs were generated through
Prime Minister’s Employment Generation
Program (PMEGP) in 2019
1983 Evolvement of successful preparing plans and
approaches, homogenising model prospectuses
for preparing different recognised gatherings,
surrounding logical choice methodology
2007 30 MSME District Institutions (DIs) developed in
state capitals and other industrial cities
2007 India has the 3rd highest number of incubators
with over 250 incubators in 2019
2010 More than 80 new design centers have been
opened at different locations. 49 MSMEs
benefited till 2019 and the expenditure on it was
Rs 1.19 crores
2010 Toll-free number has been started as a single-
point facility for providing wide range of
information and guidance regarding setting up an
enterprise, accessing loans, project profiles and
several other initiatives being implemented by the
Government for the promotion of MSMEs
2011 400 fintech firms operating in India till 2020 and
each quarter the number is growing. Over 125
fintech start-ups have emerged successfully in
2018
2011 Government allocated Rs 227.90 crores for the
financial year 2020 for cluster development
program. It has been contributing USD 60 million
to exports
2012 Over 60 new IP Facilitation Centers have been set
up till 2019 in various parts of the country to help
MSMEs register their trademarks and patents
264 P. Nanda and V. Kumar

Table 1 Outcomes of the government initiatives for MSMEs (continued)

S. No. Policy initiative Launch year Outcome

10 Make In India 2014 It resulted in $49 billion inflows in 2019, 6 major
sectors boosted
11 MUDRA Bank 2015 MLIs (Member Lending Institutions) have
extended over 15 crore loans amounting to
Rs 7.59 trillion under the PMMY till 2019
12 ASPIRE 2015 For the establishment of 80 Livelihood Business
Incubators (LBIs) and 20 Technology Business
Incubators (TBIs) in 2019–2020, the ASPIRE
Scheme has integrated to develop 75,000 skilled
entrepreneurs in the agricultural and rural sector
13 National 2016 27,755 MSMEs have been assisted with
Manufacturing Rs 10.35 crores expenditure till date
Competitiveness
Programme
14 Atal Innovation 2016 The mission has shortlisted 102 incubators till
Mission date, covering 23 states of the country out of
which 47 are already funded. More than 620
startups have been incubated in AICs/EICs out of
which above 100 are women led start- ups
15 MSME Samadhan 2017 18,509 applications filed related to pending
payments. 1407 Joint settlement cases amounting
to Rs. 00.53 crores were completed in 2018–2019

4 Conclusion

MSMEs constitute a competitive and vibrant segment of Indian economy market. This
has witnessed steady growth in a number of new registered units, manufactured goods
and employment. The sector plays a key role in the economy, contributing significantly
to domestic GDP, industrial development, export earnings, regional growth and social
stability. Despite the various measures taken by the relevant ministries, the MSME units
face a number of challenges related to infrastructure, policies, technology and socio-
cultural problems. These issues altogether make the overall environment unfavourable for
the steady state growth. Although, the Govt of India has come-up with a number of
initiatives and policies to support the MSMEs, the impact of these policies is yet to be
harnessed for a large number of MSMEs. Government should ease the current
bureaucratic practices, create need-based support initiatives, ease the tax and labour
policies and conclude the preferential trade agreements with potential export markets for
supporting the MSMEs to a larger extent. Along with this, the large enterprises should be
allowed to mentor and support the new and micro-enterprises as part of their social
responsibility. MSMEs’ export capacity should be enhanced by educating entrepreneurs
about export procedures and documentation, market analysis, buyers’ negotiation,
international requirements, trends of foreign demand, etc. MSMEs on the other hand,
need to respond rapidly to changes, and constantly extend their processes and products to
aim for flourishing. Better awareness and understanding of the new policies and
 Development of MSMEs in India: challenges vs. Govt policies 265

associated workflows can certainly address the challenges associated with their
outcomes.

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