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In Context
- Two-thirds of Micro, Small and Medium Enterprises (67 per cent) in India were temporarily shut for three months or more in FY2021 according to a survey of 1,029 enterprises by Small Industries Development Bank of India (SIDBI).
Major Findings
- About 66 per cent of respondents in the survey reported a decline in profitability on account of stable fixed costs and a decline in revenue during the FY2021 fiscal.
- over half of all MSMEs saw a decline of over 25 per cent in revenues
- About 65 per cent of the MSMEs surveyed, availed credit under the government’s Emergency Credit Line Guarantee Scheme (ECLGS) which provided banks and financial institutions a 100 percent guarantee against any losses suffered by them due to non-repayment of the ECLGS loans by borrowers.
- At the end of 2021, the government had issued guarantees on loans of Rs 2.88 lakh crore under the ECLGS.
- About 36 per cent of MSMEs surveyed had also availed loans under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme during FY2021.
About Micro, Small and Medium Enterprises (MSMEs)
- According to the recently proposed definition, Micro, Small and Medium Enterprises (MSMEs) will be classified as:
Classification |
Micro |
Small |
Medium |
Manufacturing Enterprises and Enterprises rendering Services |
Investment in Plant and Machinery or Equipment: Not more than Rs.1 crore and Annual Turnover; not more than Rs. 5 crore |
Investment in Plant and Machinery or Equipment: Not more than Rs.10 crore and Annual Turnover; not more than Rs. 50 crore |
Investment in Plant and Machinery or Equipment: Not more than Rs.50 crore and Annual Turnover; not more than Rs. 250 crore |
Significance & Role of MSMEs in India
- The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country.
- In India, the sector has gained significant importance due to its contribution to the Gross Domestic Product (GDP) of the country and exports.
- The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.
- They help in the promotion of industrial development in rural areas, capacity building and local resource mobilization.
- They create an inclusive and sustainable society through the creation of non-farm livelihood, they promote balanced regional development and gender equity.
- The sector contributes in a significant way to the growth of the Indian economy — with a vast network of about 6.3 crore units producing more than 8,000 products and a share of around 30% in nominal GDP.
- Considering the above points, they are called ‘Growth Engine of the Nation’.
Problems/Challenges MSMEs are Facing
- Red-Tapism
- As the MSMEs require various approvals, the entrepreneurs have to run around various government departments for getting construction permits, enforcing contracts, paying taxes, starting a business and trading across borders.
- These lengthy and time taking processes, regulatory risks and policy uncertainty shake the investor’s confidence.
- Inaccessibility of credit: The sector always funds starved and banks are reluctant to fund them, and delays in payments to MSMEs from their buyers.
- Unavailability of raw materials: Raw material obtaining is the major challenge to them.
- Inaccessibility of market: Lack of infrastructure and demand due to lockdown.
- Quality issues: Lack of quality assurance certification and marketing of the final goods.
- Lack of skilled manpower & Infrastructure: Mostly are present in rural areas, low ICT, lack of trained manpower, inadequate transport facilities, electricity are major issues.
- Most of India’s MSME sector is based on outdated technology, which hampers its production efficiency.
- An online study by the National Small Industries Corporation had found that liquidity issues, fresh orders, availability of labour, logistics issues and availability of raw materials were the problems most cited by MSMEs during the pandemic.
Measures Taken
- MSMEs have suffered due to COVID-induced lockdowns in the last couple of years. Therefore, the government seeks to support the sector through various schemes:
- Infusion of Technology: The government envisages interlinking of different ICT projects like Udyam portal, e-Shram, NCS and ASEEM. The overall objective is to bring more workers into the formal sectors.
- Emergency Credit Line Guarantee Scheme (ECLGS): The scheme has been a lifeline for the MSME sector during the COVID times, helping almost 1.3 Crore units. Understanding its importance, the scheme will be extended for another year till March 2023 with a total cover of Rs 5 Lakh Crore and a special focus on hospitality and related units.
- Raising and Accelerating MSME Performance (RAMP) Programme: The scheme would be helpful for the MSME sector and will have an outlay of Rs 6,000 Crore over the next 5 years.
- Others include- ASPIRE scheme, Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme (CLCSS), Zero Defect Zero Effect model etc.
- CHAMPIONS Portal to assist Indian MSMEs march into the big league as National and Global CHAMPIONS by solving their grievances and encouraging, supporting, helping and hand-holding them.
- MSME Samadhan enables them to directly register their cases about delayed payments by Central Ministries/Departments/CPSEs/State Governments.
- The Union Minister for MSMEs inaugurated the India Export Initiative and IndiaXports 2021 Portal of India in New Delhi.
- This initiative serves as a knowledge base for exports by Indian MSMEs with the required information related to export potential for all the 456 tariff lines along with the potential markets as well as trends in exports, export procedures and lots more.
Way Forward
- The government should control/regulate/support Micro and Small Enterprises from huge raw material price increases and also safeguard the interest of exporters.
- The hiring of skilled labour and skilling of the existing labour.
- Set up new infrastructure and development of the existing one with support to investments and provisions of other amenities like water supply, electricity, etc.
- Promoting Small to Medium Enterprise (SME) bond issuances can provide a boost to debt capital markets participation of MSMEs.
- Government should create an independent regulatory body that can advise and provide consultancy to MSMEs.
- It is important to provide MSMEs with a hassle-free regulatory framework that works for them instead of working against them.
- Labour laws should try to maintain a balance between providing a growth-oriented framework for MSMEs and providing sufficient protection for the rights of workers.
- The sector should be incorporated with the new and emerging technologies like Artificial Intelligence, Data Analytics, Robotics and related technologies (collectively called Industry Revolution 4.0) for organized large-scale manufacturing.
- The government should invest in providing more back-end services to improve the performance of the MSME sector as it supplies goods and services to big industrial enterprises.
Small Industries Development Bank of India (SIDBI)
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Source: IE
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