How can the MSME sector boost our GDP?

The Indian economy is a developing market. Over the last five decades, MSME or Micro, Small and Medium Enterprises sector has emerged as a dynamic and vibrant sector. It highly contributes to the socio-economic development of India and is still one of the untapped high growth segments in India. In this read, I would discuss in detail how MSME can give a boost to our economy.

What is MSME? Classifications of MSME

The MSME, which means Micro, Small, and Medium Enterprises sector, has strategically become the most critical sector empowering the economic growth of the country. In India, MSMEs have been broadly classified into two categories: (i) manufacturing; and (ii) providing/rendering of services. At present, the ceiling on investment to be classified as micro, small or medium enterprises is below-

For manufacturing enterprises, micro means the investment is up to Rs.25 lakh, and for service enterprises, it is up to Rs.10 lakh. The same is above Rs.25 lakh & up to Rs.5 crore for small manufacturing enterprises and above Rs.10 lakh & up to Rs.2 crore for small service enterprises. Medium manufacturing enterprises are enterprises that invest above Rs.5 crore & up to Rs.10 crore, and investment is above Rs.2 crore & up to Rs.5 crore for medium service enterprises.

Role of MSME

MSMEs spread across both urban and rural areas, produce a diverse range of products and services, and provide large-scale employment at low capital cost.

MSMEs being the part of the more considerable industrial ecosystem work as an ancillary unit to large industries and promote the industrialization of rural & backward areas. Apart from reducing regional imbalances, it also ensures a more equitable distribution of national income and wealth. They meet the needs of local markets as well as the national and international value chains.

At present, the contribution of the Indian MSME sector, including khadi, village, and coir industries, is 29% to India’s GDP, and it has generated 11 crore employment.

Vision & Mission

MSME ministry has decided to raise the contribution of the MSME sector from the current 29 percent to 50 percent of the country’s GDP in the next five years. It has also targeted to raise exports’ contribution to 75%, which currently stands at 50% from the sector and extending the employment to 15 crore people adding 5 crores more to current employment status. Union Finance Minister Nirmala Sitharaman said it highlighted the need to invest in job creation in small and medium enterprises in the first Budget of the Modi 2.0 government.

“We have to think big. It is time for India to make some landmark in the history of MSMEs,” said Nitin Gadkari, Union Minister for MSME and Road, Transport and Highways.

The challenges for MSME to meet the expectation

Availability of Finance

The timely availability of low-cost credit remains a challenge for MSME. In India, 50 million and more small and medium enterprises face the problem of liquidity crunch. The debt finance requirement to MSMEs is around Rs 69.3 trillion; only 15 percent of these enterprises get access to formal credit sources. Among the 15% formal sources, around 85% met by Scheduled Commercial Banks account, and the rest are fulfilled by other financial institutions like NBFCs, RRBs, etc. The documentary requirements, legal formalities, and other processes for credit assessment for availing credit from formal financial institutions are the deterrent factors that compelled the MSMEs, mainly the micro-enterprises, to approach the informal sector for credit.

Lack of Formal Registration

There was a total of 55.8 million MSMEs, out of which only 8.2 million, i.e., less than 2%, were registered MSMEs, and the rest 47.6 million was un-registered MSMEs. Therefore the very first challenge is to bring all the un-registered MSMEs into the formal fold to address the hurdles faced by MSMEs as well as make them eligible for available benefits. The un-registered nature of the MSMEs also restricts their access to credit from traditional lending sources.

Competitive Market Environment

A significant number of MSME are in the unorganized sector. In the current competitive market environment, there are many critical challenges for MSMEs such as technological obsolescence, change in manufacturing strategies, inaccessibility to infrastructure and logistic facilities, the fund crunch, and poor linkages to domestic and international markets along with uncertainty. Increasing domestic and global competition requires an enabling environment for MSMEs to function to sustain growth. India’s entrepreneurs need to have a global outlook and adopt innovation, develop world-class technologies, and build new skills continually.

The three central interventions required for the MSME sector to get the enabling environment are:

1. Legal and Regulatory Support

2. Government Support

3. Financial Infrastructure Support

Steps taken by the Government for the MSME sector to boost GDP

The cooperation of the MSME sector is crucial for the development of the Indian economy to reach the ambitious $5 trillion mark. Therefore the Government has taken several steps as follows:

• The Government will generate a payment platform for MSMEs to enable filing of bills and facilitate timely payment itself on the platform.
• Under the interest subvention scheme, a fund of Rs 350 crore has been allocated for 2019-20 for a 2 percent interest subvention for all GST-registered MSMEs for fresh or on incremental loans for such enterprises.
• A major source of cash flow, mainly to SMEs and MSMEs, is Government payments made to suppliers and contractors. Investment in MSMEs will receive a big push if delays in payments are eliminated.
• A new website will be opened that will act as a Bank of Ideas, Innovation, and Research, and a team would be deployed to analyze the suggestions that would come in.
• A marketing platform similar to Alibaba or Amazon will be made applying the best technology which can help anyone in the world to connect with the MSMEs and find out what product is available from their end.
• Under the Scheme of Fund for Upgradation and Regeneration of Traditional Industries (SFURTI), the Government aims to set up common facility centres in an increased number. It will facilitate cluster-based development and help the traditional industries become more productive, profitable, and capable of generating sustained employment opportunities.
• Under the Standup India scheme, 300 entrepreneurs have emerged in two years. The plan will be continued for the entire period coinciding with the tenure of the 15th Finance Commission (2020-2025).
• The sectors like bamboo, honey, and khadi clusters have been focused, and during 2019-20, SFURTI envisions setting up 100 new clusters to enable 50,000 artisans to join the economic value chain.

The Government is taking several measures to provide adequate support to MSME. There is a proposal from CII to bring the change in the MSMEs’ definition. Pradhan Mantri Mudra Yojana (PMMY) has been introduced for availing hassle-free credit for MSMEs. Other initiatives include enabling e-marketplace for MSMEs, 2% Interest Subvention Scheme, introducing TReDS platform for discounting of bills, organizing loan melas, loan restructuring facility for the stressed MSMEs, etc. The expectation is that all these would enable the sector to boost its contribution to growth, employment, and exports effectively.So, why not start from today itself!

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

(About Author:  Arindom is a professional writer, editor, blogger and a member of the International Association of Professional Writers and Editors, New York. A management postgraduate in finance with extensive industry exposure, he is associated with many reputed global online magazines and publications as a regular contributor. He loves to help his readers writing highly informative and well-researched investment-related content to make informed decisions.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of organization)

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh / Enquire