Micro, Small, and Medium Enterprises (MSMEs)

Micro, Small, and Medium Enterprises (MSMEs)

UPSC Mains

Relevance - UPSC Mains GS 3 (Indian Economy)


Table of contents

Introduction

The MSME sector constitutes a vast network of over 60 million units and employs 120 million people, contributing around 30 percent to the GDP. It accounts for about 45% of manufacturing output and around 40 % to total exports.

Definition of MSMEs

Classification of MSMEs

Manufacturing/Service Enterprise (Investment)

  1. Micro: upto 1 Crore
  2. Small: upto 10 Crore
  3. Medium: upto 50 crore

Turnover (5 times investment)

  1. Micro: upto 5 Crore
  2. Small: upto 50 Crore
  3. Medium: upto 250 Crore

Significance of MSMEs Sector

  • Employment generation: employs about 120 million people
  • MSME sector accounts for 30% of India’s GDP
  • 45% of exports
  • Income augmentation,
  • Building rural infrastructure,
  • Women empowerment (14% MSMEs are women led)
  • Promotion of traditional goods, innovation etc.

Challenges

  • Limited capital and knowledge
  • Technological Backwardness
  • Inadequate infrastructure facilities including access to power, water, & road
  • Low production capacity and constraints in modernisation & expansions which inhibits the sector to profit from ‘economy of scale’
  • Ineffective marketing strategy
  • Non-availability of skilled labour at affordable cost
  • High competition from cheap import
  • Lack of adequate forward and backward linkages
  • Financial constraints
    • Poor access to formal capital: Only about 8 percent of MSMEs are served by formal credit channels.
    • Low financial and digital literacy
    • Limited funding capacity and accessibility of NBFCs and SFBs

Recent initiatives for MSMEs Sector

  • In-principle approval for loans up to Rs. 1 crore within 59 minutes
  • Interest subvention of 2%
  • All CPSUs to compulsorily procure through GeM portal (25% target)
    • 4% SC/ST led MSMEs and 3% from women led
  • Technology Centres (TCs) and Extension Centres (ECs)
  • Equity infusion for MSMEs through Fund of Funds
  • Use of Fintech is being encouraged
  • MUDRA Loans

U. K. Sinha Committee Report

(Expert committee on MSMEs) Report by RBI. Recommendations:

  • Review the MSME Development Act as a comprehensive and holistic MSME code
  • Change definition from current investment based to turnover based
  • Strengthening government e-market portal.
  • State Finance Commission and Khadi and Village Industries Commission should redirect their focus in promoting the MSME sector
  • Exit policy should be their for out-of-court assistance to MSMEs
  • Market support to MSMEs. Eg. External service provider giving customised solutions to struggling enterprise
  • Improving access to technology
  • Setup a National Council for MSMEs to facilitate coherent policy outlook & Unity of monitoring

Rainbow reforms for MSMEs

Access to credit, access to market, technology upgradation, ease of doing business and a sense of security for employees are five key aspects for facilitating MSME sector.
These reforms are for both manufacturing and service sector.

Easy access to credit

  1. loans of up to Rs 1 crore will be sanctioned in 59 minutes through a special portal as part of the Centre’s Micro, Small and Medium Enterprises (MSME) Support and Outreach programme.
  2. GST-registered MSMEs will get two per cent interest subvention

Easy access to market

  1. public sector companies will hav to compulsorily procure 25%, instead of 20%, of their total purchases from the MSMEs.
  2. Of the 25% procurement mandated from the MSMEs, 3% must now be reserved for women entrepreneurs

Technology Upgradation

  1. 20 tool hubs would be formed across the country, and 100 spokes in the form of tool rooms would be established.

Ease of doing business

  1. inspections of factories in the sector will be sanctioned only through a computerised random allotment and inspectors will have to upload reports on the portal within 48 hours.
  2. MSMEs will have to file just one annual return on eight labour laws and 10 central rules (earlier it needed to filed twice annually)
  3. Environment clearance under Air and water act on self certificate of MSME. Only 10% industries to be inspected

Social security to employees of MSMEs
Campaign to ensure all MSMEs are covered under social security schemes.

Concerns

  1. Risk of credit stimulus is the mis-allocation of productive economic resources
  2. Likely deterioration in credit standards as the financial institutions are pushed to lend aggressively to MSMEs

Important for Prelims -

  • MSME Sambandh Portal - To monitor the implementation of the Public Procurement from MSEs by Central Public Sector Enterprises. (Mandatory 25% from SMEs)
  • Udyami Mitra Portal - To provide ‘End to End’ solutions not only for credit delivery but also for the host of Credit-plus services by way of hand holding support, application tracking, and multiple interfaces with stakeholders. It was launched by SIDBI. It provides a unique match making platform to MSME loan seekers, lenders as also handholding agencies.
  • MSME Sampark portal- To bridge gap between the Recruiters and Job Seekers.
  • Samadhan Portal – It enables the MSMEs to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments. The information on the portal will be available in public domain, thus exerting moral pressure on the defaulting organizations.

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