MSMEs and their Contribution to Indian Economy

Learn how important MSMEs are in developing India as a powerful nation.

Micro Small and Medium Enterprises (MSMEs) are crucial for the economic growth and stability of any country and play a vital role especially for developing countries as they facilitate economic activity and provide employment thus contributing to poverty reduction.

MSMEs are the power engines of the economy. Micro, Small and Medium Enterprise (MSMEs) constitute over 90 percent of total enterprises in most of the economies and are credited with generating highest rate of employment growth and also account for a major share of industrial production and exports.

MSMEs constitute over 90 percent of total enterprises in most of the economies and are credited with generating highest rate of employment growth.

Small and Medium Enterprises (SMEs) are crucial for the economic growth and stability of any country and play a vital role especially for developing countries as they facilitate economic activity and provide employment thus contributing to poverty reduction. In the Indian context they can be considered as the backbone of national economy.

With around 63.4 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 29% of the GDP from service activities as well as 33.4% of India’s manufacturing output. … Out of these, around 126 are MSME associations.

MSMEs contribute around 6.11% of the manufacturing GDP and 29% of the GDP from service activities as well as 33.4% of India’s manufacturing output.

Indian Micro Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. SMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural areas. MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country. The Sector consisting of 63.4 million units, as of today, provides employment to over 11.10 crore persons. The Sector through more than 6,000 products contributes about 8% to GDP besides 45% to the total manufacturing output and 50% to the exports from the country. TheMSME sector has the potential to spread industrial growth across the country and can be a major partner in the process of inclusive growth.

MSMEs also play a significant role in Nation development through high contribution to Domestic Production, Significant Export Earnings, Low Investment Requirements, Operational Flexibility, Location Wise Mobility, Low Intensive Imports, Capacities to Develop Appropriate Indigenous Technology, Import Substitution, Contribution towards Defense Production, Technology –Oriented Industries, Competitiveness in Domestic and Export Markets thereby generating new entrepreneurs by providing knowledge and training.

Despite their high enthusiasm and inherent capabilities to grow, MSMEs in India are also facing a number of problems like sub-optimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic & global competition, working capital shortages, not getting trade receivables from large and multinational companies on time, insufficient skilled manpower, change in manufacturing strategies and turbulent and uncertain market scenario. To survive with such issues and compete with large and global enterprises, SMEs need to adopt innovative approaches in their operations. MSMEs that are innovative, inventive, international in their business outlook, have a strong technological base, competitive spirit and a willingness to restructure themselves can withstand the present challenges and come out successfully to contribute 29% to GDP. Indian MSMEs are always ready to accept and acquire new technologies, new business ideas and automation in industrial and allied sectors.

Major Constraints of the MSMEs

The major constraints of SMEs are finance for initial capital and working capital, Line of credit from the suppliers, new technology to produce quality products, provide service, ability to hire qualified and professional staff for production, service and marketing.

India has been the breeding ground for ideas and entrepreneurs in the recent past. Start-up activity is at an all-time high. Start-ups have mushroomed across markets and industries, despite all the murkiness and uncertainty in the policy framework.

The key findings of the study on MSMEs reveal that while the overall NPA rate remained range bound from 8% to 11% in the MSME segment during the last 2 years, the NPA rate of large corporates has increased significantly from 7.9% to 16.9% during the same period. Further, there has been a significant increase in the new borrowers entering the formal credit sector which has accelerated from ~2.7 lakhs for the six-month period of Jan to Jun 2016 to ~4 lakhs in Jul to Dec 2017, indicating fresh investments being made. The report, while giving an insight on the prominent MSME sectors for the lending institutions from a risk and profitability perspective, also presents the effects of dual economic disruptions of demonetisation and GST along with the impact of relief measures announced by RBI for MSMEs registered under GST.

Community & SME Contribution to Society

SMEs are more strongly connected with the community they operate asthey are embedded with it and most of its employees are locals.SMEs rely on the prosperity of the local communities in which they operate and vice versa. This has to be utilized properly. SMEs contribute to community through silent CSR because of their relationship with community.

It is interesting to note that even if 2 percent of Indians turn entrepreneurs and employ 25 people each on an average, half the Indian population will be employed.

23 November, 2019
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