MICRO SMALL MEDIUM ENTERPRISES(MSME)

INTRODUCTION TO MSME

The Micro, Small and Medium enterprises (MSMEs) have been accepted as the
engine of economic growth and for promoting equitable development in all over
the world. Let there be any category of countries (Developed, Developing and
Under Developed), the existence ofMSMEs is inevitable. The major advantage of
the sector is its pivotal role through its contribution in Industrial output, Exports,
and majorly in Employment generation at low capital cost. The labour intensity of
the MSME sector is much higher than that of the large enterprises. The MSMEs
constitute over 90% of total enterprises in most of the economies and are credited
with generating the highest rates of employment growth and account for a major
share of industrial production and exports.

In India, the MSMEs contribution is highly remarkable in the overall industrial

economy of the country. In recent years the MSME sector has consistently
registered higher growth rate compared to the overall industrial sector. With its
agility and dynamism, the sector has shown admirable innovativeness and
adaptability to survive the recent economic downturn and recession. In Indian
market, MSMEs rapid growth could be seen as Indian entrepreneurs are making
remarkable progress in various Industries like Manufacturing, Precision
Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail,
IT and ITES, Agro and Service sector. The sector not only serves for urban market
but also helps in industrialization of rural and backward areas, reducing regional
Imbalances and assuring more equitable distribution of national income and
wealth. MSMEs complement large industries as ancillary units and contribute
enormously to the socioeconomic development of the country. MSMEs account for
45% of India’s manufacturing output, about 40% of India’s total exports; employ
about 73 mn people in more than 31 mn units spread across the country,
manufacture more than 6,000 products ranging from traditional to high tech items
(MSME report 2011). The report also projects the total production coming from
the MSME sector at 10,957.6 bn in FY11, an increase of more than 11% over the
previous year contribution.
Though, MSMEs contribution is phenomenal in the growth of Indian economy,
Simultaneously, MSMEs are facing intense pressure and constraints to sustain their
competitiveness in globalized world. Some other issues such as recession, low
demand, finance, heavy competition from MNCs etc. are becoming conspicuous
dilemma to MSMEs in India. In this competitive world,
MSMEs need to be able to confront the increasing competition from developed and
emerging economies and to plug into the new market opportunities, provided by
these countries. There is a direct link between internationalization and increased
MSMEs performance. International activities reinforce growth, enhance
competitiveness and support the long term sustainability of companies. Yet Indian
MSMEs still depend largely on their domestic markets despite the opportunities
brought by the enlarged single market and by globalization at large. De-reservation
of items which were earlier reserved for MSMEs, increasing competition by
liberalizing the policies and allowing foreign companies to operate in Indian
market are some of the emerging challenges before MSMEs.

Manufacturing Sector

Enterprises Investment in plant & machinery

Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees

Service Sector

Enterprises Investment in equipments

Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees
SIGNIFICANCE OF MSME

MSME- an abbreviation of Micro, Small & Medium enterprises- is the pillar of

economic growth in many developed, and developing countries in the world. Often
rightly termed as “the engine of growth” for India, MSME has played a prominent
role in the development of the country in terms of creating employment
opportunities-MSME has employed more than 50 million people, scaling
manufacturing capabilities, curtailing regional disparities, balancing the
distribution of wealth, and contributing to the GDP-MSME sector forms 8% of
GDP. Though India is still facing infrastructural problems, lack of proper market
linkages, and challenges in terms of flow of institutional credit, it has seen a
tremendous growth in this sector.
The advantage of this sector is it requires less investment, thus creating
employment on a large scale, and reducing the employment and underemployment
problems. Moreover, this sector has survived almost all threats emerging out of
still completion from both domestic and international market.

Importance of MSME ACT 2006:

With the introduction of the MSME Act in the year 2006, the service sector that
was not yet included in this sector was included in the definition of the Micro,
Small & Medium sized Enterprises making a historic change to this Act, thus
leveraging the scope of the sector even now government simplified the MSME
Registration Online with the paperless work.

Share of MSME in Manufacturing, Exports and Employment sectors in India:

Percentage(%) share
Sector
1 Manufacturing 45
2 Exports 40
3 Employment 69
The contribution of MSME to other sectors has been immensely instrumental. It is
the biggest employer after agriculture sector, despite the fact that agriculture
sector’s contribution to GDP is less than MSME. While it contributes about 45% to
manufacturing sector, and perhaps 40% to Exports, it forms the highest share of
Employment sector in India, contributing around 69% to it.
Let us take a look at some of the key importance of this sector in the development
of India both in terms of economic, and social development:

1. Creates large scale employment:

Since the enterprises falling in this sector require low capital to start the business, it
creates huge employment opportunities for many unemployed youth. India
produces about 1.2 million graduates per year, of the total number about 0.8
million are engineers. And, there is no economy in the world that can provide jobs
to so many fresh graduates in one year. MSME is the boon for many of these fresh
manpower.

2. Economic stability in terms of Growth and leverage Exports:

MSME is a significant growth driver in India, with it contributing to the tune of

8% to GDP. As mentioned in the table, Exports sector in India constitutes about
40% of contribution from MSME alone. Looking at the kind of contribution of
MSME to manufacturing, exports and employment, other sectors are also
benefitting from MSME. MNCs today are buying semi-finished, and auxiliary
products from small enterprises, for example, buying of clutches, and brakes by
automobile companies. It helps create a linkage between MSME and big
companies.even after the implementation of the GST 40% msme sector also
applied GST Registration which increase the government revenue by 11%.

3. Encourages Inclusive Growth:

About 50% of wealth in India in owned by just 100 people which is due to
unequal distribution of wealth. Inclusive growth is on top of the agenda of
Ministry for Medium, and Small, and Medium sized enterprises for several years.
While poverty and deprivation are a deterrent to the development of India,
including marginalized sections of society is a key challenge lying before the
Ministry of MSME.

4. Cheap Labor and minimum overhead:

In large scale organizations, one of the key challenges is to retain the human
resource through an effective human resource management professional manager.
But in case of an MSME, the requirement of labor is less, and it does not need a
highly skilled laborer. Hence, the indirect expenses incurred by the owner is also
low.

5. Simple Management Structure for Enterprises:

MSMEs do not require a huge capital to start. With limited resources available
within the control of the owner, decision-making becomes easy and efficient. As in
case of a large corporation wherein a specialist is required for every departmental
functioning because of complex organizational structure, a small enterprise does
not need to hire an external specialist for its management. The owner
himself/herself can manage it. Therefore, it can be run single-handedly.

6. Plays an important role in making “Make in India” possible:

Post the inception of ‘Make in India’, a signature initiative by the prime minister of
India, the process of incorporating a new business has been made easy. Since the
MSME is the backbone in making this dream a possibility, the government has
directed the financial institution to lend more credit to enterprises in MSME sector.

Final Conclusion on MSME Sector:

Micro, Small and Medium-sized Enterprises (MSME) are one among the most
important sectors, forming the backbone of the Indian economy. This sector has
been instrumental in the growth of the nation, leveraging exports, creating huge
employment opportunities for the unskilled, fresh graduates, and the
underemployed, also extending the opportunities to banks for giving more credit to
enterprises in this sector. The government should take utmost care of this sector in
terms of providing more and more MSME Registration benefits through better
regulations, Government simply , and enabling financial institutions to lend more
credit at less interest rate for sustainability of this sector.