Published on Nov 7, 2023Updated on Nov 8, 2023
The impact of MSME on the Indian economy cannot be emphasized enough. Today’s youth need not move too far away from their homes for stable employment. Micro, Small, and Medium Enterprises (MSMEs) are the new fertile ground for ideas, innovation, and growth.
These enterprises are at the forefront of driving manufacturing and industrial expansion, job creation, and GDP growth. However, they confront various challenges, including limited access to finance, infrastructure constraints, obsolete technology, regulatory issues, and a shortage of skilled labour.
Addressing these hurdles becomes essential to harness the potential of MSMEs fully, ensuring they propel India's ongoing economic advancement.
Based on their size and investment in assets, businesses are classified into micro, medium and small enterprises, also known as the MSME sector. They chiefly conduct operations in manufacturing, trade, and services. Their investments and annual turnover vary but are crucial to their success. MSMEs are known for their immense contribution to the Indian economy and are heavily encouraged by the Indian government in the form of better assistance programmes, tax benefits and accessible credit facilities.
Though the categorisations of MSMEs vary from country to country, they are classified in India as follows:
Type of Enterprise
Up to INR 1 crore
Less than or equal to INR 5 crores
Up to INR 10 crores
Less than or equal to 50 crores
Up to INR 50 crores
Less than or equal to INR 250 crores
The investment in machinery and equipment and annual profits are two critical factors in their grouping. This classification helps MSMEs have access to better opportunities.
The MSME sector has a substantial impact on various aspects of the Indian economy:
MSMEs are known for their labour-intensive nature. They provide employment opportunities to a large population, particularly in rural and semi-urban areas.
MSMEs encourage entrepreneurship and innovation by creating a fertile ground for individuals to start and grow their businesses.
MSMEs are often in tier-2 and tier-3 cities and rural areas. This promotes local development and reduces regional economic disparities.
Many MSMEs are involved in export-oriented activities, contributing to India's foreign exchange earnings.
MSMEs are involved in manufacturing, services, agriculture, and trade. This diversification helps reduce reliance on a single industry and boosts economic resilience.
MSMEs can quickly adapt to changing market conditions and consumer demands. They often drive innovation in their respective sectors.
MSMEs help reduce financial burden and promote inclusive growth by providing opportunities for self-employment and wage employment.
MSMEs often serve as suppliers and subcontractors to more prominent industries and contribute to the supply chain.
The idea of MSMEs emerged after the Ministry of Small-Scale Industries merger with the Ministry of Agro and Rural Industries. With time, the ministry realised the immense potential of this sector in catering to domestic and international markets.
Today, with almost 63 million MSMEs across the country, their contribution to the GDP is a whopping 30%. Indian businesses aim to export $400 billion worth of goods and services by the end of the financial year 2023 and $1 trillion by 2027. MSMEs are believed to play a vital role in achieving this goal.
MSMEs are owned by women and socially disadvantaged groups in 20.73% and 66.27% of cases, respectively. This gives the Indian economy a much-needed push.
MSMEs are primarily located in rural and underdeveloped areas, contributing to economic growth and job creation. They promote innovation and are the backbone of India's startup ecosystem.
They also play a vital role in the supply chain by providing cost-effective and timely services to large corporations.
The presence of MSMEs is a vital contributor to economic and social interests. Here are some benefits to consider:
Overall, MSMEs play a vital role in sustaining economic growth, job creation, and fostering innovation in developing and developed economies.
Must Read: Benefits of MSME Loans
The MSME sector in India deals with certain challenges from time to time that can impact its long-term growth:
The Indian government has recognised the importance of the MSME sector and has introduced various policies, incentives, and support schemes to boost its growth. These include access to credit, subsidies, and ease of doing business.
Additionally, the government also provides a variety of other support programs to MSMEs, including marketing assistance, technology support, and infrastructure support.
MSMEs can avail of these schemes and programs by contacting the relevant government agencies or financial institutions. They can also visit the government's website for more information.
It is important to note that each scheme's eligibility criteria and application process may vary. MSMEs are advised to carefully review the details of each plan before applying.
Working in the MSME sector opens up the door to new opportunities:
MSME entrepreneurs can take advantage of these opportunities by analysing market trends, understanding the needs of their customers, and networking with other MSMEs.
India's most significant advantage over other nations is its substantial human capital. Today, it houses the world's third-largest pool of MSMEs. Moreover, they significantly contribute to India's exports, with 49.5% of products in 2020-21 being MSME-generated.
MSMEs have become the path to driving industrialisation in the rural sectors. By 2025, the Indian Government aims to double its economy to $5 trillion. MSMEs play a significant role in this by creating numerous job opportunities.
The micro sector, with 630.52 lakh enterprises, employs around 97% of the industry's workforce. The small sector, with 3.31 lakh MSMEs, employs 2.88% of the workforce, and the medium sector, with 0.05 lakh MSMEs, employs 0.16% of the total MSME sector workforce.
MSMEs play a vital role in India's economic landscape. Being the backbone of the Indian economy, substantial contributions to GDP, job creation, exports, and innovation are instrumental in achieving the government's vision of elevating India into a $5 trillion economy by 2025.
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Today, MSMEs contribute up to 30% of the country’s GDP. It plays a vital role in the industrialisation of the rural sector in cost-efficient ways. MSMEs also have a significant role in providing employment opportunities and exports.
MSMEs are vital to the success of the Indian economy as they serve a variety of purposes:
As the name suggests, all medium, micro and small enterprises fall under the category of MSME. They can be categorised as:
MSMEs are broadly classified into two types:
The turnover criteria for MSMEs include:
It is compulsory for all businesses with a turnover above ₹20 lakh to register for GST. However, certain MSMEs may be exempted in exceptional circumstances.
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