Recently, NITI Aayog released the report titled ‘Enhancing MSMEs Competitiveness in India’, in collaboration with the Institute for Competitiveness (IFC).
About Micro, Small and Medium-sized enterprises (MSMEs)
- Micro, Small and Medium-sized Enterprises (MSMEs) are defined under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, and are classified based on their investment in plant and machinery or equipment and annual turnover.
- As per the revised MSME definition announced in the Union Budget 2025:
- Micro Enterprise: An enterprise will be classified as a Micro if the Investment in plant and machinery or equipment not exceeding ₹2.5 crore and turnover not exceeding ₹10 crore.
- Small Enterprise: Investment not exceeding ₹25 crore and turnover not exceeding ₹100 crore.
- Medium Enterprise: Investment not exceeding ₹125 crore and turnover not exceeding ₹500 crore.
- Scale of MSME’s Operation In India: 63 million MSMEs operate in India, with 99% classified as micro-enterprises.
Micro, Small, and Medium Enterprises (MSMEs) and Sustainable Development Goals (SDGs):
- SDG 1: No Poverty: MSMEs create employment opportunities, particularly in rural and underserved areas, helping reduce poverty.
- SDG 8: Decent Work and Economic Growth: MSMEs are vital for fostering entrepreneurship, promoting inclusive growth, and creating sustainable jobs.
- SDG 9: Industry, Innovation, and Infrastructure: MSMEs drive innovation and contribute to the development of local infrastructure, strengthening industrial capacity.
- SDG 12: Responsible Consumption and Production: By adopting sustainable practices, MSMEs can reduce their environmental impact and promote the efficient use of resources.
- SDG 13 : Climate Action: MSMEs can implement green technologies, reduce waste, and adopt practices that mitigate climate change
|
Significance of MSME’s For India
- Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economy. They account for: 30% of India’s GDP, 45% of manufacturing output, 40% of exports and employ over 110 million people.
- Current Share of MSME’s In India’s Growth :
- In 2022-23, the share of MSMEs in India’s Gross Value Added (GVA) is 30.1%.
- In 2023-24, MSME-related products accounted for 45.73% of India’s total exports.
- In 2021-22, the share of MSME manufacturing output in India’s total manufacturing output stood at 36.2%
- Employment Generation
- Currently, over 5.93 crore registered MSMEs employ more than 25 crore people in India.
- MSMEs employ around 40% of India’s workforce, second only to agriculture.
- Women-owned enterprises account for about 20% of MSMEs, highlighting gender inclusivity.
- Regional Distribution:
- Top states in MSME presence: Uttar Pradesh, West Bengal, Tamil Nadu, Maharashtra.
- Low penetration in Northeastern and hilly regions due to infrastructural challenges.
Digital Transformation in MSMEs
- About: Digital transformation in MSMEs refers to the adoption of digital technologies such as automation, cloud computing, data analytics, and e-commerce to improve processes, products, customer experiences, and business models.
- Example: For New Product Development and Design- Use of 3D printers Design preferences of customers can be detected by competitions and surveys. PLM (Product Lifecycle Management) programme, Computer Aided Design (CAD).
- For Demand Forecasting: Big data and advanced data analytic can be used.
|
Challenges Faced By MSMEs In India
- Formalisation: Formalisation remains a challenge for MSMEs, with only 9% of registered firms starting as unregistered.
- Despite over 6.34 crore MSMEs in India, many remain unregistered due to high compliance costs, regulatory complexity, and loss of exemptions.
- “Missing Middle” Problem: The “Missing Middle” problem refers to the lack of medium-sized enterprises in the Micro, Small and Medium Enterprises (MSME) sector, especially in developing countries like India.According to the Udyam Registration portal, as of November 2023, out of 3,06,24,320 MSMEs registered, 3,05,60,814 are classified, among which, there are about 97.92% micro, 1.89% small and 0.01 % medium enterprises.
About Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE):
- The Scheme was launched by the MSME Ministry to provide collateral-free credit guarantees to Member Lending Institutions (MLIs) for loans to Micro and Small Enterprises (MSEs).
- This aims at enhancing credit access and easing delivery to the sector.
|
- Limited access to formal credit: Only 19% of MSME credit demand was met formally by FY21, with an estimated ₹80 lakh crore unmet demand.
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has expanded, but still faces limitations in supporting MSMEs effectively.
- Skill Gap: Lack of formal vocational or technical training for a significant portion of the workforce is a significant obstacle for MSMEs, hindering their capacity to innovate, enhance production standards, and scale their operations.
- The Global Innovation Index (WIPO, 2023) highlights a 3.9 percentage point decline in knowledge-intensive hiring, from just 12.96% in 2022, reflecting the skill gap.
- Lack of Investment in Innovation and R&D: Many MSMEs do not invest enough in research and development, quality improvement, or innovation, making them less competitive in both national and global markets.
- India ranks 40th among 132 economies in the 2023 Global Innovation Index (WIPO).
- Product Diversification: Lack of product diversification is a key barrier to MSME growth, as many firms lack awareness of market trends, technical expertise, and face high investment costs.
- Tax compliance: An Enterprise Survey Study (World Bank, 2022) revealed that tax rates and compliance was one of the top three business environment constraints for small, medium and large Enterprises.
- Infrastructure: It is one of the major non-financial barriers faced by MSMEs.
- MSME’s face bottlenecks due to a lack of adequate transportation facilities, high cost of transportation, low/no access to a reliable power supply, lack of appropriate storage facilities, inadequate marketing facilities, lack of funds etc.
About Clusters
- The Ministry of Micro, Small, and Medium Enterprises (MSME) defines a cluster as a group of enterprises, either located in a contiguous area or forming a value chain beyond a geographic region, producing similar or complementary products/services.
- These enterprises are connected through shared infrastructure to address common challenges.
- India’s Cluster Policy: The Ministry has adopted the Cluster Development approach as a key strategy for development of MSME’s.
- Cluster Approach Based On: India’s cluster policy, which began in 1987, is based on the idea of collective efficiency and Flexible Specialization.
- However, this approach is different from the United States and the European Union, which use cluster mapping as a sophisticated tool for informing policy decisions and promoting cross-border collaborations.
- Examples of Clusters In India:
- Tirupur (Tamil Nadu): Known for its knitwear and hosiery industry.
- Surat (Gujarat): Famous for its diamond polishing and textile industry.
- Bhiwandi (Maharashtra): A key hub for power looms in the country.
- Moradabad (Uttar Pradesh): Famous for brassware and metal handicrafts.
- Cluster-Specific Recommendations By NITI Aayog:
- Textile Manufacturing & Apparel: Shift focus to downstream activities like garment design and specialized fabric production.
- Collaborate with design schools, modernize equipment, and enhance digital supply chains.
- Key regions: Surat, Ludhiana, Tiruppur can enhance efficiency, boost economies of scale
- Food Processing: Address regional fragmentation by linking farmers with processors.
- Implement sensor-based tracking, cargo insurance, and state-level branding.
- Strengthen food processing clusters in the northeast and east.
- Chemical Cluster: Tackle skilled labor shortages and complex regulations.
- Automotive Cluster: Promote investment in Research &Development (R&D) with incentives.
- Strengthen MSME bargaining power through market linkages and cooperative frameworks.
- Focus on innovation in regions like Gurgaon, Rewari, and Pune.
|
Government Initiatives for MSME Development in India
- Udyam Portal: The Udyam Registration Portal (URP) facilitates online MSME registration and 40 provides Unique Registration Numbers (URN) and Udyam Assist Certificates (UAC).
- The URN is crucial for MSMEs to access priority sector lending.
- Simplified MSME registration, benefitted 10 million+ enterprises.
- New Customized Credit Card Scheme for Micro Enterprises: The Customized Credit Card Scheme will provide ₹5 lakh in credit to micro enterprises registered on the Udyam portal.
- With 10 lakh cards set to be issued in the first year, the scheme aims to improve access to finance, boosting growth and operational efficiency for micro enterprises.
- GST SAHAY: It is a digital lending platform that aims to provide MSMEs with easy and quick access to credit. It utilises the GST invoices generated by MSMEs as collateral to assess their creditworthiness.
- The use of technology and the integration with the GSTN (Goods and Services Tax Network) allow for faster loan processing and disbursement.
- Udyam Assist Portal (UAP): This portal aims to facilitate the onboarding of Informal Micro Enterprises (IMEs), enabling them to access the benefits of Priority Sector Lending.
- Zero Defect Zero Effect (ZED) Certification: The aim of the certification is to encourage MSMEs to adopt quality manufacturing with minimal environmental impact (zero defects in products, zero effect on the environment).
- The ZED certification has three levels:
- Bronze: 50% subsidy (up to ₹50,000) for meeting basic quality and environmental standards.
- Silver: 60% subsidy (up to ₹3 lakh) for advanced process improvements.
- Gold: 70% subsidy (up to ₹5 lakh) for achieving world-class standards and sustainability.
Way Forward
- Strengthening CGTMSE for Better Credit Access: There is a need to reform the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to enhance regulatory oversight and reduce risk premiums, making financing more accessible for MSMEs.
- Scaling Up Non-Banking Financial Company (NBFC) Operations: Increasing funding to NBFCs and improving their governance will expand their capacity to serve a larger portion of the MSME sector.
- Easing Eligibility for Subsidy Schemes: Lowering eligibility barriers for state-level subsidy schemes will help MSMEs access necessary financial support throughout their lifecycle, ensuring they have resources to expand and innovate.
- Industry-Specific, Updated Training Programs: To bridge the skills gap, training programs should align with current industry needs, focusing on practical skills and last-mile connectivity.
- The recent proposal by the government of Andhra Pradesh for a Skill Census aims to better understand the skill set of the workforce, for targeted skill development initiatives
- Example: Encouraging partnerships between the government and private sector to offer subsidized training.
- Incentivizing Digital Adoption for MSMEs: Establishing co-working spaces, industrial parks, and incubators will provide MSMEs with affordable access to technology without heavy investment.
- Example: Digital Saksham scheme trained 5.6 lakh MSMEs in digital tools (2022-24).
- Investing in Export Promotion and Quality Certifications: Providing MSMEs with access to export incentives, quality certifications, and market research will improve product quality and competitiveness.
- Focus in northeastern and eastern regions: Special emphasis on enhancing MSME growth in northeastern and eastern regions through: Digital marketing support, Logistics partnerships and Direct market linkage platforms.
Conclusion
India’s MSMEs can become a key driver of sustainable economic growth by focusing on targeted interventions, building stronger institutional collaborations and enhancing global competitiveness.
To get PDF version, Please click on "Print PDF" button.
PWOnlyIAS
