MSME: The Past and The Prospect The micro small & medium enterprises act as the backbone of the country, keeping the economy flowing as well as providing quality services to the masses

Over the past decade, India's manufacturing landscape has undergone significant transformations in its sectoral composition. Micro, Small and Medium Enterprises (MSMEs) have been instrumental in driving this economic boom. Industries focused on consumer goods, such as automobiles, wood products, furniture and pharmaceuticals have seen notable increases in their output share. Simultaneously, production-oriented sectors like machinery, chemicals, non-metallic minerals and rubber & plastic products have also experienced share gains, contributing to balanced growth dynamics. To further bolster industrial expansion, it is crucial to continue enhancing the efficiency, skills and adaptability of MSMEs. Promoting research and development (R&D) investments, formalising smaller manufacturers, addressing supply chain challenges, improving market access, and facilitating access to finance will be essential for fostering industrialization. Additionally, reducing the compliance burden on MSMEs can significantly enhance their growth potential.

As per a report published by the Ministry of Finance last month, economic growth of 8.2 per cent in FY24 was supported by an industrial growth of 9.5 per cent. Among the four sub-sectors of industry, manufacturing and construction achieved close to double-digit growth, while mining & quarrying and electricity & water supply also recorded strong positive growth in FY24.

According to a survey by Ministry of Statistics & Programme Implementation for 2021-22 and 2022-23, the number of unincorporated enterprises in India saw a 5.9 per cent increase between October 2022 and September 2023 compared to the period from April 2021 to March 2022. During this timeframe, the gross value added (GVA) per worker rose from INR 1,38,207 to INR 1,41,769, and the gross value of output (GVO) per establishment increased from INR 3,98,304 to INR 4,63,389. These metrics indicate improved productivity and more efficient resource utilisation, including labour, which are vital for sustained economic growth and competitiveness.

The Udyam Registration portal, launched in July 2020, has played a pivotal role in formalising MSMEs by offering a straightforward, online and free registration process based on self-declaration. As of July 5, 2024, 4.69 crore MSMEs have registered on the Udyam Registration portal, including informal micro enterprises registered on the Udyam Assist Platform. Udyam registration enables MSMEs to access benefits from various Ministry of MSME schemes and makes them eligible for priority sector lending from banks. The portal also features API linkage with 37 other platforms, facilitating data sharing and significantly benefiting the MSME sector.

The way forward

The Ministry of Finance has extended significant support to MSMEs in the Union Budget of 2024-25. As India steadily approaches the threshold of becoming a $5 trillion economy by 2026-27, interest in the nation as an investment destination is soaring. The Indian MSME sector is projected to grow to $1 trillion by 2028, as per a report by Invest India.

"Access to credit continues to be a significant hurdle for MSMEs in India. The introduction of the new collateral-free credit guarantee scheme, providing term loans up to INR 100 crore, is a welcome announcement. In turn, this will allow them to improve their output significantly and contribute more to India's exports, thereby enhancing their participation in the global value chain and strengthening India's position in international markets. These assessment models, based on the scoring of digital footprints and covering MSMEs without a formal accounting system, will help thousands of potential MSMEs without strong financial records gain access to finance," stated Yashraj Vakil, CEO of CaptainBiz.

Moreover, with the relaxation of the FDI (foreign direct investment) policy allowing a 100 per cent FDI inflow under the automatic route for MSMEs and the various tax exemptions and tax holidays that the sector can avail, investments in Indian MSMEs have much to attract astute investors. Employment generation is another crucial strength of MSMEs in India, providing livelihoods to over 111 million people through 63 million enterprises. This vast employment base highlights their crucial role in supporting livelihoods and mitigating unemployment.

Shishir Gupta, founder and CEO at Riot Labz exuded, "The introduction of three schemes for employment-linked incentives, particularly the direct benefit transfer of one month's salary to first-time employees and the support extended to employers, is a major step towards fostering a more vibrant job market. The provision for EPFO (employees' provident fund organisation) contributions, reimbursing employers up to INR 3,000 per month for each additional employee, will undoubtedly encourage us and other manufacturers to generate more employment opportunities. Additionally, the extension of Mudra loan limits to INR 20 lakh from INR 10 lakh for those who have availed and repaid previous loans is a significant boost for small businesses."

Furthermore, the government plans to develop e-commerce export hubs through public-private-partnership (PPP) mode. These hubs will offer comprehensive trade and export-related services under one roof, simplifying the process for MSMEs and artisans to market their products internationally.

Going digital

The Ministry of MSMEs has been allocated INR 22,137.95 crore under the interim Budget 2024-25 for implementing various schemes and technology upgrades. As per a survey report by PayNearby, 75 per cent of small business owners aged 18 - 30 are the most tech-savvy, with over 87 per cent in this demographic using smartphones for their daily business activities and accessing digital content. They are closely followed by those in the 31 - 40 age bracket. Interestingly, 36 per cent of these young entrepreneurs reported earning more than INR 15,000 per month. The pervasive use of smartphones underscores the internet's vital role in bridging infrastructure gaps and fostering technological inclusion among MSMEs at the grassroots level. Read more