CETANB PROSPECTIVE

The Role of MSMEs in India's Economic Growth

  • Col Ravinder Kumar Sharma

(Center for Emerging Technologies for Atma Nirbhar Bharat)

Introduction

Micro, small, and medium enterprises (MSMEs) are one of the driving forces propelling the Indian economy towards global greatness, as per the Udayam portal created by the Ministry of MSME. The MSMEs in India employ over two crore people, firmly establishing themselves as the bedrock of the economy. 

Aided partly by supportive and reformatory government initiatives and technological innovations, the MSME sector has grown exponentially, accounting for ~46% of India’s total exports.

Defining MSMEs and Their Economic Relevance 

The Micro, Small & Medium Enterprises Development Act of 2006 outlines the categorization of MSMEs as per the following criteria: 

  • Micro Enterprise: The investment in plant and machinery or equipment should not exceed one crore rupees, and the turnover should not exceed five crore rupees. 
  • Small Enterprise: The investment in plant and machinery or equipment should not exceed ten crore rupees, and the turnover should not exceed fifty crore rupees. 
  • Medium Enterprise: The investment in plant and machinery or equipment should not exceed fifty crore rupees, and the turnover should not exceed two hundred and fifty crore rupees. 

The present MSMEs classification was implemented in 2020 to simplify matters for current and potential entities. MSMEs are the backbone of India's economic landscape, and pivotal in employment. MSMEs have consistently driven the nation's growth, providing employment to millions and fostering inclusive development. As an economic powerhouse, the MSME sector undoubtedly plays a central role, in fostering innovation, generating employment,                                                              

Export Contribution and Global Outreach

Micro, Small, and Medium Enterprises (MSMEs) exports have witnessed a remarkable rise, increasing from ?3.95 lakh crore in 2020-21 to ?12.39 lakh crore in 2024-25, underscoring their critical role in boosting India’s economy and strengthening global trade. The total number of exporting MSMEs in 2024-25 has also increased considerably from 52,849 in 2020-21 to 1,73,350 in 2024-25. MSMEs demonstrated an exemplary growth trajectory, contributing 45.73% to exports in 2023-24, which increased to 45.79% by May 2024, highlighting their growing impact on India’s trade performance.

As per the Ministry of MSMEs Annual Report 2022-23, the MSME sector played a significant role in job creation, contributing to the generation of 11.10 crore jobs. These employment opportunities were spread across various sectors, with 360.41 lakh jobs in Manufacturing, 0.07 lakh jobs in Non-captive Electricity Generation and Transmission, 387.18 lakh jobs in Trade, and 362.82 lakh jobs in Other Services. It is worth noting that these job opportunities were created in both rural and urban areas across the country. 

Challenges Faced by MSMEs

MSMEs face various challenges such as accessing essential raw materials, skilled labour, and other necessary inputs, hindering their ability to manufacture products competitively. They are as follows:

  • Small and Medium Enterprises (MSMEs) face challenges in accessing essential raw materials, skilled labour, and other necessary inputs, hindering their ability to manufacture products competitively.
  • Despite the growth of MSMEs, inadequate infrastructure leads to low production capacity and increased production costs for these businesses.
  • MSMEs struggle with intense competition from multinational corporations that offer quality products at competitive prices in the globalized market.
  • MSMEs encounter difficulties in obtaining sufficient bank credit, with high interest rates ranging between 7.75% and 15.25% for loans.
  • Owners of MSMEs lack awareness of modern manufacturing techniques and advanced technologies, hindering technological advancement.
  • Lack of knowledge of innovative production methods and insufficient government-led capacity development programs contribute to the skills gap among MSME owners.
  • MSMEs often fail to utilize diverse marketing channels effectively, resulting in underperforming sales due to ineffective advertising strategies.

Recommendations 

It is crucial to boost employment opportunities for economic development by improving the performance of small and medium-sized enterprises (SMEs) in urban areas. 

  • Proper training initiatives can play a vital role in promoting the participation of women 

 

in the workforce and entrepreneurship, both in urban and rural areas.

  • The Indian Government should take the necessary steps to support the expansion of Micro and small-sized enterprises.
  • It is imperative to provide flexible bank credit and interest rates that cater to the specific needs of an entrepreneur. 
  • Essential training for technology and innovations should be provided to entrepreneur in both urban and rural areas to ensure their growth and success. 

Conclusion 

Micro, Small, and Medium enterprises sector is experiencing rapid growth with increased job opportunities. To ensure the effective implementation of government policies and provide guidance to entrepreneurs, partnerships, and agreements are being formed with NGOs, government agencies, and universities. Despite the above-said efforts, MSMEs face various types of challenges at present. One of the key challenges is the lack of upgrading technological awareness, which can be addressed through efficient training and skill development programs. low-cost credit access is also crucial for MSMEs, especially, due to decreasing involvement of foreign banks in approving loans for the industry.  Additionally, measures like the online portal Champions non-tax benefits for upward changes in MSME status, and the Raising and Accelerating MSME Performance program have been introduced to foster the sector's growth. The Indian government has recently taken significant steps to further support MSMEs the Rs. 5 lakh crore Emergency Credit Line Guarantee Scheme (ECLGS), and Rs. 50,000 crore equity infusion through the MSME Self-Reliant India Fund. The inclusion of Retail and Wholesale trades as MSMEs demonstrates this commitment. India's MSME sector holds a promising future and will continue the country's economic development in the future.

References