The micro, Small, and Medium Enterprises (MSME) sector, is an industry that has become a game changer for the Indian economy. More than 42% of the employment opportunities as of today are generated by the MSME sector. This has opened up doors for the industrialization of rural & backward areas, and promoted regional development, assuring more fair distribution of national income and wealth. MSMEs have become a backbone for the mega industries as ancillary units, and this sector contributes enormously to the socio-economic development of the country.
The Khadi and Coir have become a legacy carrier for the MSME Sector. A raw material native to India with worldwide demand. Ministry of Micro, Small & Medium Enterprises (M/o MSME) envisions a vibrant MSME sector by promoting growth and development of the MSME Sector, including Khadi, Village, and Coir Industries, in cooperation with concerned Ministries/Departments, State Governments, and other Stakeholders, through providing support to existing enterprises and encouraging the creation of new enterprises.
In 2006, The Micro; Small and Medium Enterprises Development (MSMED) Act, 2006 was established to address policy issues affecting MSMEs as well as the coverage and investment ceiling of the sector.
Wait, What’s an MSME?
A business entity is eligible to be qualified as a Micro; Small and Medium Enterprise (MSME) if it fulfils certain parameters prescribed by the Micro; Small and Medium Enterprises Development (MSMED) Act, 2006.
Here’s a crisp table from the Ministry of MSMEs to help you understand what’s exactly going on:
Note: MSMEs in the service sector (IT and stuff) will also be classified along the same lines as their manufacturing counterparts. So no bias for the people in the service industry either.
MSME and India
India is currently one of the fastest growing economies of the world. MSME sector is likely to continue to play a significant role in the growth of the Indian economy. In the last ten years, MSME sector has shown impressive growth in terms of parameters like number of units, production, employment, and exports. Given the right set of support systems and enabling framework, this sector can contribute much more, enabling it to actualize its immense potential. MSMEs have been contributing significantly to the expansion of entrepreneurial base through business innovations. MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet demands of domestic as well as global markets.
The Greener Side
When the Government of India was deciding to set parameters for sector as Micro, Small, and Medium Enterprises (MSMEs) they tried to make an attempt to set up an incentive linked structure to bring in new age of growth. And the incentives are amazing viz.:
Also, to support this regime, the two most prestigious stock exchanges of this country – the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) have introduced a specially dedicated trading platform for the MSMEs. What more a business could ask for ?
But as you step-up, from Micro to Small and Small to Medium, the government will gradually step-down from the support system and put you on a path of self-reliance — “Atmanirbhar” as the Prime Minister would love to quote it.
The Debt Trap
Owing to factors like Demonetization, GST, red tape, and a bunch of other issues have crippled them. MSMEs have been struggling almost for a decade now. In fact, they are heavily leveraging on banks and new loans to stay afloat.
The pandemic of Covid-19 has trampled their aspirations and ripped them off completely. The only way to keep them afloat is some boatload of money. However, banks have been reluctant to lend to these people since they’re likely going to default on their obligation.
Unfortunately, despite the borrowing, there hasn’t been a significant improvement. A majority chunk of the MSMEs have become NPAs for Banks and Financial Institutions and as of 2018, the aggregated figure stands at Rs 80,000 Crores. So, a government intervention was inevitable to plug the funding holes.
MSME, RAMP and the World Bank
Majority of the MSMEs rely more on ‘informal sources’ of capital – a factor that is often negatively linked to growth and firm performance. For MSMEs, financial services can be a real catalyst to accelerate employment opportunities, income, and increase stability and investments. MSME can be a real game changer for employment and GDP at global level, but, when they have limited access to finance, the economy suffers a series of negative repercussions.
The World Bank has a wide range of available instruments to help meet the challenge of MSME finance viz.;
Anyway, MSME has recently been in news as the Union Cabinet has approved a World Bank assisted Central Sector Scheme “Raising and Accelerating MSME Performance (RAMP)”.
It was formulated and proposed by the Government of India, for strengthening MSMEs in line with the recommendations made by U K Sinha Committee, KV Kamath Committee and Economic Advisory Council to the Prime Minister (PMEAC).
The “Raising and Accelerating MSME Performance” (RAMP) would act as:
So, where does this road lead us to ? MSMEs are the backbone of this economy as they have helped generate employment for millions and help businesses achieve the growth. Despite of the role it serves for the economy, the MSMEs are yet to achieve the growth they deserve. And to strengthen them further, and to see them become Atmanirbhar, a move like this was much necessary.
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Ms. Smita Patil is a commerce graduate and aspiring corporate secretary who is currently undergoing her long-term training as a Junior Associate with Jaya Sharma & Associates. She believes in the Japanese philosophy of ‘Kaizen’, that means “change for the better or continuous improvement”. She is a keen enthusiast of Corporate and Securities law.