FUTURE OF MSME (MICRO SMALL AND MEDIUM ENTERPRISES) IN INDIA

Topic: GS PAPER-3; INDIAN ECONOMY

BACKGROUND: 

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last five decades. The Indian MSME sector is the backbone of the national economic structure and has unremittingly acted as the bulwark for the Indian economy, providing it resilience to ward off global economic shocks and adversities.

Silently operating in different areas across the country, more than 6 crore MSMEs have a crucial role to play in building a stronger and self-reliant India. These small economic engines have a huge impact on the country’s GDP-making a contribution of 29 percent. They contribute to almost half of exports from the country. Additionally, more than 11 crore people are employed in the MSME sector

SIGNIFICANCE OF MSME SECTOR IN INDIA:

  • MSMEs not only play crucial role in providing large employment opportunities at comparatively lower capital cost than large industries but also help in industrialization of rural & backward areas
  • They help in reducing regional imbalances, assuring more equitable distribution of national income and wealth.
  • MSMEs are complementary to large industries as ancillary units and this sector contributes enormously to the socio-economic development of the country.

NEW DEFINITION OF MSME IN INDIA:

In the aftermath of Covid-19 pandemic and as a part of Atmanirbhar Bharat package a revision in MSME definition was announced in May 2020. This was possible after 14 years since the MSME Development Act came into existence in 2006. This is yet another step towards ease of doing business. This will help in attracting investments and creating more jobs in the MSME sector. The following table provides the details of revised limits:

Category Old Capital Old Turnover New Capital New Turnover
MICRO 25 Lakh 10 Lakh 1 Crore 5 Crore
SMALL 5 Crore 2 Crore 10 Crore 50 Crore
MEDIUM 10 crore 5 Crore 50 Crore 250 Crore

The new definition will pave way for strengthening and growth of the MSMEs. Particularly, the provision of excluding the exports from counting of turnover will encourage the MSMEs to export more and more without fearing to loose the benefits of a MSME unit. This is expected to exponentially add to exports from the country leading to more growth and economic activity and creation of jobs. 

CABINET APPROVALS FOR MSME UNDER THE PACKAGE:

  1. Provisioning of Rs 20,000 crore as subordinate debt to provide equity support to the stressed MSMEs. This will benefit 2 lakh stressed MSMEs.
  2. Equity infusion of Rs. 50,000 crore for MSMEs through Fund of Funds (FoF). This will establish a framework to help MSMEs in capacity augmentation. This will also provide an opportunity to get listed in stock exchanges.

To provide immediate relief to MSME sector, various announcements have been made under the Package. The most important ones also included:

  • Rupees Three lakh crore collateral-free automatic loans for MSMEs to meet operational liabilities, buy raw material and restart businesses.
  • Revision of MSME definition to render maximum benefits to the sector;
  • Disallowing global tenders in procurements upto Rs. 200 crores- to create more opportunities for domestic players,
  • And clearing of MSME dues by the Government and Public Sector Units within 45 days.

To manage all this, a robust ICT based system called CHAMPIONS has also been launched by the Ministry of MSME. The portal is not only helping and handholding MSMEs in the present situation, but is also providing guidance to grab the new business opportunities and in the long run, become national and international Champions.

CHALLENGES FACED BY MSME SECTOR IN LAST FEW YEARS:

MSMEs, that are the back bone of the Indian economy and provide employment to over 114 million people and contribute to more than 30% of the GDP, have gone through most difficult times in the last three years

It is a known fact, that they faced one setback after another,

  • first being demonetisation then followed by 
  • glitchy GST implementation
  •  then came economic slowdown of real estate and auto sector to which most of the MSMEs were main sources of suppliers. 
  • then came the financial and banking crisis.
  •  Now, COVID-19 which seems to be the final blow to the MSMEs

Signs of decline are already visible. MSMEs have already started facing huge financial burden of unpaid salaries (will eventually result in loss of employment), unpaid EMIs ( will impact the balance sheets of financial institutions) and finally, closure of such operations. Loss-making balance sheets does not allow them to get any finance from banks or NBFCs as per RBI norms, resulting in increased unsold inventory pile-up and getting into dead investments and result in huge losses. 

REVIVAL OF MSME IN INDIA POST COVID or FUTURE OF MSME IN INDIA

  • The collateral-free automatic loan will allow small businesses to bounce back from the pandemic’s impact. 
  • The economic stimulus will help many SMEs resume operations by providing access to credit to help overcome near term loss of income. This will enable SMEs to also grow and maintain business continuity. The long term focus on enabling SMEs with technology also provides a great opportunity for businesses to grow.
  • The majority of logistics is dependent on the manufacturing sector, these options announced by the government will allow them to resume operations and thus resuming the movement of goods which in turn will be beneficial for the logistics industry too.
  • Delayed payment is a lingering issue for this sector and to get rid of it the government now announced that the Centre and Central Public Sector Enterprises will honour every MSME receivable in the next 45 days. 
  • In addition E-market linkage will be provided for all MSMEs as a replacement for trade fairs and exhibitions during this period. This economic stimulus will prove to be a game-changer for Indian businesses.
  • Economic stimulus package is focused on local shops – who are responsible for 40% of employment and drive more than 90% of retail commerce. It will ensure we restart the economy from its foundation, and build an even more locally-driven shockproof system for the future thus fulfilling the dream of Atmanirbhar or Self-reliant India.
  • The government’s move of barring global tenders from procuring up to Rs 200 crores will increase MSME registrations on e-procurement sites. The Government’s e-procurement sites have typically been flooded by large foreign players who bring unfair advantage in terms of pricing and size. MSMEs working as ancillary units (e.g. autos, infrastructure) lose the bidding on smaller deals. The move should improve the competitiveness of Indian MSMEs on government contracts. It should also see an increase in registration by MSMEs and Mid-Market businesses on such platforms.

WAY FORWARD:

While the role of MSMEs is often highlighted in the context of their contribution to employment, economic growth and balanced regional development, it is important that these enterprises are sustainable and can deliver scale. Even though contributing significantly to exports, Indian MSMEs are still not regarded as a force to reckon with in the international markets. Looking ahead, the challenges are in building the next generation of MSMEs that can function as the powerhouse of the economy. With intense competition at the global level and the demands arising from globalisation, it is now imperative for Indian MSMEs to demonstrate greater competitiveness, position themselves strategically and leverage their engagement in global value chains (GVCs).

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