MSME: Role, Challenges and Way forward

MSME sector currently contributes nearly 29% to the manufacturing segment and 40% to the exports. It has the potential to generate additional employment of 5 crores in the next five years. Union Government has set the target to increase the contribution of MSMEs in the manufacturing sector to 50% in the next five years.

The MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on

The investment in plant and machinery for those engaged in manufacturing or production, processing or preservation of goods and,
The investment in equipment for enterprises engaged in providing or rendering of services.

As per the Act, enterprises can be defined as:

A microenterprise if the investment in plant & machinery is under Rs.25 lakhs
A small enterprise if the machinery and plant investment is between Rs.25 lakhs and Rs. 5 crores
A medium enterprise if the said investment is between Rs.5 crores and Rs.10 crores.

Though MSMEs are small investment enterprises, their contribution to the Indian economy is very significant.

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Role of MSMEs

To generate large scale employment:

In India, capital is scarce and labour abundant. MSMEs are thought to have lower capital-output and capital-labour ratios than large-scale industries, and therefore, better serve growth and employment objectives.

Not only do MSMEs generate the highest employment per capita investment, but they also go a long way in checking rural-urban migration by providing people living in isolated areas with a sustainable source of employment.

To sustain economic growth and increase exports:

Non-traditional products account for more than 95% of the MSME exports. Since such products are mostly handcrafted and hence eco-friendly there exists a great potential to expand the quantum of MSME led exports.

Also, MSMEs act as ancillary industries for Large Scale Industries providing them with raw materials, vital components and backward linkages.

Inclusive growth

MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society. For example, Khadi and Village industries require low per capita investment and employ a large number of women in rural areas.

MSMEs will reduce the gap between rich and poor as they are agents of inclusive growth.
Micro, Small and Medium Enterprises will help in reducing Green House Gas emissions as they are generally closer to markets leading to reduced carbon footprints.

Issues faced by MSMEs:

Access to credit: 90% of MSMEs are dependent on informal sources for funding due to lack of sufficient collateral and high capital needs.
Access to markets:
Low outreach and non-availability of new markets.
Lack of skilled manpower and ineffective marketing strategy.
Difficult for MSMEs to sell products to government agencies.
Competition from MNCs and other big industries.
Technology access: MSMEs, particularly in the unorganized sector, show lower adaptability of technology and innovation.
Quality and export: Low-quality products impact export competitiveness. Also, inadequate access to quality raw materials and the use of traditional machines causes low productivity.
Ease of doing business: Heavy government procedures and rules for establishing new units. Due to the bureaucratic delays in getting clearances and the poor litigation system, business becomes a slower process.

Solutions:

Access to credit:
Launch of the 59-minute loan portal to enable easy access to credit for MSMEs. The loans up to Rs. 1 crore can be granted in-principle approval through this portal, in just 59 minutes.
A 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.
All companies with a turnover of more than Rs. 500 crore, must now compulsorily be brought on the Trade Receivables e-Discounting System (TReDS).
Joining this portal will enable entrepreneurs to access credit from banks, based on their upcoming receivables.
Access to markets:
Public sector companies have now been asked to compulsorily procure 25%, instead of 20% of their total purchases, from MSMEs. Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.
All public sector undertakings of the Union Government must now compulsorily be a part of government e-Marketplace (GeM). They should also get all their vendors registered on GeM.
Technology up-gradation:
20 hubs and 100 spokes in the form of tool rooms will be established across the country to facilitate product design. A tool room is a room where tools are stored or, in a factory, space where tools are made and repaired for use throughout the rest of the factory.
Ease of doing business:
In order to simplify the government procedures, the return under 8 labour laws and 10 Union regulations must now be filed only once a year.
The establishments to be visited by an Inspector will be decided through a computerised random allotment.
Environmental Clearance under air pollution and water pollution laws have been merged into one. Also, the return will be accepted through self-certification.
For minor violations under the Companies Act, the entrepreneur will no longer have to approach the Courts but can correct them through simple procedures.

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Schemes under MSMEs

The major schemes related to MSMEs come under the heads of,

• Prime Minister Employment Generation Programme and Other Credit Support Schemes

• Prime minister Employment Generation Programme (PMEGP).The scheme is implemented by Khadi and Village Industries Commission (KVIC) functioning as the nodal agency at the national level.

• Development of Khadi, Village and Coir Industries

– The Market Promotion and Development Assistance Scheme (MPDA) has been launched as a unified scheme by merging different schemes implemented by the Khadi sector including publicity, marketing, market promotion and marketing development assistance.

– Coir Vikas Yojana (CVY)

· Technology Upgradation and Quality Certification.

– A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)

– The main objectives of the scheme are to:

(i) Create new jobs and reduce unemployment

(ii) Promote entrepreneurship culture in India

(iii) Boost Grassroots economic development at district level

(iv) Facilitate innovative business solution for un-met social needs.

(v) Promote innovation to further strengthen the competitiveness of the MSME sector.

· Marketing Promotion Schemes

· Entrepreneurship and skill Development Programme

· Infrastructure Development Programme

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MSME: Role, Challenges and Way forward