Micro, Small and Medium Enterprises (MSME) are small businesses, mostly in the unorganised sector, that are registered as MSME to enable them to get benefits from government policies and schemes created for the promotion of this sector.
Salient features of MSME sector and its importance to Indian economy
The MSME sector is crucial for Indian economy as it employs around 40% of the workforce of India, and constitutes around 40% of India’s manufacturing output and 30% of India’s total exports. The sector is resilient and agile to economic shocks, and has clocked a consistent growth rate of around 10% during 2012-2018. While the sector is labour intensive, it is less capital intensive, holding great scope for job creation and industrialisation of rural areas.
MSMEs are defined under the MSME Development (MSMED) Act, 2006. The act classifies MSMEs into two classes – manufacturing and service enterprises, and defines them in terms of invest limits in plant and machinery (or equipment in case of services), excluding land and building. The investment limits are as shown:
- Manufacturing Enterprises
- Micro – 25 lakh rupees
- Small – 5 crore rupees
- Medium – 10 crore rupees
- Service Enterprises
- Micro – 10 lakh rupees
- Small – 2 crore rupees
- Medium – 5 crore rupees
MSME Development (Amendment) Bill, 2018
The MSME Development (Amendment) Bill, 2018 sought to redefine the definition of MSMEs in terms of annual turnover, rather than the investment limits, so as to encourage capital infusion into the sector.
September 2018: The bill faced strong opposition from several trade organisations, alleging that the new raised limits would erase the distinction between MSMEs and large corporate organisations, and reduce the benefits government provides to MSMEs. Government withdrew the bill from the Lok Sabha due to opposition.
Investment limits have to be increased to account for inflation and the changed business scenario. Outdated investment limits on plants and machinery discourage capital infusion, as businesses fear losing the MSME tag, thence the policy benefits, on scaling up.
Problems faced by the MSME sector
- Credit requirements are not adequately met by the private commercial banking.
- Low level of technology is making MSMEs inefficient and uncompetitive with respect to large corporates, leading to risk of rising unemployment.
- Investment limits are discouraging capital infusion into the sector.
Government schemes to support the MSME sector:
Zero Defect Zero Effect (ZED) is a scheme that provides financial support to encourage environmentally friendly manufacturing (zero effect on environment) of high quality products (zero defect) for export purposes by the MSMEs. ZED rated MSMEs get subsidies for adopting technology, registering domestic and international patent, purchasing testing equipment, and a 0.5% concession on loans.
Credit Linked Capital Subsidy Scheme for Technology Upgradation – provides 15% subsidy upfront capital subsidy for technology upgradation to micro and small enterprises (MSEs).
Under PM Mudra Yojana, the Micro Units Development and Refinance Agency Ltd (MUDRA) has been set up to provide funding to the non-corporate, non-farm MSMEs. The scheme provides loans upto a maximum of Rupees 10 lakh, through partnering banks.
There are several schemes for development of Khadi, Village, and Coir industries, including Coir Vikas Yojana, and the scheme for regeneration of traditional industries (SFURTI).
Procurement and Marketing Support Scheme facilitates market linkages for implementation of the Public Procurement Policy, under which certain public procurement is mandatorily made from the MSME sector. Public procurement refers to purchase of goods and services by the government.
See the complete list of all schemes that support MSME sector, on the MSME ministry website – here https://msme.gov.in/all-schemes.
CriSidEx – a business sentiment index for MSME sector, launched by SIDBI and CRISIL.
TReDS – Trade Receivables Discounting System
SIDBI – Small Industries Development Bank of India