Why and how MSMEs are contributing largely to India’s economic growth

In India, Micro, Small, and Medium Enterprises (MSMEs) contribute approximately 8% to the country’s Gross Domestic Product (GDP), nearly 45% of the manufacturing output, and around 40% of the total exports. It would surely not be wrong to refer to them as the backbone of the country.

The Indian Government has introduced MSME in agreement with the MSME Development (MSMED) Act of 2006. These enterprises are primarily engaged in the production, manufacture, processing, or preservation of goods as well as commodities.

MSMEs are a vital sector for the country’s economy and have contributed immensely to India’s socio-economic development. Besides generating employment opportunities, they work efficiently towards the development of India’s rural and backward areas. According to the Government’s annual report (2018-2019), there are nearly 6,08,41,245 MSMEs in the country.

MSMEs Redefined

According to the Micro, Small, and Medium Enterprises Development (Amendment) Bill (2018), MSMEs were classified as service-providing or manufacturing enterprises based on their annual turnover.

Based on the new definitions, MSME units will be now classified as below:

Micro Enterprises: Turnover of less than 5 crore with an investment of less than 1 crore

Small Enterprises: Turnover of less than 50 crore with an investment of less than 10 crore

Medium Enterprises: Turnover of less than 250 crore with an investment of less than 50 crore

Benefits Of The Reclassification

According to the new classification, there will not be any need for frequent inspection to verify the investment in plant and machinery. In addition, the operations of MSMEs will be completely transparent and non-discriminatory, while being objective in nature.

Role Of MSMEs In Indian Economy

Since inception, the MSME sector has proven to be an extremely dynamic sector when it comes to the Indian economy. MSMEs manufacture and produce a wide range of items for both the domestic and international markets. They have helped in the promotion of growth and development of khadi, coir, and village industries. They have successfully collaborated and worked with all concerned ministries, stakeholders, and state governments, towards the upbringing of rural regions. 

MSMEs have played a key role in providing job opportunities in rural areas. They have tremendously helped in the industrialisation of these regions with a low capital cost in comparison with large industries. Serving as a complementary unit to larger sectors, the MSME sector has phenomenally contributed to socio-economic development.

MSMEs are also contributing and playing a crucial role in India’s development in diverse areas such as requirement of low investment, flexibility when it comes to operations, mobility through locations, low range of imports, and a vast contribution to domestic production.

MSMEs have the capacity and capability to develop efficient local technology, provide intense competition in both domestic as well as international markets, create defence material, and generate new entrepreneurs by imparting training, knowledge, and skill-upgradation through specialised training centres.

Why are MSMEs Important For The Indian Economy?

Throughout the world, MSMEs are regarded as a vital means of economic growth in addition to promoting equitable development. They are considered to generate the highest rate of economic growth. MSMEs have taken India to new heights via requirements of considerably low investments, flexible operations, and the ability to develop the requisite native technology.

• MSMEs employ nearly 120 million individuals, becoming the second-largest, employment-generating sector after agriculture.

• With nearly 45 lakh units throughout India, they contribute as much as 6.11% of the GDP from the manufacturing arena and 24.63% of the GDP from the service arena.

• MSME ministry has set a target to increase MSME contribution to GDP by as much as 50% by the year 2025, while the country moves ahead to successfully become a $5 trillion economy.

• MSMEs contribute to approximately 45% of the overall country’s exports.

• They help in promoting all-inclusive growth by offering employment opportunities, especially to individuals who belong to the economically weaker sections (EWS) of society.

• MSMEs located in tier-2 and tier-3 cities help in the creation of opportunities for individuals to exclusively use banking products and services, which can eventually amount to the final inclusion of MSME contribution to Indian economy.

• MSMEs help promote innovation by offering opportunities to budding entrepreneurs to assist them in building creative products, thereby boosting competition in business and fuelling economic growth.

The Last Word:

The MSME sector in India offers silent support to the country’s economy, but the sector also needs some kind of support from other businesses as only government support isn’t enough for them to thrive. With the support from other bigger businesses, the MSME sector can boost and act as a reliable defence against global economic adversities and shocks.