In News:

• Every year on June 27, World MSME Day provides us with the opportunity to appreciate their valuable contribution to job creation and sustainable development across the world.
• The growth and achievements of large businesses in India have received a lot of attention.
• This is despite the fact that micro, small, and medium enterprises (MSME) account for more than 99% of all businesses.

What’s in today’s article:

• MSME sector in India (Overview, definition, significance, problems, government initiatives, way forward) 

MSME sector in India:

• Overview
  • MSMEs are the largest employer in India outside of agriculture, employing over 11.1 crore (45% of all workers) people.
  • Over 63 million MSMEs (51% in rural India) provide services and produce goods ranging from machine parts to bread and shopping bags in India.
  • A significant number of MSMEs are suppliers of intermediate products to large companies.
  • The sector accounts for roughly 30% of India’s gross domestic product (GDP) and about 40% of India’s exports.
  • As India approaches the $5 trillion mark, the MSME ministry has set a goal of increasing its contribution to GDP to 50% by 2025.
• Definition

• MSMEs are defined formally in terms of investment in plant and machinery.
  • However, this criterion was long criticised because authorities did not have easy access to credible and precise details of investments.
• As a result, it was decided (in 2018) to change the criterion to annual turnover, which was more in line with the imposition of GST.
• It was further revised under the Aatmanirbhar Bharat plan and a composite criteria was developed which included Investment and Annual Turnover.
  • The new criterion is non-discriminatory, transparent and objective because it eliminates the need for frequent inspections, which were previously required to check the investment in plant and machinery.
• Significance of MSMEs for Indian economy
  • Labour intensive sector.
  • Promotes inclusive growth by providing employment opportunities in rural areas especially to people belonging to vulnerable sections of the society.
  • Financial inclusion by creating opportunities for people to use banking services and products.
  • Promote innovation by providing opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.
• Problems faced by MSMEs
  • 
  • Problem of dwarfism: According to the Economic Survey 2019-20, while dwarfs (small firms that continued to remain small despite ageing) consume vital resources (that could possibly be given to infant firms), they contribute less to creation of jobs and economic growth as compared to infant firms.
  • Lack of financing: Most (90%) of the MSME funding comes from informal sources.
  • Poor integration of digital technologies: Integration of technologies such as big data, artificial intelligence and virtual reality (Industry 4.0) into manufacturing operations in the sector is still in its infancy.
  • Environmental impact: The sector lacks cleantech innovation and entrepreneurship, which produce environment friendly products, promotes energy efficiency and has the potential to accelerate the transition to a circular and low carbon economy.
• Government’s Initiatives to boost MSME sector
  • 
  • The Government of India has correctly identified MSME ecosystem development as a top priority for achieving Aatmanirbhar Bharat (self-reliant India).
  • The ambitious ‘Make in India’ campaign in India aims to propel the country up the manufacturing value chain and position it as a global manufacturing hub.
  • Production linked incentives (PLI) schemes and the recently launched zero effect zero defect (ZED) certification are assisting in the promotion and growth of the sector.
  • The Prime Minister's Employment Generation Programme (PMEGP) is also creating opportunities for self-employment and microenterprises, with over 7 lakh microenterprises being helped to become economically viable.
  • Digital Saksham initiatives, as well as the interlinking of the Udyam, e-Shram, National Career Service (NCS) and Aatmanirbhar Skilled Employee-Employer Mapping (ASEEM) portals, demonstrate the promise of targeted digitalisation schemes.
  • UNIDO is providing energy efficiency advisory services to 695 MSMEs in 23 clusters covering the brass, ceramic, dairy, foundry and hand tool sectors in collaboration with the Bureau of Energy Efficiency (BEE).
• Way forward
  • According to the ‘India MSME Report 2018,’ there is the need for an entitlement approach that demands the identification and analysis of major security threats to the MSMEs.
  • According to the UK Sinha Committee (2019):
    • A Rs 5,000 crore stressed asset fund for the MSME sector to help small businesses affected by demonetisation, GST and the ongoing liquidity crisis.
    • Doubling the cap on collateral-free loans to Rs 20 lakh from the current Rs 10 lakh extended to borrowers falling under the Mudra scheme, self-help groups and MSMEs.
  • A forward-thinking mindset among policymakers and society will help to fully unlock emerging opportunities in the rapidly changing global value chain ecosystem, thereby realising the critical socioeconomic role that MSMEs play in India.