What is MSME? Its Meaning, Features, Role and Importance in India

What is MSME?

MSME stands for Micro, Small, and Medium Enterprise that was introduced by the Government of India in agreement with the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. MSME is initiated and managed under the Ministry of MSME (MoMSME) are entities engaged in the production, manufacturing, processing or preservation of goods and commodities.

MSME sector is considered the backbone of the Indian economy that has contributed substantially to the socio-economic development of the nation. It generates employment opportunities and works in the development of backward and rural areas. As per the official data as of 31st Aug 2021, there are presently approximately 6.3 crore MSMEs in India.

To know some more regarding MSMEs in India let’s discuss the basics of MSMEs, including their classifications, features, role, and importance in the socio-economic development of India.

Also Read: 5 steps to register MSMEs and Know documents required, Process, Fees

New MSME Classification

The distinction between the manufacturing and services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in both sectors.

Key Takeaways of New MSME Definition introduced in ‘Aatm Nirbhar Bharat Abhiyan‘ or Self-reliant India Scheme 2020 by Government of India.

• Collateral Free Loans to MSMEs
• Unsecured loans up to Rs. 1 crore
• Secured loans of up to Rs. 500 crore (Lease rental discounting)
• Moratorium period offered is 12 months, can exceed as per bank
• Manufacturing and Service MSMEs shall be considered as the same entities
• Repayment Tenure up to 60 months
• 100% Credit Guarantee, for several loan schemes
• Approx. 45 lakh MSMEs to benefit from Rs 3 Lakh Crore Loans, as per MoMSME

Also Read: What are the documents required for getting a quick MSME loan?

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Previous MSME Classification

MSMEs are classified on the basis of investment proportion into two divisions as below:

Features of Ministry of MSME (MoMSME)

• Works for the welfare of artisans and workers
• Provides credit limit or funding support from banks
• Promotes entrepreneurship development and skill up-gradation via specialized training centers
• Supports technology up-gradation, infrastructural development, and modernization
• Offers assistance for improved access to domestic and export markets
• Provides modern testing facilities and quality certification
• Supports packaging, product development, and design intervention

Some of the entities that work under the Ministry of MSME are as follows:

• A Scheme for Promotion of Innovation, Rural Industries, and Entrepreneurship (ASPIRE)
• Khadi and Village Industries Commission (KVIC)
• Mahatma Gandhi Institute for Rural Industrialization (MGIRI)
• National Institute for Micro, Small and Medium Enterprises (NIMSME)
• National Small Industries Corporation (NSIC)
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

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List of projects that have been identified by the Ministry of MSME for promoting MSMEs in aspirational districts with a number of projects:

• Prime Minister Employment Generation Program (PMEGP) – 178
• Micro & Small Enterprises Cluster Development (MSE-CDP) – 81
• EDP/MDP schemes – 46
• Entrepreneurial and Managerial Development of SMEs through Incubators – 13
• MSME Market Development Assistance (MDA) – 12
• Marketing Assistance & Technology Upgradation (MATU) – 10
• Revamped Scheme of Fund for Regeneration of Traditional Industries (SFURTI) – 10
• Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) – 7
• Credit Linked Capital Subsidy for Technology Upgradation – 6
• Financial Support to MSMEs in ZED Certification Scheme – 4
• Technology and Quality Upgradation Support to MSMEs – 4
• Lean Manufacturing Competitiveness for MSMEs – 3
• Design Clinic for Design Expertise to MSMEs – 1
• Assistance to Training Institutions (ATI) – 1
• A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) -1
• Skill Upgradation & Mahila Coir Yojana (MCY) – 2
• Market Promotion & Development Scheme (MPDA) 1
• Performance and Credit Rating Scheme 1
• Marketing Support/Assistance to MSMEs (Bar Code)
• Others – 52

Role of MSMEs in the Indian Economy

In 1961, with the merger of the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries; the Ministry of Micro, Small, and Medium Enterprises (M/o MSME) was formed.

MSMEs produce and manufacture a wide variety of products for domestic, as well as international markets. MSMEs help in the promotion of growth and development of Khadi, Village, and Coir Industries, in co-operation with concerned ministries, state governments, and stakeholders.

Below mentioned data in tabular representation is as per the Central Statistics Office (CSO) and Ministry of Statistics & Program Implementation.

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Contribution of MSMEs in Country’s Economy at Current Price

Source: Central Statistics Office (CSO), Ministry of Statistics & Program Implementation

Under the Micro, Small, and Medium Enterprises Development Act, 2006, the Government of India established The National Board for Micro, Small, and Medium Enterprises (NBMSME) to examine the factors affecting the promotion and development of MSME. This board also reviews the existing policies and suggests recommendations to the Government for the growth of the MSME sector.

Opportunities in MSMEs

The opportunities in the MSME industry are massive due to the succeeding factors:

• Export Promotion and potential for Indian products
• Funding – Finance & Subsidies
• Government’s Promotion and Support
• Growth in demand in the domestic market
• Less Capital required
• Manpower Training
• Project Profiles
• Raw Material and Machinery Procurement
• Tooling & Testing support and much more

About MSMEs in India

The term Micro Small and Medium Enterprise (MSME) was launched in 2006 to become an integral part of the supply chain for products and services; moreover, a creator of large-scale employment opportunities in rural India. MSMEs contribute to approximately 8% of India’s GDP, employ over 60 million people, have an enormous share of 40% in the exports market and 45% in the manufacturing sector. The number of MSMEs in India increased the Compound Annual Growth Rate (CAGR) by 18.5% from 2019 to 2020. The budget allocation for the financial year 2022 has doubled to Rs. 15,700 crore as compared to Rs. 7,572 crore in the financial year 2021.

Source: https://www.ibef.org/