The Complete Guide to Importance And Role Of MSME In Indian Economy

Importance and role of MSME in Indian economy is vital in every term. The MSME sector in India is a critical part of the country’s economy, contributing significantly to employment, production, and exports. The industry comprises many small and medium enterprises (SMEs) that are spread across a wide range of industries.

Importance And Role Of MSME In Indian Economy

The MSME sector has been a critical driver of growth in India, with many enterprises providing employment and income opportunities to a large number of people. The industry has also been a significant contributor to the country’s exports, with many SMEs engaged in the export of goods and services.

Definition and full form of MSME

In India, MSME stands for Micro, Small, and Medium Enterprises. It refers to businesses with a limited number of employees and usually low capital investment.

The MSME (Micro, Small & Medium Enterprises) industry sector does not need to be considered a small business; it is the backbone of India’s industry. With them, Indian industries can stand on their own two feet.

Small and large factories are operating in industrial estates, shops, small-scale assembling factories, grocery stores, etc., are contributing 8% to India’s GDP. These sectors are full of struggles; however, they can sustain and grow even with low profits.

Classification of Micro, Small and Medium Industries

Type of enterpriseAct of 2006Bill of 2018
 ManufacturingServicesAll enterprises
 Investment towards plant & machineryInvestment towards equipmentAnnual Turnover
Micro25 lacs10 lacs5 Cr
Small25 lacs to 5 Cr10 lacs to 2 Cr5 Cr to 75 Cr
Medium5 Cr to 10 Cr2 Cr to 5 Cr75 Cr to 250 Cr

MSME – The growth engine of India’s economy

MSMEs are a vital part of the Indian economy, accounting for nearly 40% of the country’s GDP. They also play a critical role in employment generation, with over 60 million people employed in MSMEs across the country.

MSMEs are a crucial driver of economic growth and development, and their success is vital to India’s economic prosperity. Therefore, the government has taken several measures to support and promote MSMEs, including the launch of the “Make in India” initiative.

The Make in India initiative is a government’s flagship program to boost the manufacturing sector and create millions of new jobs.

The industry includes several initiatives and policies to support MSMEs, including financial and tax incentives, easy credit access, and improved infrastructure.

The government is also working to streamline setting up and running an MSME and has launched an online portal (msme.gov.in) to provide information and support to MSMEs.

The success of the MSME sector is critical to the success of the Indian economy, and the government is committed to supporting and promoting MSMEs.

Also Read: Definition of a Value Proposition- Harley Davidson Case Study

India, Digitization, and MSME Schemes

The MSME sector has been facing several challenges, including a slowdown in growth, rising costs, and a lack of access to credit. However, the industry continues to be an essential part of the economy. It is expected to play a crucial role in the country’s development in the years to come.

India rapidly galloped towards the Digitization of MSME in India. India is seeing a flurry of companies from big industries to small companies. Reports of their progress and achievements are also coming.

importance and role of msme in indian economy

The news media hires well-trained reporters to get insights into commerce and corporate companies. But now, small and medium MSME (Micro, Small & Medium Enterprises) industries seem to be gaining the most attention as the government is offering lots of schemes.

The Ministry of Micro, Small introduces the MSME schemes and Medium Enterprises to grow and develop MSME in India.

These schemes are designed to provide financial, technological, and marketing support to MSMEs and help them become successful and sustainable businesses.

Some of the critical MSME schemes are the Credit Linked Capital Subsidy Scheme, the Technology Upgradation Scheme, the Marketing and Branding Assistance Scheme, and the Cluster Development Scheme.

Contribution of MSME in the Indian economy

The MSMEs sector, which is considered small, does not quickly benefit from the facilities available to big companies and the government’s leniency. This sector is mentioned here today because it is changing. These industries themselves are also making efforts for change.

Contribution of MSMEs in India’s Economy at Current Price

YearMSME- Addition of Gross ValueGrowth (%)Total Addition of Gross ValueShare of MSME in GVA (%)Total GDPShare ofMSME inGDP (in %)
2011-122622574810694632.35873632930.00
2012-13302052815.17920269232.82994401330.40
2013-14338992212.231036315332.711123352230.20
2014-1537049569.291150427932.211246795929.70
2015-1640255958.651256664632.031376403729.20
2016-1744057539.441384159131.831525371428.90

The government provides support at various levels, but now small businesses are awakening to development, and digital technology has come to their aid.

importance and role of msme in indian economy

A new generation of small businesses gives their family companies a digital touch. They are making digital payments routine.

One organization set up a center in an industrial estate, giving each manufacturer an email ID of their company and an understanding of how to check it daily and what precautions to take to operate it.

Small manufacturers did not realize the benefits of email IDs or other facilities. But now, their new generation has mastered digital and is becoming useful in the family business.

According to an official estimate, India has 63.5 million micro industries, 0.33 million small factories, and 5,000 medium-sized enterprises. There are 6,08,41,245 MSMEs in India as per the government’s figures for 2018-19.

Not only contributing 8% to India’s GDP, but the sector’s manufacturing output is 45% and has a share of 40% of India’s total exports.

Impact of digital India on MSME

Five years ago, as many as 68% of India’s small businesses and shoppers did not have any digital facilities. They had the money for it but had no idea how to use it. Today that percentage has come down to 20%.

Even small units with a turnover of Rs 40 lakh have now turned to digital. Online payments etc., have come into daily use. Small businesses are beginning to understand the need to have an online presence. The new generation entering the MSMEs sector will boost India’s GDP.

Small manufacturers and shopkeepers are significant contributors to India’s socio-economic development. MSME sector provides employment and develops the backward and rural areas of the country. 

The government is going to classify MSMEs on their annual turnover. The next-generation associated with MSMEs is looking to give a new direction to the business.

Digitization of MSME

Thirty-year-olds use email IDs and social networks when running their businesses. Due to this, their company also develops. The government is now promoting the MSME sector as MSME 2.0. In a small Indian city, a young man sitting on the sidewalk of a cooker repair shop was carrying a laptop and doing his work upstairs.

The young man also speaks English to the customer who came to repair and operate the laptop. Cooker repairing has been a business since his grandfather’s time. But the grandson gave it a digital touch. Such as taking a message on WhatsApp and going to the customer’s house to repair etc.

importance and role of msme in indian economy

For example, the new generation of grocery store operators for years started trying to attract more customers by expanding the store and making it look like a mini-mall.

Young people who have studied MBA finance abroad are pursuing their grandfather’s business instead of taking up jobs in the private sector.

A new generation of small manufacturers is expanding their business using digital technology. The MSME sector had a knack for business communication and stayed away from finance facilities with banks. But now times have changed.

Google says the adoption of digital technology has doubled the size of small businesses. The growing use of the Internet and how to use it in business is essential.

Five years ago, as many as 68% of small businesses and shoppers in India did not have any digital facilities. Today that percentage came to 20.

Some of The Major Challenges Faced By The MSME Sector

The Micro, Small, and Medium Enterprises (MSME) sector play a vital role in the Indian economy, contributing significantly to its overall growth and development. However, the industry faces many challenges to be addressed to unlock its full potential.

One of the critical challenges facing MSMEs in India is access to finance. Due to their small size and lack of collateral, MSMEs often find it difficult to obtain loans from banks and other financial institutions. This lack of access to capital prevents them from investing in new technologies and expanding their businesses.

importance and role of msme in indian economy

Another challenge facing MSMEs is the lack of skilled labor. With the increasing adoption of new technologies, MSMEs need experienced workers to operate these technologies. However, due to the lack of training and education facilities, MSMEs often struggle to find such workers.

Lastly, MSMEs also face stiff competition from large businesses. Large companies can undercut MSMEs on price with their deep pockets and economies of scale, making it difficult to compete.

Overall, the challenges facing MSMEs in India are significant but not insurmountable. With the right policies and support from the government, the MSME sector can continue to play a vital role in the Indian economy.

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