MSMEs And Their Impact On The Indian Economy

 

The Indian government adopted the Micro, Small, and Medium Enterprise Development (MSMED) Act in 2006. This act defines small, micro and medium enterprises (MSMEs) as businesses involved in the manufacturing, processing, or preserving of items. According to the new classifications under the "Aatma Nirbhar Bharat Abhiyan" initiative in 2020, MSMEs are categorized as follows:

Micro Enterprise

Businesses with an investment of up to INR 1 crore is considered micro-enterprises or micro-business.

Small Enterprise

Enterprises with an investment of more than INR 1 crore but less than INR 10 crore is classified as small business or small enterprise.

Medium Enterprise

This refers to incorporations with an investment of more than INR 10 crore but less than INR 50 crore.

Also Read: Leading Banks And NBFCs Offering Small Business Loans In India

Affect On The Indian Economy 

MSMEs are an integral and essential part of the Indian economy, making noteworthy contributions to the country's socio-economic progress. They play a crucial role in creating employment opportunities and fostering the development of backward and rural areas. The MSME sector accounts for approximately 8% of India's GDP, around 45% of manufacturing production, and about 40% of exports. Given this substantial contribution, it is not an exaggeration to refer to MSMEs as the "backbone of the country."

According to the National Sample Survey in 2019, MSMEs currently employ over 46.6 million people. Let's examine their role and significance in the Indian economy:

Economic Stability

The contributions of MSMEs to manufacturing, exports, and employment benefit other industries as well. Multinational corporations often source semi-finished and ancillary products, such as clutches and brakes, from small businesses. Even after the implementation of the Goods and Services Tax (GST), MSMEs help bridge the gap between small and large companies. Around 40% of the MSME sector has adopted GST registration, which has increased the government's revenue by 11%.

Affordable Labor

Large-scale firms face challenges in managing and retaining human resources through HR professionals. However, MSMEs have lower labor requirements and do not necessarily require highly skilled workers. As a result, the indirect expenses for the business owners are also minimized.

Also Read: What Is Loan Settlement And How Does It Affect Your Credit Score?

Generation Of Large-Scale Employment

MSMEs aim to improve the lives of workers by providing employment opportunities, loans, and other services. They offer numerous avenues for unemployed individuals to utilize. India produces over 1.2 million graduates annually, with approximately 0.8 million being engineers. No other economy has been able to produce such a vast number of graduates in a single year. MSMEs play a significant role in supporting India's young talent as they enter the workforce.

Poonawalla Fincorp has initiated the "Kya Se Wah" campaign to support the growth of MSMEs and professionals such as Doctors, Chartered Accountants, and Company Secretaries by alleviating their stress. Abhay Bhutada, MD, stated that the campaign's objective is to generate awareness about the financial institution and its range of products.

Significant Contribution To "Make in India"

MSMEs have played a vital role in supporting the "Make in India" campaign, a trademark campaign of the Indian Prime Minister. They serve as a foundation for realizing this ambition, and the government has encouraged banking institutions to provide more credit to small and medium-sized businesses.

The MSME sector holds great importance for the livelihoods of ordinary people and the economic growth of the country. Many young individuals have shown an inclination towards entrepreneurship in recent years, and the MSME sector fully supports this trend. Therefore, providing financial assistance to the MSME sector is essential, and initiatives like PSB59 are continuously working towards this goal.

On that note, TradeIndia has introduced a fresh digital campaign aimed at boosting the visibility and promotion of the MSME sector. In a statement, Sandip Chhettri, the CEO of TradeIndia, acknowledged the significant role that SMEs, legacy businesses, and MSMEs play in the Indian economy. He emphasized how their contributions are crucial in realizing India's vision of a strong and inclusive economy.