MSMEs or Businesses Roles in economic development of India
Micro, Small and Medium Enterprises (MSME) Roles in Indian Economic
Wednesday December 25, 2019,
6 min Read
Role of MSME In Indian Economy
Micro, Small and Medium Enterprises (MSME) is the power engine and foundation of economic growth in numerous developing and developed countries across the globe. In the context of Indian economy, experts often term it as growth engine.
MSME has essayed a crucial role in the country’s development by creating plethora of employment opportunities. Till now, the sector has employed over 55 million people, covering different manufacturing skill sets and capabilities.
It has successfully reduced and resolved regional deficiencies and disparities. It has also balanced the overall wealth distribution, contributing to 8% of India’s GDP. It does so in the form of MSME-GDP sector.
Despite all the infrastructural issues India is facing, alongside the paucity of proper market domains and linkages, and all the hiccups impeding a steady flow or movement of institutional credit, MSME has witnessed an exponential growth.
The main advantage of this sector is that it requires less paperwork and investment, invariably creating large-scale employment, and organically curbing underemployment and employment problems.
Additionally, it has survived virtually all types of threats and hazards emanating from unfinished and jammed projects in domestic, regional and international market. Projects that have reached an impasse had affected this sector all along.
A Short Note on MSME Act
Year 2006 saw the introduction of the much crucial MSME Act. Hitherto, the service sector wasn’t a part of the main sector. The Act now defined it as the Micro, Small and Medium Sizes Enterprises, thereby making an epoch-making change to the old Act.
The modification in the original legislation made way for the leveraging of the sector’s wide and endless scopes. Now, governments have simplified the online registration process by making it entirely paperless.
• MSME contributes immensely to exports, employment and manufacturing sectors in India.
• It has a huge share in the manufacturing sector and 40% share in exports.
• It has a whopping 69% share in the employment ambit.
The contribution of this sector to other spheres has been no less instrumental. After the agrarian sector, it’s the biggest and most extensive employer. A fun fact is that India’s agriculture sector has less contribution to GDP than MSME.
The fact that it still has a better GDP record than agro-industries; it proves how seamlessly it channelizes its exports and manufacturing sectors. Some reports state that it contributes more than 69% to India’s employment sector.
The Gamut Of Employment Creation
Since the industries in MSME sector or B2B Services require less capital to start a business, it leads to huge job opportunities for countless unemployed persons, especially the youth. Our country produces over 1.3 million graduates every year. Out of this, about 0.9 million are engineers.
You have no other economy in the world that has such a huge bandwidth to provide employment to so many new graduates in a year. In that way, MSME is definitely a boon for Indian citizens. It can provide fresh and quality manpower.
• It leverages exports and bolsters economic stability through market growth.
• Market includes both products and services. MSME is a prominent driver of growth.
• Its exports wing constitutes more than 40% of the share.
• Today, multi-national companies are purchasing semi-finished products and auxiliary items from small businesses.
• For example, automobile companies are buying brakes, rubber and clutch parts from this sector.
It creates a strong link between big companies and MSME. Notwithstanding the implementation of Goods and Services Tax (GST), over 40% of this sector applied for GST registration, which spiked government revenue by at least 11%.
Propelling inclusive growth
You need to know that just some 100-150 people own about 50% resources or wealth in this country, which causes the delinquency of unequal wealth distribution. For MSME, its top agenda is to fuel and sustain inclusive growth.
It has successfully maintained this agenda for many years. While socio-economic deprivation and poverty are roadblocks to the country’s development, including poorer, marginalized and affected sections of society in its workforce is a crucial challenge for MSME Ministry.
A very big advantage is minimum overhead and cheap labor. In large-scale enterprises, one of the main challenges is to create and retain effective human resource and skill level through a proper human resource management. A professional and qualified manager is imperative.
But with MSME, you have less requirement of that type of labor. Its organizations don’t need a highly skilled and certified laborer. Hence, the owner incurs much lesser indirect expenses.
Simplifying The Management Structure
As you read, MSMEs don’t necessitate a massive capital to form. While the owner can control the limited, available resources, decision-making is lot more efficient and easier.
• Compare this to a large company, where you need a specialist for every department.
• The complex organizational edifice and streamlined functioning eat up a lot of your resources.
• A small firm doesn’t need to hire or outsource a specialist to oversee its management.
• The owner can do the needful. Single-handed management is less stressful and doesn’t empty your cash reserves.
One cannot negate the pivotal role MSME plays in concretizing ‘Make in India’. After the inception of this monumental plan, which is the Prime Minister of India’s signature directive, the process to incorporate a new business has become really easy.
Since MSME is the fulcrum of the initiative and only it can turn this dream into a reality in time, the government has implored the financial institution to provide more credit to companies in the MSME fold.
It also plays a prominent role in nation development. Its operational flexibility, low-intensive imports, location-specific mobility, capacities and bandwidth to develop proper indigenous technology, and defense production and import substitution are a driving force.
It displays sheer competitiveness in export and domestic markets and has generated a league of new entrepreneurs. It provides knowledge and training to make top-class entrepreneurs. However, its primary constraints are finance for working capital and initial capital.
Most banks think lending to these enterprises is an unattractive or less lucrative venture owing to the asymmetries in information, high transaction bills and collateral needs. An inefficient and inept legal system is also a cause of concern.