MSME Booklet: 24/12/2021
Structure:
Preface
Introduction
Chapterisation:
A) Growth of MSMEs: issues affecting growth of MSMEs
A.1 Access to Finance
A.2 Current pitfalls
A.3 Recommended solutions- general and teir impact
A.4 Recommended resolutions- policy level & their impact
B) Profitability of MSMEs
Consumer demand
Economies of scale
Interest rates
Credit & risk management
Cash flow cycles
Cost of doing business
C) Continuous Improvement:
Training & skill Development
Process improvement methods
ISO certification
Innovation (setting up of Labs for innovation
Nurturing healthy competition
Digital transformation
Productivity and efficiency improvement
D) Sustainability:
access to information
cluster development,
quality of doing business,
consciousness in reducing waste during production,
environmental consciousness,
water harvesting & green spaces,
diversity in employment such as including women,
healthy workspaces by creating toilets, health & hygiene, good practices, etc)
E) Conclusions:
FTCCI MSME BOOKLET
Preface
Ever since the government of India announced its vision to make India a $ 5 trillion economy,
economists and financial experts have been stressing the significance of strengthening MSME
sector.
Currently, MSME sector contributes 29 percent of country’s GDP, and about 49 percent of
exports. More than 95 percent of industrial units in the country are categorized under the
MSME sector.
India’s vision of becoming a global power is undoubtedly possible only when the MSME sector
can contribute further to the economy. Nitin Gadkari, then Union Minister for MSMEs rightly
pointed out that ‘India’s vision of becoming a USD 5 Trillion economy is possible when the
MSME sector contributes 50 percent of GDP’.
Besides contributing to economic growth, the MSME sector is considered as a catalyst for socioeconomic transformation in India. It largely contributes to various national objectives like
employment generation, poverty eradication, and resistance to rural-urban migration.
In view of the significance and role of sector, the government is expected to provide adequate
support to ensure MSME’s growth by protecting them from internal and external shocks and
ensure smooth flow of finance and other supplies. The global slowdown that has started before
the onset of pandemic and the pandemic from early 2020 had hit the small industries and are
still struggling to recover and optimize the production levels.
The objective of compiling the booklet on MSMEs is to understand the issues that are crippling
the MSME growth and assess the impact. It is aimed at suggesting probable solutions to the
various challenges faced by the small units, how the operations can be made at ease and what
benefits the government and industries accrue due to implementation of certain measures.
Effort is also made to suggest some policy recommendations for MSME sector to make them
more dynamic and growth oriented.
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INTRODUCTION
MSME development should be seen as integral element and not sui generis subject matter.
They can cater to the fulfillment of national objectives such as employment generation, poverty
elimination, improving standard of living, regional balances, restricting migration etc and
prosper only in a healthy climate of policy support and business friendly environment.
The strength of MSME sector can be assessed by its contribution to the country’s GDP. Fig. 1
shows the contribution of MSME sector to GDP in various countries.
G LO BA L G DP CO NT RI BUT I O N BY MSME
SME
41%
75%
78%
59%
25%
22%
46%
73%
27%
54%
Non-SME
15%
32%
65%
71%
43%
50%
52%
50%
48%
85%
68%
30%
50%
35%
50%
57%
Non-MSME Sector Includes- Un-organised / Unregistered enterprises, Large
Source: Country Specific MSME Report, KPMG-CII Report 2015
It is seen that the ratio of Non-SME to SME in GDP contribution is higher in India (71:29)
compared to industrially progressive countries like France, Germany, Singapore, Taiwan etc.
mainly because the costs of formalization and compliance are high and onerous in India. In such
an ecosystem, there are perverse incentives to remaining small and informal. This is one of the
major reasons for low level of contribution of MSME sector in GDP of India.
When we think of why MSMEs- number of advantages comes to the fore such as:
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Generate most productive employment
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Tend to employ more labor-intensive technologies than large enterprises
MSMEs in the formal sector crucial for economic dynamism
Contribute to innovation
Advantages over large firms: flexibility; speed of decision-making; proximity to
customers etc.
Can also attract foreign investments given the flexibility in policy stance
They are the key agents of structural change: High entry and exit rates create a
healthy turbulence that accelerates structural adjustment of the supply side to
changing demand conditions.
Satisfy broader social objectives
MSME Definition in India:
The Micro, Small and Medium Enterprises Development (MSMED) Act was notified in 2006 to
address different issues affecting MSMEs, inter alia, the coverage and investment ceiling of the
sector. The MSMED Act seeks to facilitate the development of these enterprises as also
enhance their competitiveness.
Since the notification of MSMED Act in 2006, the economy has undergone significant changes, a
revision in MSME criteria of classification was announced on 13th May 2020, and the new
classification has come into effect from 1st July, 2020. The earlier criterion of classification of
MSMEs was based on investment in plant and machinery / equipment. It was different for
manufacturing and services units.
Now, there will be no difference between manufacturing and service sectors. Also, a new
criterion of turnover has been added in the previous criteria of classification based only on
investment in plant and machinery.
MSME Definition
Type of enterprise
Investment
Turnover
Micro
Rs 1 crore
Rs 5 crore
Small
Rs 10 crore
Rs 50 crore
Medium
Rs 50 crore
Rs 250 crore