MSME
MSME
MSME
What is MSME?
The Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in the economic and
social development of the country, often acting as a nursery of entrepreneurship. They also
play a key role in the development of the economy with their effective, efficient, flexible and
innovative entrepreneurial spirit. The MSME sector contributes significantly to the countrys
manufacturing output, employment and exports and is credited with generating the highest
employment growth as well as accounting for a major share of industrial production and
exports. MSMEs have been globally considered as an engine of economic growth and as key
instruments for promoting equitable development. The major advantage of the sector is its
employment potential at low capital cost. The labor intensity of the MSME sector is much
higher than that of large enterprises. MSMEs constitute more than 90% of total enterprises in
most of the economies and are credited with generating the highest rates of employment
growth and account for a major share of industrial production and exports. In India too,
MSMEs play an essential role in the overall industrial economy of the country. In recent
years, the MSME sector has consistently registered higher growth rate compared with the
overall industrial sector. With its agility and dynamism, the sector has shown admirable
innovativeness and adaptability to survive the recent economic downturn and recession.
The MSME sector in India is highly heterogeneous in terms of the size of the enterprises,
variety of product and services, and levels of technology. The sector not only plays a critical
role in providing employment opportunities at comparatively lower capital cost than large
industries but also helps in industrialization of rural and backward areas, reducing regional
imbalances and assuring more equitable distribution of national income and wealth. MSMEs
complement large industries as ancillary units and contribute enormously to the
socioeconomic development of the country.
MSMEs account for about 45% of Indias manufacturing output. MSMEs account for about
40% of Indias total exports. The sector is projected to employ about 73 million people in
more than 31 million units spread across the country. MSMEs manufacture more than 6,000
products ranging from traditional to high tech items.
Brief History of MSMEs in India
In India, the National Governments policy was concretized in the Industrial Policy
Resolution (IPR), 1956, and associated institutional structures that came into being during the
First Five Year Plan. The First Five Year Plan which gave top priority for agricultural growth
gave village and small scale industries a central place in the rural development programs.
The Second Five Year Plan came out with a clear statement on the respective roles of small
and large industry in the policy and strategy of development in the country. While
recognizing this imperative the planners also gave due importance to traditional and rural
industries.
The policy frame and the promotional measures in India so far are intended to enable the
small scale units to withstand competition from large scale enterprises. The objective of the
MSME policy, from time to time, were one or more of the following: a) creation of wage
employment with growth; b) generation of self-employment; c) creation of productive assets
for the poor; and d) welfare oriented employment programs of the Keynesian type. However
since 1960s, a more target group oriented approach has come into existence.
The Industrial Policy Statement (1977) stressed the wider dispersal of cottage and small
industries into rural areas and small towns.
The Industrial Policy Statement, 1980 focused on integrated industrial development, and
suggested the setting up of nucleus plants in those districts which were identified as
industrially backward, with the expectation that these would help the spatial dispersal of
small ancillary units and the existing network of SSIs would grow faster.
The era of economic reforms that was kick started in 1990, brought in a new policy approach
to the development of this sector. De-reservation and deregulation became the rule.
A new thrust on a level playing ground for the MSMEs, was operationalized through a
comprehensive legislation for the sector, the MSME Development Act, 2006.
The Eleventh Plan, under its inclusive growth agenda, recognized the continuing need to
facilitate the graduation of these enterprises to higher levels, particularly from small to
medium. Beyond this, the Twelfth Five Year Plan recognized the debilities of the country on
the manufacturing front, outlined the need for a National Manufacturing Policy. The Policy
was announced in 2011.
The implications of MSME policy should be understood in terms of four key areas:
a) Macroeconomic policy;
b) Labor market policy;
c) Regulatory framework;
d) Promotion and development.
Unlike in many other countries, a synergic role of the government and the private sector has
resulted in the molding of the MSME sector into an engine of growth, employment, and
balanced regional development in the country.
Measures for Promotion, Development and Enhancement of competitiveness of Micro,
Small and Medium Enterprises
Ministry of Small Scale Industries is primarily responsible for promotion and development of
SMEs in India, and has evolved several policies, institutional and support measures, spread
all over the country, in order to enable SMEs to meet their changing needs. Small Industries
Development Bank of India (SIDBI) has developed various financing schemes. Ministry of
Science and Technology (DST, DBT, DSIR) has evolved several measures and programs for
technological assistance and development and transfer of technologies for SMEs. Some of the
economic ministries such as Ministry of Textiles, Department of Food Processing and
Department of Handicrafts etc. have also recently announced initiatives for technical
assistance in various firms. Some of the measures and new initiatives to promote SMEs
include:
as micro-electrical, pharma, precision instruments and so on. Perhaps, there is a need to have
short term and long term strategies for enhancing competitiveness of SMEs in one broad
based strategy. The R&D expenditure and technological capacities of most of the SMEs
would continue to be limited because of their inherent constraints in the resources and vision.
The support structures should recognize this fact. However, the SMEs have enormous
potential for innovations and incremental development, which need to be nurtured for
production of new goods and services at competitive costs. The IT and auto-component
SMEs are examples of the successes through innovations. Such policies should lead to wider
dispersal of economic benefits, capacity building, and utilization of resources, creating
employment, etc. across the society. Economic, education, trade, technology and society need
to be interdependent. The SMEs development project should recognize the needs of
internationalizing companies or those who have the potential to internationalize, differently
than those of domestic oriented companies or stagnating companies.