MSME

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What is MSME?
Micro, Small and Medium Enterprises (MSME) are classified in two Classes:
  • Manufacturing Enterprises: the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951) or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery
  • Service Enterprises: The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment
Some Facts:
  • The GDP share of all MSME’s is 37.5%
  • Their Export share is 40%
  • The MSME sector in India employs nearly 11 crore people through the operation of 5 crore enterprises producing a heterogeneous basket of about 7,000 different products.
  • MSME Databank Portal launched: It will be a databank  of MSMEs
  • Online Finance Facilitation Web Portal launched: It will provide collective funding options for MSMEs.
  • Union Government has set target to increase contribution of MSMEs in the manufacturing sector to 50% in the next five years.
Their significance:
  • As MSMEs are generally labor-intensive, they have the capability to create more jobs to cater to a young demographic country like India.
  • They are also important for promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products
  • Provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector
Challenges:
  • Problem of finance
  • Government allotted resources often do not reach the targeted audience
  • MSMEs generally suffer from poor conduct by major banks (e.g. mis-selling of financial products, higher fee or interest rate, failure to explain exit costs, and sometimes threatening them with refusal to extend regular credit) => financial education is very important for MSMEs
  • The government and the RBI have been initiating a series of measures to encourage MSMEs, but these are generally supply-side efforts. The need is to generate demand-side requirement from the general public to set up MSMEs. Therefore, there is need to nurture entrepreneurs from a young age
What government did in 70s-80s?
India had tried to encourage small companies after the 1970s with the help of two barriers of protection
  • First, the ridiculously high levels of import tariffs for the entire economy
  • Second, reserving the production of certain goods for small companies
However, these two policies created inefficient small firms that were neither capable of scaling up nor facing global competition after the 1991 reforms
What steps are taken by government to promote MSMEs?
  • Credit via schemes like : Stand Up India, MUDRA Scheme, Start Up Funds etc.
  • MSME Cluster development scheme
  • Skill developmenet schemes like Kaushal Vikas Yojana, PMEGP etc.
Critically discuss major problems plaguing the micro, small and medium enterprises (MSMEs) sector in India. Do you think government’s policies to boost this sector adequately address these problems? Examine. (200 Words)
Micro, small and medium enterprises (MSMEs) play a pivotal role in the overall industrial development of the country.
In spite of this, the MSMEs continue to face several problems in their day-to-day operations, that is, in production and marketing of their products.
This problems can be listed as:
  1. Absence of adequate and timely banking finance
  2. Limited capital and knowledge
  3. Non-availability of suitable technology
  4. Low production capacity
  5. Ineffective marketing strategy
  6. Constraints on modernisation & expansions
  7. Non availability of skilled labour at affordable cost
It is very important to empower the SME sector to utilize the limited resources (human & economic) they have in an optimum manner. The SMEs need to be educated and informed of the latest developments taking place globally and helped to acquire skills necessary to keep pace with the global developments.
In order to protect, support and promote small enterprises as also to help them become self-supporting, a number of protective and promotional measures have been undertaken by the Government.
The promotional measures cover industrial extension services, institutional support in respect of credit facilities, provision of developed sites for construction of sheds and assistance for domestic marketing as well as exports.
The recently launched MUDRA initiative is not enough alone to uplift the MSMEs from their plight, as MSMEs need tax reforms in the form of GST roll out as it will eliminate the cascading effect of central and local taxes. They should also get a share of the Make in India scheme, with their enterprises included actively in it.
By introducing all such reforms, the central govt will be able to help these unsung heroes of the national development and promote their expansion.
What government is doing?
The Ministry is promoting competitiveness and productivity in the MSME space through the implementation of various Schemes, especially the National Manufacturing Competitiveness Programme (NMCP) which aims at enhancing the competitiveness of Indian manufacturing sector by reducing their manufacturing costs through better space utilization, scientific inventory management, improved process flows, reduced engineering time etc.
Some Schemes:
  1. Credit Guarantee scheme: Provides guarantee to Member Lending Institutions for loans sanctioned without collateral
  1. Credit Linked Capital subsidy scheme: Nodal Agencies SIDBI & NABARD – 15% capital subsidy
  2. MSE Cluster Development programme: includes Infrastructure development, common facility center etc.
  3. PM Employment Generation Programme: credit linked subsidy scheme
  4. Marketing Development Assistance Scheme:
    1. Financial assistance to enhance competitiveness and develop global standards
    2. Efforts as tapping and developing overseas market
  5. National Manufacturing Competitiveness Programme (NMCP)
  6. Promotion of ICT in MSME
  7. Technology and Quality upgradation (TEQUP) support to MSME
  8. Building awareness for IPR in MSME

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