Introduction, role and importance, problems and prospects of Micro, Small and Medium Enterprises MSMEs.

1. PROBLEMS AND PROSPECTS OF
MSMEs IN INDIA
TORAN LAL VERMA
DHSGU, SAGAR

4. MSMEs
• Micro, Small and Medium Enterprises (MSME) sector is the backbone of our
economy and plays a significant role in economic development.
• It is acknowledged worldwide that MSMEs are important contributors to a
nation's economic and social development.
• In India, The MSME sector contributes to 45% of the total manufacturing
output, 40% of the total export, 6% of the manufacturing GDP and 24.63% of
the GDP from service activities, employs over 8 crore people and produces
over 8000 products.
• Not only it supports large industries with their inputs but also it Ensures
inclusive growth of the nation by supporting the rural economy. Most of the
MSMEs are situated in rural areas and employ rural manpower.

5. Major MSME Sectors

6. UPDATE ON NEW DEFINITION
• The government has removed the criteria of service and manufacturing
enterprises in the newly formed definition in June 2020.
• The new definition will be helpful in easily identifying MSMEs and framing
policies for them.

8. Micro enterprises constitute around 90% of MSMEs

11. Role and Importance of MSMEs for Indian Economy
1. Employment: It is the second largest employment generating sector after
agriculture. It provides employment to around 120 million persons in India.
2. Contribution to GDP: With around 42 million units throughout the
geographical expanse of the country, MSMEs contribute around 6.11% of
the manufacturing GDP and 24.63% of the GDP from service activities.
MSME ministry has set a target to up its contribution to GDP to 50% by
2025 as India becomes a $5 trillion economy.
3. Exports: It contributes around 45% of the overall exports from India.
4. Inclusive growth: MSMEs promote inclusive growth by providing
employment opportunities in rural areas especially to people belonging to
weaker sections of the society. For example: Khadi and Village industries
require low per capita investment and employs a large number of women in
rural areas.

12. MSMEs have a huge contribution in export

13. 5. Promote innovation: It provides opportunity for budding entrepreneurs to
build creative products boosting business competition and fuels growth.
6. Plays an important role in making “Make in India” possible: Since the
MSME is the backbone in making this dream a possibility, the government
has directed the financial institution to lend more credit to enterprises in
MSME sector.
7. Poverty alleviation: by providing employment to a large number of people
in india, MSMEs are helping people in earning money to survive and come
out of poverty.
8. Rural Development: MSMEs are mostly situated in rural areas and are
helping in rural development.

14. PROBLEMS OF MSMEs IN INDIA
• Internal Problems
• External Problems

15. Internal Problems
1. One Man Army: MSMEs are usually managed by a single person who is owner
of the enterprise.
2. Problem of finance: MSMEs face problem of finance from starting the business
to operating the business.
3. No long-term vision: MSMEs are generally started without proper planning and
long-term vision. Because of this, they fail to cope with the shocks in economy
like demonetisation, GST and COVID-19.
4. Labour Problems: MSMEs face labour problems as they cant hire professionally
skilled employees.
5. Inadequate Management Systems: MSMEs do not have adequate management
systems.
6. Lack of Strategic Ideas: MSMEs are not very rich in financial resources and
they cant spend much in research and development.
7. Poor organizational Structure: MSMEs do not have clear cut organizational
structure.

16. External Problems
1. Lack of capital and financing
2. Lack of basic infrastructure
3. Complicated labour laws
4. unavailability of skilled labour
5. Poor distribution network
6. Delay in payment of Recievables and payables
7. Use of Outdated Technology
8. Lack of knowledge about government schemes

17. Suggestions for Improvement of MSME
1. Availability and Cost of Credit: Credit availability must be ensured to MSMEs
at low interest rates. MUDRA loan is one such example.
2. Assistance in Marketing: the government must assist MSMEs in marketing their
products. Trade shows and exhibitions can be a good way to assist in marketing.
3. Increased Productivity: There should be an effective amendment of labour laws
to enable more overtime hours for employees. It should also offer opportunities
for more women employment and ensure safety for women to work in night
shifts.
4. Technology Upgradation: Demands enhancement of technology upgradation
schemes with capital subsidy and interest subsidies for fast technological
adoption.
5. Skill Development: More funds should be allotted to set up
research/resource/product development and incubation centers. There should be
effective coordination with the technical institutions and CSIR laboratories.

18. 6. Improve Infrastructure: 24x7 facilities for export consignments at major
air cargo/sea port complexes, enhancement of ASIDE scheme and
development of MSME clusters near highways/rail corridors.
7. Fix incentives/Tax related issues: There should be a new corporate/income
tax regime for MSME exporters, incorporate a different ECGC policy for
MSMEs to reduce costs. Bring in efforts to remove service tax on
conversion of export proceeds remittances and other issues which will
reduce transaction costs in exports.
8. Develop an Institutional Framework: Creation of a Standing Committee
of Secretaries to resolve policy and implementation related issues will
initiate greater changes in the sector. There should also be a greater
coordination at the ground level between Customs and DGFT offices.
9. Resolve Sector Specific Issues: Immediate steps need to be taken to
increase fund allocation to resolve issue relating to sectors such as
handicrafts and leather industries.

19. Government schemes to promote MSMEs
1. Udyami Mitra Portal : launched by SIDBI to improve accessibility of
credit and handholding services to MSMEs.
2. MSME Sambandh: To monitor the implementation of the public
procurement from MSMEs by Central Public Sector Enterprises.
3. MSME Samadhaan: MSME Delayed Payment Portal will empower Micro
and Small entrepreneurs across the country to directly register their cases
relating to delayed payments by Central
Ministries/Departments/CPSEs/State Governments.
4. Digital MSME Scheme : It involves usage of Cloud Computing where
MSMEs use the internet to access common as well as tailor-made IT
infrastructure
5. Prime Minister Employment Generation Programme : It is a credit
linked subsidy program under Ministry of MSME.

20. 6. Revamped Scheme of Fund for Regeneration Of Traditional Industries
(SFURTI) : organizes traditional industries and artisans into clusters and
make them competitive by enhancing their marketability & equipping them
with improved skills.
7. A Scheme for Promoting Innovation, Rural Industry &
Entrepreneurship (ASPIRE): creates new jobs & reduce unemployment,
promotes entrepreneurship culture, facilitates innovative business solution
etc.
8. National Manufacturing Competitiveness Programme (NMCP): to
develop global competitiveness among Indian MSMEs by improving their
processes, designs, technology and market access.
9. Micro & Small Enterprises Cluster Development Programme (MSE-
CDP) - adopts cluster development approach for enhancing the productivity
and competitiveness as well as capacity building of MSEs.
10. Credit Linked Capital Subsidy Scheme (CLCSS) is operational for
upgradation of technology for MSMEs.

21. References:
• http://www.supportbiz.com/articles/managing-growth/top-10-ways-improve-
indian-sme-sector.html
• https://www.drishtiias.com/to-the-points/paper3/micro-small-and-medium-
enterprises-msme
• Ministry of MSME, Governement of India