Overview of MSME Sector in India

Part 1

MSME Financing - Key Issues and Solutions

Overview of MSME Sector in India

Micro, Small and Medium Enterprises (MSME) sector is a significant contributor to the economic growth of the country. It not only acts as the backbone of manufacturing, agriculture & engineering and services, but also is among the top employment generating sectors. Being complementary to large industries, it contributes enormously to the country’s GDP besides fostering the entrepreneurial spirit. Today, the sector produces a wide range of products, from simple consumer goods to high-precision, sophisticated finished products; demonstrating high growth potential and stake in manufacturing and value supply chain.

Overview of MSME Sector in India

The sector is characterized by low investment requirement, operational flexibility and location wise mobility. This enables providing employment at lower capital cost and also helps in correcting regional imbalances through industrialization of rural and backward areas, towards an efficient and inclusive growth model. Micro, Small and Medium Enterprises (MSME) contribute nearly 8 percent of the country’s GDP, 45 percent of the manufacturing output and 40 percent of the exports. They provide the largest share of employment after agriculture. They are the nurseries for entrepreneurship and innovation. They are widely dispersed across the country and produce a diverse range of products and services to meet the needs of the local markets, the global market and the national and international value chains

Overview of MSME Sector in India

The Ministry of Micro, Small and Medium Enterprises has a number of programmes to help and assist entrepreneurs and small businesses. If you are planning to set up business, you may contact National Institute for Entrepreneurship and Small Business Development (NIESBUD), National Institute for Micro, Small and Medium Enterprises (NI-MSME), Indian Institute of Entrepreneurship (IIE) or the Development Commissioner (DCMSME) for details about their programmes. If you are an existing entrepreneur and would like to improve your competitiveness, you may contact DC, MSME who can be of assistance in various ways. If you are wanting to set up a village industry or want to know more about Khadi or Coir Products, you may contact KVIC or Coir Board. Ministry of MSME encourages and honors innovation and enterprise. The State Governments, Industry Associations, Banks and other stakeholders through their numerous field offices and technical institutions act as catalysts to help the ‘engines of growth’ throughout the country.

Overview of MSME Sector in India

The latest 4th all India Census of MSME sector has revealed that of the total working enterprises, 95.05% belong to micro enterprises, 4.74% to small enterprises and balance 0.21% are medium enterprises. Also it is observed that 45.38% enterprises are operating in rural areas. Though MSE sector, micro in particular, is of great importance in respect to generating employment and contributing inclusive growth of the economy, this segment of industry is deeply credit constrained.

Overview of MSME Sector in India

Key highlights of the MSME Sector: • MSMEs account for about 45% of India’s manufacturing output• MSMEs accounts for about 40% of India’s total exports • The sector is projected to employ about 111.4 million people in more than 48 million units spread across the country • MSMEs manufacture more than 6,000 products ranging from traditional to high tech items

MSMEs CONTRIBUTION TO ECONOMY

MSMEs have contributed significantly to the Indian economy, with more than 48 million units employing more than 111.4 million persons. Further, productivity of the MSME sector has been improving significantly with fixed investments and employment growing consistently over the past few years. This is a direct indication of the efforts focused on this sector to integrate the workforce with technological enhancements to increase production.

Employment Generation

MSME sector in India creates largest employment opportunities, next only to Agriculture. It has been estimated that a lakh rupee invested in fixed assets in the sector results in generating employment for four persons. Some of the interesting observations related to employment in MSMEs are related to generation of employment according to the industry. For instance, food products industry ranked first, followed by non-metallic mineral products and metal products. Additionally, Chemicals & chemical products, Machinery parts except Electrical parts, Wood products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair services and Rubber & plastic products also contributed to generate employment.

Employment Generation

Production

MSMEs play a crucial role in the growth of the country by accounting for 40 per cent of the gross manufacturing output. As per estimation, a lakh rupee of investment in fixed assets in the sector produces 4.62 lakh worth of goods or services with an approximate value addition of ten percentage points. The space has registered impressive growth over the past few years and the growth rate recorded during the various plan periods have been very impressive. Further, the transition period of the process of economic reforms was also affected for some period by adverse factors such as foreign exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw material etc. Further, when the performance of this sector is compared with the growth in the manufacturing and the industry sector as a whole, it instils confidence in the resilience of MSMEs.

Production

Production MSMEs play a crucial role in the growth of the country by accounting for 40 per cent of the gross manufacturing output. As per estimation, a lakh rupee of investment in fixed assets in the sector produces 4.62 lakh worth of goods or services with an approximate value addition of ten percentage points. The space has registered impressive growth over the past few years and the growth rate recorded during the various plan periods have been very impressive. Further, the transition period of the process of economic reforms was also affected for some period by adverse factors such as foreign exchange constraints, credit squeeze, demand recession, high interest rates, shortage of raw material etc. Further, when the performance of this sector is compared with the growth in the manufacturing and the industry sector as a whole, it instils confidence in the resilience of MSMEs.

Export Contribution

Export Contribution MSMEs play a major role in India's export performance by accounting for 45-50 per cent of total exports. The surprising fact is that non-traditional products account for more than 95 per cent of the MSME exports. The exports from the segment have registered enormous growth during the last decade. Further, the growth in the segment has been mostly fuelled by the performance of garment, leather and gems and jewellery units.

Opportunities

MSMEs has performed outstandingly well and enabled the country to attain a wide measure of industrial growth and diversification. By its nature of being less capital intensive and more labor intensive, the sector has made significant contributions to employment generation and also to rural industrialization. This sector is ideally suited to build on the strengths of traditional skills and knowledge, by infusion of technologies, capital and innovative marketing practices.

Opportunities

The opportunities of growth in the MSME sector are extensive due to the following attributes, which makes it a more attractive investment option: Less Capital Intensive• Extensive Promotion & Support by Government • Reservation for Exclusive Manufacture by small scale sector • Project Profiles • Funding - Finance & Subsidies• Machinery Procurement • Manpower Training • Technical & Managerial skills• Tooling & Testing support

Opportunities

•Reservation for Exclusive Purchase by Government•Export Promotion•Growth in demand in the domestic market size due to overall economic growth •Increasing Export Potential for Indian products

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