The Government of India Pushing the MSME Sector

Why is the Government of India Pushing the MSME Sector?

in Business

As per an official report, India has more than 6.3 crore micro, 3.3 lakh small, and 5,000 medium enterprises. 

These MSME sector comprising these units contribute – 

● 24.63% to the services GDP.

● 6.11% to the manufacturing GDP.

MSMEs form the foundation of India’s trade and commerce, which is why the government has been pushing this sector post-independence. 

The initial focus started in 1948 with the implementation of the Industrial Policy Resolution and in 1951 with the enactment of the Industries (Development and Regulation) Act.

Several ministries, including the Ministry of Micro, Small and Medium Enterprises, provide different schemes and MSME loan to help these small businesses sustain in the national and international market that is becoming increasingly competitive.

What is MSME?

In May 2020, the government revised the definition of MSMEs to do away with the distinction of the manufacturing and services sector and bring more businesses into its ambit. 

The description of what is MSME thus changed to total investment and turnover thresholds.

Maximum investment ceiling for MSME classification should be –

  • Rs.1 crore for micro-enterprises.
  • Rs.10 crore for small enterprises. 
  • Rs.20 crore for medium enterprises.

The maximum annual turnover for MSME classification should be – 

  • Rs.5 crore for micro-enterprises.
  • Rs.50 crore for small enterprises.  
  • Rs.100 crore for medium enterprises.

How is the government supporting MSMEs?

The Government of India has implemented several regulatory measures and frameworks that ease MSMEs’ success in the market, which already exhibits severe competition.

To address the hindrances, the government is – 

1. Offering MSME loans

These loans can be availed under several central government programs or through private financial institutions.

Some of the types and benefits of MSME loans are mentioned below –

I. MUDRA loans

The Pradhan Mantri MUDRA Yojana established the Micro Units Development and Refinance Agency Limited (MUDRA), which offers three types of loans viz – Tarun (between Rs.5 lakh and Rs.10 lakh), Kishor (between Rs.50,000 and Rs.5 lakh), and Shishu (up to Rs.50,000).

As of 2019-20 – 

  • Loans amounting to Rs.3.2 lakh crore have been disbursed.

MUDRA loans are offered through MFIs, RRBs, NBFCs, and several other financial institutions. 

II. Stand-Up India 

Stand-Up India is a program introduced specifically for women and individuals belonging to the SC/ST category. 

Beneficiaries setting up greenfield enterprises can avail loans between Rs.10 lakh and Rs.1 crore under this scheme.

  • More than 53,000 loan applications have been approved to date.
  • Loans amounting to more than Rs.8,200 crore has been disbursed. 

Business loans under the Stand-Up India scheme are provided by more than 100 financial institutions through over 1.3 lakh branches.

Other than these central assistance schemes, NBFCs like Bajaj Finserv have also been providing SME and MSME Loan.

They also provide pre-approved offers that minimize the time taken to avail loans by making the process less cumbersome. These offers are available on an array of financial products like personal loans, business loans, etc.

2. Easing the business registration process

The Udyog Aadhaar scheme was launched by the Ministry of Micro, Small and Medium Enterprises in 2015 to ease the registration process for MSMEs and eliminate red tape. 

  • 1.3 crore MSMEs have been registered under this program to date. 

Small businesses can register quickly through the official website for this scheme. Upon registration, a 12-digit unique identification number is generated. 

Registered firms will also be eligible for several benefits like a 50% discount in trademark and patent filing, exemption from excise, access to credit guarantee schemes, unsecured loans at affordable rates, subsidies, etc.

3. Online procurement of goods and services

The Government e-Marketplace or GeM was launched by the center-back in 2016 to make online procurement of goods and services from MSMEs uncomplicated. GeM enables ministries, departments, and PSUs to avail of these directly from small businesses.

Sellers receive the advantage of directly connecting with the government, marketing their products and services easily, creating dynamic pricing, and more. 

In December 2019, the government also eyed to collaborate with e-commerce sites like Flipkart and Amazon to push products manufactured by MSMEs.

4. Pushing exports and minimizing imports

In November 2019, the Ministry of Micro, Small and Medium Enterprises was underway towards working on the following two policies –

  1. To increase and support exports from businesses that are solely into exporting.
  2. Increase domestic production of goods that are imported.

The ministry has laid emphasis on decreasing three crucial factors viz. logistics expenses, power costs, and capital costs.

In conclusion, MSMEs have been the life force for the Indian economy. These businesses contribute 45% to the country’s overall exports and 33.4% to the manufacturing output.

Hence, providing small businesses finance via MSME loans and other favorable regulations is necessary for them to flourish.