MSMEs – Second Largest Employment Generator in India

MSME Sector of India: How does it work?


Micro, Small and Medium Enterprises (MSMEs) are an important sector for the Indian economy and have contributed more to the country’s socio-economic development. It not only generates employment opportunities but also works towards the development of the nation’s backward and rural areas. According to the annual report by the Government (2018-19), there are around 6,08,41,245 MSMEs in India.

MSME contributes nearly 8 per cent to the country’s GDP, around 45% of the manufacturing output and approximately 40% of the country’s exports. It wouldn’t be wrong to consider MSME as the ‘backbone of the country’.

The government of India introduced the MSME in agreement with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. These companies engaged entirely with the manufacturing, production, processing and preservation of goods and services.

Redefinition of MSME

Recently, the finance minister Nirmala Sitharaman in May 2020 announced the revised definitions of MSME. Earlier, the MSMEs were defined based on the investments put in the company, and now, it will be based on the annual turnover of the company. She also mentioned that going forward, there will be no distinction between manufacturing and service MSMEs.

Earlier, MSME criteria were different for manufacturing units and service units. With the new definition, this difference is vanished and both the units will be treated equally.

Read more: An overview of India’s Foreign Policy

Micro Units

MSMEs will now be called Micro units if they have investments up to Rs 1 crore and turnover of less than Rs 5 crore. The definition earlier was on investment criteria of up to Rs 10 lakh for Service MSMEs earlier and Rs 25 lakh or manufacturing.

Small units

For an MSME to be defined as a Small unit, its investment limit has been raised from Rs 5 crore to Rs 10 crore with a turnover of fewer than 50 crores. This applies to all MSMEs including the Service enterprises which earlier came under the investment of up to Rs 2 crore.

Medium Units

Enterprises with investments up to Rs 20 crore with a turnover of less than Rs 100 crore will now be called Medium units. Earlier, the investment limit for Medium units was up to Rs 10 crore and Service enterprises up to Rs 5 crore.

Features of MSMEs:

  • MSMEs work for the benefit of the workers and artisans. They provide employment to many people in our country. MSMEs is considered the second largest employment generator, after agriculture.
  • MSMEs provide credit limit and funding support to banks.
  • MSMEs promote entrepreneurship as well as up-gradation or skilling by launching special training centres for the same.
  • MSMEs provide reasonable assistance for improved access to the domestic and export markets.
  • MSMEs support experimentation and get in touch with the latest technology, modernizing the sector as a whole.

 Role of MSMEs in Indian Economy

Since the formation, MSME has been the most dynamic sector of the India Economy. They have helped promote the growth and development of khadi, village, and coir industries. They have also worked with the various ministries of state governments, and stakeholders towards the upbringing of rural areas.

MSMEs have played an essential role in providing employment opportunities in rural areas. They have helped in the industrialization of these areas with a low capital cost compared to the large industries. Acting as a complementary unit to large sectors, the MSME sector has contributed towards the socio-economic development.

MSMEs play an important role in providing employment in rural areas. They have helped industrialize companies with low-cost investment as compared to other large industries.

Flexibility in operations, mobility through the locations, low rate of imports, and a high contribution to domestic production are some of the important factors of MSME.

Conclusion:

The Indian MSME sector has provided a lot of the support to the growing economy. It works as one of the most important assets of the country for socio-economic development. It also acts as a defence against global economic shocks. Hence, it would be better to say that India is leading a robust growth with a revolution powered by MSMEs.

Check our Instagram : Ownguru

Facebook : Ownguru

If you have an interesting write-up or any suggestion, write to us at ownguru@gmail.com

Facebook Comments