• UGI USER
  • Feb 13, 2023
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The MSME sector is a significant contributor to industrial output, employment generation, and exports; however, its potential remains untapped due to several factors. Elucidate.

Approach:

  • Start the answer by defining MSMEs. In the body of the answer, discuss the importance of the MSME sector.
  • In the next part of the body, discuss challenges associated with the MSME sector.
  • In the last part of the body, discuss the ways to overcome the challenges.
  • Conclude the answer by presenting a way forward for the growth of the MSME sector.

 

MSMEs are defined as the units where the cumulative investments range between 25 lakhs to 10 crore (for manufacturing) and between 10 lakhs to 5 crores (for services). The MSME sector contributes 48% of India’s exports, employs close to 40 % of India’s workforce, and contributes 31 % to the country’s GDP. MSME sector is called the growth engine of the nation:

  1. MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector, reducing disguised unemployment in the primary sector.
  2. MSMEs contribute to building an inclusive and sustainable society through creation of livelihood at low cost, balanced regional development and environmentally sustainable development.
  3. MSMEs boasts of diversity in terms of their size, level of technology employed and demonstrated, range of products and services provided and target markets.
  4. The MSME sector can help in establishing India as the manufacturing hub for the world, putting India on the map of global supply chains.
  5. MSMEs have the potential to play a vital role in tracing an export-led growth trajectory for the Indian economy. E.g., MSMEs contribute 48% to Indian exports.

Despite its importance for the well-rounded growth of the economy, the MSME sector faces several hurdles such as:

  • Lack of adequate and timely access to finance hinders the ability of MSME sector to fight with global competitors, especially in the era of free trade agreements.
  • Inadequate access to modern technology leads to lack of productivity and un-competitiveness, increasing the input cost and compromising output.
  • Poor marketing and branding prevent the MSMES from scaling up operations. It creates a major hurdle in a globalized world where the window of opportunity opens and closes in a short time.
  • Due to high regulatory and compliance costs many enterprises chose to remain small to avail regulatory concessions.
  • Issues related to Labour Laws, Research and development and Infrastructure etc., constrain the growth and development of the MSME sector
  • Delay in payment of dues to the MSMEs restrict their ability to reinvest in their asset creation. E.g., due to COVID19 lockdowns many formal sector units have not made payments to the MSMEs.

In order to revive the MSMEs there is a need to take concerted steps such as:

  • According to Economic Survey-2019, ‘Dwarf’ micro, small and medium-sized enterprises, that have less than 100 workers need to be incentivized to grow into larger firms, in order to address the problem of missing the middle.
  • Providing the latest technology to the MSMEs to make them competitive and efficient. E.g., AI intervention may enhance efficiency of a packaging firm. E.g., ASPIRE scheme.
  • Common Facility Centers may be established at each MSME cluster, ensuring availability of raw materials, marketing support, easy movement of goods and services etc. E.g., SFURTI scheme is a step in the right direction.
  • There is a need to bolster the credit availability for the MSME sector so that they can operate in a sustainable manner. E.g., Credit Guarantee Trust Fund, Mudra Yojna etc., 59 minutes loan.
  • Adequate measures are needed to ensure timely payment of dues to the MSME sector. E.g., as per an estimate more than 10 lakh rupees are stuck in delayed payment to MSMEs.

In order to revive the MSME sector there is a need for a stakeholder approach. MSME Sambandh and Samadhan, zero defect zero effect model, 25% public procurement policy etc., are prudent measures in this direction.