The Micro, Small and Medium Enterprises’ (MSMEs) sector in India, which faced a slowdown after demonetisation, is now rebounding to its pre-note ban growth levels. This data comes from a recent study conducted by the Reserve Bank of India (RBI). The study showcases that bank credit towards this sector has noticed an increase, particularly credit aimed at micro and small enterprises.
Interestingly, however, the study unveiled an adverse impact on MSME exports due to the implementation of the Goods and Services Tax (GST). This is mostly attributed to delays in the refund of upfront GST and input tax credit that influences cash-driven working capital needs.
Significance of MSMEs in India’s Economy
India’s MSME sector boasts more than 63 million units and provides gainful employment to around 111 million individuals. Its contribution to India’s GDP stands at approximately 30%, with the sector responsible for roughly 45% of manufacturing output and around 40% of India’s total exports.
The MSME sector’s role in delivering widespread employment opportunities, fostering entrepreneurship and innovation-led growth is vital. The sector also aids larger businesses as auxiliary units, thus contributing to the socio-economic development and inclusive growth of the country.
Major Government Initiatives for MSMEs
The government has launched several initiatives to support the MSME sector. The Pradhan Mantri Mudra Yojana (PMMY) promotes the non-corporate small business sector by providing financing. The Udyog Aadhar Memorandum (UAM) streamlines the registration process for MSME entrepreneurs, only requiring a simple online form to obtain a unique Udyog Aadhaar Number (UAN).
Other schemes such as the Prime Minister’s Employment Generation Program (PMEGP), A Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship (ASPIRE) and the Scheme of Fund for Regeneration of Traditional Industries (SFURTI) aim to facilitate new enterprises, boost innovation and entrepreneurship, and organize traditional industries into competitive clusters.
Additionally, the Credit Linked Capital Subsidy Scheme (CLCSS) seeks to enable technological advancement of Micro and Small Enterprises (MSEs) by providing capital subsidies for machinery purchases.
Further Progression for MSMEs
For more impactful implementation of benefits, it would be beneficial to include respective state Governments at the policy-making level. The introduction of Direct Benefit Transfer (DBT) and digital payment schemes in credit transfer and other benefits would enhance transparency and streamline procedures.
Identifying and focusing on certain key sectors within MSMEs, and initiating expansive skill development could bolster performances and productivity. Organizing events like exhibitions, training workshops, trade fairs, and buyer-seller meets could extend the marketing reach of the MSMEs.
At the same time, embracing a cluster development approach could address the challenges faced by a large number of units in a cost-effective manner and pave the way for the sector’s sustained growth.