The Micro, Small, and Medium Enterprises (MSME) sector is a crucial pillar of the Indian economy, contributing significantly to industrial output, employment generation, and exports. In 2023-24, MSME-related products accounted for 45.73% of India’s total exports. Often termed the backbone of the economy, MSMEs are instrumental in realizing the vision of Atmanirbhar Bharat (Self-Reliant India). This article explores the definition, significance, challenges, government initiatives, and future roadmap for MSMEs in India.
What are MSMEs and its related Statutory bodies?
MSMEs– These are enterprises engaged in the production, processing, and preservation of goods and commodities. These businesses are classified based on their investment in plant and machinery (for manufacturing) or equipment (for service enterprises), along with their annual turnover.
MSME Regulation in India– MSMEs are regulated under the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. In 2007, the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small & Medium Enterprises.
Statutory Bodies under MSME Ministry
The Ministry of Micro, Small & Medium Enterprises (MSME) has four statutory bodies:
1. Khadi and Village Industries Commission (KVIC) – Promotes and develops khadi and village industries to generate rural employment and strengthen the rural economy.
2. Coir Board – Oversees the development of the coir industry and improves workers’ living conditions.
3. National Small Industries Corporation (NSIC) – Supports the growth of micro and small enterprises, primarily on a commercial basis.
4. National Institute for Micro, Small and Medium Enterprises (NI-MSME) – Focuses on enterprise promotion, entrepreneurship development, and policy research.
Additionally, the Mahatma Gandhi Institute for Rural Industrialisation (MGIRI) works to accelerate rural industrialization, support traditional artisans, promote innovation, and develop alternative technologies using local resources.
What are the key measures for MSMEs in Union Budget 2025-26?
| Revised Classification Criteria | To help MSMEs scale operations and access better resources, the investment and turnover limits for classification have been increased by 2.5 times and 2 times, respectively. |
| Enhanced Credit Availability | 1. The credit guarantee cover for micro and small enterprises has been increased from ₹5 crore to ₹10 crore, enabling an additional credit infusion of ₹1.5 lakh crore over five years. 2. Startups will see their guarantee cover double from ₹10 crore to ₹20 crore, with a reduced fee of 1% for loans in 27 priority sectors. 3. Exporter MSMEs will benefit from term loans up to ₹20 crore with enhanced guarantee cover. |
| Credit Cards for Micro Enterprises | A customized Credit Card scheme will provide ₹5 lakh in credit to micro enterprises registered on the Udyam portal, with 10 lakh cards set to be issued in the first year. |
| Support for Startups and First-Time Entrepreneurs | 1. A new Fund of Funds with ₹10,000 crore will be established to expand support for startups. 2. A scheme for 5 lakh first-time women, Scheduled Caste, and Scheduled Tribe entrepreneurs will provide term loans up to ₹2 crore over five years. |
| Focus on Labour-Intensive Sectors | 1. A Focus Product Scheme for the footwear and leather sector is expected to create 22 lakh jobs and generate a turnover of ₹4 lakh crore. 2. A new scheme for the toy sector will promote cluster development and skill-building. 3. A National Institute of Food Technology, Entrepreneurship and Management will be established in Bihar to boost food processing industries in the eastern region. |
| Manufacturing and Clean Tech Initiatives | 1. A National Manufacturing Mission will support small and medium industries under the Make in India initiative. 2. Special emphasis will be given to clean tech manufacturing, including solar PV cells, EV batteries, wind turbines, and high-voltage transmission equipment. |
What is the role of MSMEs in India’s economic growth?
1. Job Creation & Livelihood Opportunities
- MSMEs are the largest source of non-agricultural employment in India, providing jobs primarily to semi-skilled and unskilled workers.
- Government programs like PM Vishwakarma and Mudra Yojana have expanded self-employment prospects.
- Currently, more than 1 crore registered MSMEs employ nearly 7.5 crore people across the country.
2. Contribution to GDP & Industrial Development
- MSMEs play a pivotal role in India’s economic framework, accounting for around 30% of the GDP and 45% of the total manufacturing output.
- They play a crucial role in industrial clusters by supplying raw materials and intermediates to large industries.
- The Udyam portal has streamlined the formalization of MSMEs, promoting a more structured and organized industrial sector.
3. Enhancing Exports & Foreign Exchange Reserves
- In 2023-24, MSMEs contributed 45.73% of India’s total exports, reinforcing their vital role in international trade.
- Schemes such as the Government e-Marketplace (GeM) and the Production-Linked Incentive (PLI) program have strengthened MSMEs’ integration into global supply chains.
4. Advancing Digital & Technological Innovations
- Initiatives like the Open Network for Digital Commerce (ONDC) are fostering digital transformation within the MSME sector.
- Currently, 72% of MSME transactions are conducted digitally, enhancing financial inclusion and operational efficiency.
5. Promoting Women & Social Entrepreneurship
- Women-led MSMEs are contributing to gender equality and economic empowerment.
- Under the Mudra Yojana, loans worth ₹32.36 lakh crore have been sanctioned, benefiting 51.41 crore entrepreneurs, with 68% of them being women.
What are the other government initiatives for MSMEs?
| PM Vishwakarma | Provides comprehensive support for artisans and craftspeople |
| Udyam Registration Portal | Simplifies business registration and integration into the formal economy. |
| Prime Minister’s Employment Generation Programme (PMEGP) | Offers credit-linked subsidy for micro-enterprises. |
| Scheme of Fund for Regeneration of Traditional Industries (SFURTI) | Organizes artisans into clusters for product development. |
| Public Procurement Policy | Mandates that 25% of government procurement be sourced from MSMEs. |
What are the challenges faced by the MSME Sector?
1. Cumbersome Registration Process– Lengthy registration procedures and inefficient single-window clearance systems create bureaucratic hurdles for MSMEs, delaying their formalization and operational setup.
2. Lack of Awareness About Government Schemes– Many MSMEs struggle to navigate the complex landscape of government schemes due to inadequate awareness and poor coordination between the Centre and States.
3. Financial Constraints– Limited access to institutional finance, stringent collateral requirements, and high interest rates make it difficult for MSMEs to secure the funds necessary for expansion and modernization.
4. Export-Related Challenges– Poor infrastructure, inadequate trade facilitation, and difficulty in meeting Environmental, Social, and Governance (ESG) standards restrict MSME participation in global markets.
5. Labour Shortages and Skill Gaps– A lack of skilled workers, wage disparities across regions, and inefficient training centers result in low productivity and reduced competitiveness for MSMEs.
What should be the way forward?
1. Strengthening Credit Access & Financial Support
- Expand collateral-free lending via fintech platforms and alternative credit assessment models.
- Mandate strict payment timelines under the MSME Samadhan portal to ensure timely dues from large corporations and government agencies.
- Enhance the role and reach of MUDRA and SIDBI to facilitate easier credit access.
- Develop tailored fintech solutions and promote financial literacy programs for MSMEs.
2. Reducing Compliance Burden & Regulatory Bottlenecks
- Implement single-window clearance for faster approvals and streamlined processes.
- Establish state-level MSME facilitation councils for quicker grievance redressal.
- Simplify GST registration and reduce the frequency of regulatory amendments to ensure ease of doing business.
- Set up a dedicated MSME Coordination Council to streamline policy implementation and address sector-specific challenges.
3. Enhancing Digital & Technological Adoption
- Facilitate adoption of AI, IoT, and automation through MSME technology hubs.
- Launch Digital MSME 2.0 to improve cybersecurity, cloud computing access, and digital marketing capabilities.
- Strengthen the Credit Linked Capital Subsidy Scheme (CLCSS) to support MSMEs investing in advanced technologies.
- Promote MSME Innovation & Incubation Hubs in collaboration with academic and research institutions.
4. Workforce Development & Skilling Initiatives
- Ensure uniform labor wages and introduce affordable labor insurance schemes for MSME employees.
- Align skill training programs under Skill India, PMKVY, and NAPS to address MSME workforce needs.
- Promote women entrepreneurs through targeted vocational training and credit linkage schemes.
5. Infrastructure Development & Cluster-Based Growth
- Strengthen MSME clusters under the Micro & Small Enterprises – Cluster Development Programme (MSE-CDP).
- Encourage Public-Private Partnerships (PPPs) to set up Common Facility Centers (CFCs) for shared resources.
- Develop MSME Industrial Parks with subsidized utilities, logistics support, and better last-mile connectivity.
| Read more- PIB UPSC Syllabus- GS 2/ GS 3– Government policies and interventions for development in various sectors/Government Budgeting |
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