Stagnation of MSMEs


    In News

    • Recently a survey was conducted by the Consortium of Indian Associations (CIA) on micro, small and medium enterprises (MSMEs).

    More about the survey

    • About: The survey was led by the industry body Consortium of Indian Associations (CIA) comprising 1,08,500 entrepreneurs
      • The objective of the survey was to know 
        • The predicament of MSMEs in India, 
        • Their opinion on Budget 2023 -24 and 
        • Their unfulfilled requirements.
    • Highlights:
      • Stagnation of MSMEs:
        • According to the survey, over three-fourths of the micro, small and medium enterprises (MSMEs) are of the view that their business remained either stagnant or decreased or wound up during the last five years.
        • It also stated that 76 per cent of the respondents are not making a profit and access to bank finance remains a big issue.
        • Only 28% of the respondents have confirmed that they are growing
      • Government support:
        • 45 per cent of the respondents were of the view that there was no “ease of doing” that exists in starting or running or closing or in their living style.
        • Only 21 per cent of the respondents stated that the government has supported MSMEs adequately during the Covid-19 pandemic. 
      • Dissatisfaction with Union Budget:
        • 87 per cent of the respondents felt the Union Budget was disappointing or a big let-down or had no comments.

    MSME Sector In India 

    • About:
      • Micro, Small and Medium Enterprises (MSME), are small-sized business enterprises defined in terms of their investment.
    • Significance of the sector:
      • Contribution to GDP:
        • In India, the sector has gained significant importance due to its contribution to the Gross Domestic Product (GDP) of the country and exports.
      • Contribution in Development: 
        • The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socioeconomic development of the country. 
        • The sector has also contributed immensely with respect to entrepreneurship development, especially in semi-urban and rural areas of India.
      • Resilience in disruptions:
        • Despite concerns of a looming global recession, supply disruptions and the Russia-Ukraine war, India has stood out as a bright spot, growing faster than most major emerging markets.
        • The 6.3 crore micro, small and medium enterprises which account for 30 per cent of GDP and employ nearly 11 crore people have demonstrated this spirit of resilience. 
        • With sales in several industries across the MSME sector reaching 90 per cent of pre-pandemic levels, India’s small businesses are scripting a turnaround.

    Report suggestions

    • Revisiting regulations:
      • As concluded by the survey, though the government has been talking about the ‘ease of doing business’, micro-entrepreneurs continue to be governed by complicated and outdated laws and dispensable compliance burdens. 
      • Given this, the Association feels that the government should revisit, scrap or re-draft these laws. 
    • Amend MSME statute:
      • It has also proposed that the government should amend the MSME Development Act, 2006 to strengthen state facilitation councils and also make changes to the GST Act to make it more friendly to small businesses.
    • Need for separate ministry:
      • CIA has also called for a separate Micro Enterprises Ministry could help address specific issues facing this sector.

    Government initiatives for MSMEs in India:

    • Pradhan Mantri MUDRA Yojana (PMMY):
      • Under PMMY loans are provided up to Rs. 10 Lakh through Member Lending Institutions (MLIs) viz; Banks, Non-Banking Financial Companies (NBFCs), Micro Financial Institutions (MFIs), other financial intermediaries, in three categories namely, ‘Shishu’, ‘Kishore’ and ‘Tarun’ which signifies the stage of growth or development and funding needs of the borrowers.
        • Shishu: covering loans up to  Rs. 50,000/-
        • Kishore: covering loans above  Rs. 50,000/- and up to Rs. 5 lakh
        • Tarun: covering loans above  Rs. 5 lakh and up to Rs. 10 lakh
      • Objectives: 
        • To signify the stage of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point for the next phase of graduation/growth.
    • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): 
      • This scheme provides collateral-free credit to micro and small enterprises through a credit guarantee mechanism.
    • Stand Up India: 
      • The scheme provides financial assistance to scheduled caste (SC), scheduled tribe (ST) and women entrepreneurs for setting up new enterprises.
    • Harmonizing value chain: 
      • Government to focus on integrating India’s value chains with the rest of the world and creating logistics that are easier and faster is crucial to make it easier for international companies to include India in their value chains.
    • Quality assurance: 
      • Government to focus on creating Quality as the most important factor in the success story of India through steps including- setting global benchmarks, harmonizing Indian standards with global standards, and consumers becoming more demanding of quality.
    • Comprehensive Economic Partnership Agreement (CEPA): 
      • It will help MSMEs of both India and UAE to leverage the benefits of the District as an export hub initiative of the government.
      • Under this initiative, every district for their unique products and identify the speciality of districts by knowing which district exports which products. 
      • This initiative is expected to help in promoting local products and in turn, boost the local economy.

    Way ahead

    • Three key parameters that are vital for the success of MSMEs include: 
      • Financial stability, 
      • Availability of skilled labour in MSME clusters, and 
      • Market competitiveness of their products to achieve import substitution as well as exports.
    • The MSME (micro, small and medium enterprise) sector in India can play a significant role in achieving the vision of a self-reliant India
    • To remain relevant in the market, MSMEs need to be adaptable with changing markets and variable demand scenarios.

    Source: TH