In News
- The United Nations General Assembly in 2017 declared 27 June as MSME Day.
About MSME day 2022
- Theme: “Resilience and Rebuilding: MSMEs for Sustainable Development”.
What are MSMEs?
- Micro-enterprises are the ones that employ fewer than 10 people.
- Small enterprises employ fewer than 50 people
- Medium-sized company is one which has fewer than 250 employees.
- The Government of India enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms of which the definition of micro, small and medium enterprises is as under
- Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
- A micro-enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.
- A small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
- A medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
Significance of MSME’s
- Employment and GDP: MSMEs, which typically employ less than 250 people, account for 70 percent of total employment and 50 percent of GDP in most middle-income countries.
- MSMEs have emerged as the second-largest employment generating sector after agriculture.
- SDG goals: The day serves as a reminder that small enterprises provide sustainable development goals, encourage innovation and provide a livelihood to millions.
- Backbone: Micro, Small and Medium Enterprises (MSMEs) are considered to be the backbone of India’s socio economic development.
- Digital Lending Changing MSMEs: MSMEs prefer digital lending due to its accessibility and simple application process. Technology has sped up the switch to more current and effective creditworthiness evaluation procedures, generating fresh data.
- Favourable Government Policies: Favourable regulatory environment and robust government initiatives have helped SMEs grow 17% last year.
- Focus areas: aspects like access to finance and technology, ease of doing business, and better infrastructure have been the centre of focus.
- Inclusive Society: They create an inclusive and sustainable society through the creation of non-farm livelihood. They promote balanced regional development, gender equity and create opportunities for people to use banking services and products.
Issues faced by MSME’s
- COVID-19 pandemic: The outbreak of the COVID-19 pandemic and subsequent lockdowns and restrictions on movements worldwide caused the Micro, Small, and Medium-sized Enterprises (MSME) sector massive losses.
- Shut down: the small and medium-sized businesses had to lay off employees or shut down completely.
- Double whammy: in India, where the job market is heavily dependent upon the MSME sector, this was a double whammy as people losing livelihood and companies going out of business.
- Russia-Ukraine conflict and inflation: While businesses have been in the recovering mode for a few financial quarters now, new challenges, including the Russia-Ukraine conflict and inflation, are again testing the resilience of the MSMEs.
- Vulnerable sections: the MSMEs led with the aid of women, youth, ethnic minorities, and migrants were the most impacted during the pandemic.
- MSMEs in India: the three key issues faced by India at hand are access to credit, supply-chain disruptions, and ease of doing business.
- Mounting NPAs of MSMEs: According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as against 8.2 per cent in 2020.
- Non-availability/Delays of Funds: Mounting losses and debts, non-availability of proper financial help and delays from the government, reluctance from the banks for the funding, etc.
- Lack of Formalization: Almost 86% of the manufacturing MSMEs operating in the country are unregistered.
- Hampered Productivity: These issues hamper the productivity of small firms which is already very low relative to larger firms, which deters employment generation and dynamism in Indian manufacturing.
Steps taken by the Government to revive the position of MSME’s
- To revive activity, the RBI and the government introduced several measures including the Emergency Credit Line Guarantee Scheme (ECLGS) which provided Rs 3 lakh crore of unsecured loans to MSMEs and businesses.
- The RBI also extended the scheme of one-time restructuring of loans to MSMEs without an asset classification downgrade and permitted bank lending to NBFCs for on-lending to agriculture, MSMEs and housing to be classified as priority sector lending (PSL).
- Announcement of the stimulus package focused on the MSME sector under Atmanirbhar Bharat Abhiyan.
- Credit guarantee of Rs. 3 lakh crore, revised definition for better means of identifying MSMEs, creation of a fund with a corpus of Rs. 50,000 crore for MSMEs, ReStart programme of Andhra Pradesh, Smart Industrial Village Policy, Promoting “Swadeshi” Ideology via Policy and Strategy Drafting and Safe Trade Policy.
- ASPIRE scheme, Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme (CLCSS), Zero Defect Zero Effect model, etc.
Way Forward
- Online presence: several MSMEs digitised their business operations during the pandemic and focussed on their online presence to cut their input costs and reach a wider market.
- Easy transition: as MSMEs don’t have a vast presence; it is easier for them to pivot their business model in comparison to the bigwigs.
- Adaptation: The ability to adapt according to market conditions gives them an edge over big companies with large valuations and several investors.
- Business climate: this day serves as a reminder to governments to create a business climate in which small companies also have an opportunity to thrive.
- Government should focus on helping the companies most impacted by global supply chain disruption, inflation, and climate crisis, among others.
Source: ET
