MSME 2022: Tracing the Evolution of the MSME Sector in India

“MSME are the backbone of every country's growth and job creation, and MSME is crucial to a country's economic development by bringing digitization to business.”

India has a unique ability to Reinvent, Re-Imagine, and Redesign its Future, and MSME's play an important role in this. Every year on June 27th, we celebrate the Micro, Small, and Medium Enterprises Day. Businesses of both small & medium-sized are the lifeblood of many economies around the world, and they are especially important in developing countries like India. Today, Micro, Small, & Medium-sized Enterprises account for more than 90% of all businesses, 60-70 % of total employment, and 50% of GDP. World MSME Day recognizes the importance of Micro, Small, and Medium-sized Enterprises in achieving sustainable development goals and promoting innovation, creativity, and sustainable work for all. These enterprises are vital in achieving the Sustainable Development Goals, in particular in promoting innovation, Manufacturing, Service Provider, Trader, Startups, Women entrepreneurs, Job creation, Country economy growth, adding foreign exchange, creativity, and Social decent work for all.

Pandemic Phase Highlights

MSME appear to be on the rise in 2022. Within MSME, retail has struggled more with recovery, whereas Pharma has grown during the Pandemic. However, the MSME is almost fully recovered. We have seen tremendous digital adoption by this segment in the last few years as small businesses transitioned from offline workflows to digital platforms.

MSMEs contributions are important and a part of larger and global value chains and their health has bearing on supply chains overall and indeed the ability to supply. To highlight the contributions of these enterprises, the UN General Assembly designated June 27 as the Micro-, Small, and Medium-sized Enterprises Day, recognizing the important role these enterprises play in sustainable development.

Echoe’s of the Past

“On May 9, 2007, the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries merged to form the Ministry of Micro, Small, and Medium Enterprises as a result of an amendment to the Government of India Rules, 1961.”

Today, MSME’s in India contribute nearly 8% of the country's GDP, approximately 45 % of manufacturing output, and 40% of exports. It would not be incorrect to call them the "backbone of the country."In accordance with the Micro, Small, and Medium Enterprises Development Act of 2006, the Government of India established MSME. These businesses are primarily involved in the production, manufacturing, processing, or storage of goods as well as acommodities.

The micro to medium sized business are considered as the important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. It not only generates employment opportunities but also works hand-in-hand towards the development of the nation’s backward and rural areas. According to the annual report by the Government (2018-19), there are around 6,08,41,245 MSMEs in India.

Resilience & Rebuilding

MSMEs are an important part of larger national and global value chains and their health has a bearing on supply chains overall and indeed the ability to supply numerous goods and services. Small businesses deserve genuine support to return to vibrancy. MSMEs across sectors have been hard hit by the COVID-19 pandemic and the lockdown measures have put many on the brink of survival. MSMEs are part of the economic and social fabric of the country and recovery will only be possible with the vibrant MSME sector.

Today it is believed that MSME’S are the first responders to societal needs. This type of enterprise has been found to be a major driver of poverty alleviation and development, helping to generate jobs and generate income across the globe. As is true for many small and medium-sized businesses, MSMEs tend to employ a larger share of vulnerable sectors of the workforce, such as women, youth, and those from lower-income households. In some rural areas, MSMEs provide the only source of employment. Small and medium-sized businesses collectively make up the major source of income for the lower part of the income distribution.

Top business leaders who contributed as a “Beacon of Hope” for MSMEs

Sridhar Vembu, CEO & Co-founder, Zoho Corp

On the occasion of World MSME Day, Sridhar Vembu, CEO and Co-founder, Zoho Corp. said: "MSMEs form the backbone of any economy, contributing significantly to the GDP growth and creating employment for a large segment of the population. In India, MSMEs are well positioned to revive industries like textile and help create manufacturing hubs for everyday items that we consume. Various initiatives from the government under schemes like Digital India and Make in India, have pushed digital adoption in MSMEs. This can help in improving efficiency and productivity, while creating room for investing in research and innovation. As more MSMEs emerge across the country in diverse locations, they can help in revitalising rural areas and turn them into economic powerhouses."

Zoho works closely with MSMEs to create digital literacy, help them overcome resistance to technology and digitally transform, while also providing skill development and technology counselling. Zoho has a dedicated programme—Zoho Empower that works with MSME clusters.

Mr. Manish Gupta, Vice President and GM, Infrastructure Solutions Group, Dell Technologies, India

“MSMEs contribute significantly to India’s growth which makes it imperative for them to be cognizant of their digital transformation journey. By investing in smart IT choices, MSMEs can derive valuable insights from business-critical data and manage operations effectively while optimizing finances at the workplace. At the initial stages of a business, time and cost efficiency are of the essence to realise real-time success, resulting in sustenance of the organization. MSMEs require flexibility to manage workloads – upgrading existing IT infrastructure by raising their capabilities to manage future workloads will give them the edge over competition, offer optimal services to customers and strengthen their relationships with partners in the age of digital transformation. As we progress into the digital era, MSMEs need to be aware of the changing dynamics in IT and build resiliency to face the challenges of upcoming times.

Dell Technologies is one of the leading business-driven IT infrastructure solution providers offering customized enterprise support to organisations of every size, scale, and sector. With our broad portfolio of solutions, the right server, storage, cloud, and cybersecurity solutions will help shape the future for MSMEs, turning them into profitable enterprises who take actions on the basis of cutting-edge insights, for mapping progress through the market of tomorrow.”

MSME’s Performance, Investments, and Employment in India

"Over the last five decades, the MSME sector has emerged as an extremely effervescent and vigorous sector of the Indian economy."

Impact of the Growth Engines over Indian Economy

"MSME was first introduced in India in 2006. There are still some service sectors that were not previously included in this sector were included in the definition of the Micro, Small, and Medium-sized Enterprises, resulting in a historic change to this Act."

Large Scale of Employment:

The start-up costs for inclusive businesses in this area are relatively cheap. Additionally, it presents a large opportunity for the unemployed to take advantage of.   Out of the 1.2 million graduates that India generates each year, there are roughly 0.8 million engineers. No economy has existed to date that could produce that many new graduates in a single year. MSME is a blessing for India's young talent.

Exports: Economic stability in terms of growth and leverage

In this sector, inclusive enterprises require little capital to get started. Furthermore, it opens up a plethora of opportunities for the unemployed. India produces approximately 1.2 million graduates per year, with approximately 0.8 million engineers. So far, no economy has been able to provide such a large number of newcomers in a single year. MSME is a boon for India's new talent.

Promotes Inclusive Growth:

In this sector, inclusive enterprises require little capital to get started. Furthermore, it opens up a plethora of opportunities for the unemployed. India produces approximately 1.2 million graduates per year, with approximately 0.8 million engineers. So far, no economy has been able to provide such a large number of newcomers in a single year. MSME is a boon for India's new talent.

Cheap labour and low overhead:

One of the main challenges in large-scale organisations is retaining human resources through an effective human resource management professional manager. However, when it comes to MSME, the labour requirement is lower, and it does not require a highly skilled labourer. As a result, the owner's indirect expenses are also minimal.

Encourages Inclusive Growth:

For several years, the Ministry of Medium, Small and Medium-sized Enterprises has prioritised inclusive growth. Poverty and deprivation, on the other hand, are stifling India's development. Furthermore, it includes marginalised sections of society, which is a significant challenge for the Ministry of MSME.

The main role in the mission of "Make in India": The Prime Minister of India's signature initiative "Make in India" has been simplified with MSME. It is regarded as the foundation for making this dream a reality. Besides, the government has directed the financial institution to extend more credit to MSME enterprises.

The Prominent Challenges faced by the MSME’s

Due to lack of collateral, the section struggles to access formal credit in the society. Financial Institutions have limited their exposure to this segment because of the higher cost of servicing the segment, non-availability of a credit scoring model and are unsure of repayment capabilities.

The solution to the financial problems faced by the MSME’S is simple. A solution that will offer easy access to credit and confidence among the credit providers is a win-win situation for both. It can help these small business set-ups to survive, expand and contribute immensely to the economy.

Growth Trajectory Ahead

Despite the fact that MSME total working enterprises, employment, and market value of fixed assets have grown at CAGRs of 4.39 percent, 4.75 percent, and 6.64 percent, respectively, the contribution of manufacturing and service sector MSME to GDP is -1.53 percent and 1.82 percent. Even if the government is putting  efforts to boost productivity, the MSME contribution to GDP has not increased to an acceptable level in the last seven years.

Supporting the growth of MSMEs is crucial to sustainable development in a country like India, where the twin problems of poverty and unemployment continue to plague the economy. As each individual MSME continues to reform and transform, financial institutions must provide them with the resources they need to grow. Some Banking Giants, with their comprehensive portfolio of business banking solutions should come forward to assist these enterprises in keeping up with the rapidly changing business environment.

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