GS Paper 3
Syllabus: Manufacturing Sector
Source: ICRIER
Context: The report titled “Annual Survey of Micro, Small, and Medium Enterprises (MSMEs) In India: Leveraging E-commerce for the Growth of MSMEs” conducted a comprehensive survey of MSMEs in India to explore the potential of e-commerce in enhancing their growth.
What are MSMEs?
Micro, Small and Medium Enterprises [“MSMEs”] are small to medium-sized businesses that typically have a limited number of employees and generate moderate levels of revenue.
MSMEs are defined or classified in accordance with the MSME Development Act of 2006.
| Micro | Small | Medium | |
| Manufacturing and Services | Investment: < 1 crore
Turnover: < 5 crore |
Investment: < 10 crore
Turnover: < 50 crore |
Investment: < 50 crore
Turnover: < 250 crore |
Status of MSMEs in India:
- Around 19 million MSMEs which employ over 131 million (over 13 crore) individuals are registered on the Udyam portal of which about 96 % are classified as micro, about 3 % as small, and 0.4% as medium enterprises.
- 27% of the MSMEs are engaged in manufacturing and 73% are in services
Significance of E-Commerce integration:
- Successful integration with the E-commerce platform has reported an increase in sales. Integrated firms report higher turnovers and profitability.
- Integrated firms have a higher share of permanent employees
Significance of MSMEs
Economic transformation:
| Key Benefits | Description |
| Employment generation | MSMEs create significant job opportunities, especially for unemployed youth, due to low start-up costs. |
| Economic stability and export growth | They contribute significantly to India’s GDP and play a crucial role in the country’s exports, contributing about 40% to overall exports. |
| Reducing regional imbalance | MSMEs promote industrialization in rural and backward areas, reducing regional disparities and ensuring a more equitable distribution of income and wealth. |
| Complementary to large industries | They often serve as ancillary units, supplying semi-finished and auxiliary products to larger companies, fostering a linkage between MSMEs and big corporations. |
| Diversity | India’s MSME sector is highly diverse in terms of size, technology use, product range, and target markets. |
| Innovation | MSMEs encourage innovation by providing opportunities for entrepreneurs to develop creative products, fostering competition and growth. |
| Poverty Alleviation | MSMEs have played a significant role in reducing poverty by providing employment to disadvantaged sections of society. |
Social transformation:
| Key Benefits | Description |
| Female empowerment | About 20% of MSMEs in India are women-owned, providing a platform for female participation and development. |
| Income distribution | MSMEs, as a labour-intensive sector employing both genders, increase purchasing power and contribute to income redistribution. |
| Demographic dividend | India’s large number of graduates and engineers benefit from MSMEs, which can absorb a significant portion of fresh talent each year. |
| Inclusive growth | MSMEs contribute to infrastructural development, reducing income gaps between rural and urban areas. They also help prevent rural-to-urban migration by creating jobs in rural regions. |
| Better income | Evidence suggests that small enterprises, including MSMEs, offer better job stability, higher wages, and improved benefits, particularly for unskilled labour, leading to increased income and savings for the workforce. |
| Social inclusion | MSMEs enhance socio-economic conditions, support the national economy, and provide employment, fostering social inclusion and community development. |
Challenges to MSMEs
| Challenges | Description |
| Challenges in integrating with E-Commerce sites | Lack of knowledge and digital illiteracy; Lack of digital infrastructure; Lack of access to skilled labour |
| Financial challenges | Less than 5% of MSMEs have access to institutional credits. |
| Lack of creditworthiness among MSMEs. | |
| The bias of investors towards service-based MSMEs | |
| Financial distress due to events like demonetization, GST, and COVID-19 | |
| Higher operating costs due to low economies of scale, affecting competitiveness | |
| Labour | Difficulty in attracting skilled labour |
| Lack of social security net for over 90% of unorganized MSMEs employees | |
| Infrastructure and Technology Concerns | Challenges in access to basic amenities, like a constant power supply for semi-urban and rural MSMEs |
| High land and labour costs for urban MSMEs | |
| Use of outdated technology or slow technology adoption. | |
| Government Policy | Withdrawal of incentives when MSMEs outgrow the prescribed limits in the MSME Act, leading to ‘dwarfism.’ |
| Complex entry and exit norms | |
| Challenges in tax and legal compliance and clearance | |
| Market | Low competitiveness of Indian MSMEs and competition from multinational corporations |
| Delayed payments from customers | |
| Continued reliance on middlemen for marketing. |
Government Initiatives
- MSME Definition Revision: Expanded to promote growth without losing incentives.
- CHAMPIONS Portal: Provides information, grievance redressal, and integration.
- RAMP: COVID resilience and recovery support.
- Finance: Emergency Credit Line, PM Mudra Yojana, equity infusion.
- Technology Upgradation: Credit Linked Capital Subsidy Scheme.
- Udyam portal provides MSMEs with a permanent registration and basic identification number.
For 72% of MSMEs stagnant since past 5 years: Survey: Click Here
Conclusion
In pursuit of MSME sustainability, RBI’s UK Sinha-led committee suggests key measures:
- Periodic MSME definition updates
- Tackling delayed payments
- Mandating government procurement from MSMEs
- Offering marketing, technical, and financial support
- Promoting cluster-based approaches
- Implementing an easy exit policy.
Prelims Link:
Which of the following can aid in furthering the Government’s objective of inclusive growth? (UPSC 2012)
- Promoting Self-Help Groups
- Promoting Micro, Small, and Medium Enterprises
- Implementing the Right to Education Act
Select the correct answer using the codes given below:
(a) 1 only
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1, 2 and 3
Answer: D
