ECONOMICS PROJECT

MICRO AND SMALL SCALE INDUSTRIES

PARISHRUT | CLASS-XII-C | ROLL NO-12

Introduction
India is predominantly an agricultural country. Apart from
agriculture, small scale & large scale industries have been also
developed. Small scale industries are the backbone of our
industrial structure as they provide a variety of non-traditional,
low technology products.
They are also engaged in the processing, preserving,
manufacturing & servicing activities and play a vital role in
balanced and sustainable economic growth. Thus, a proper
development of small scale industries is essential for the healthy
growth of economy.
The primary object of developing small scale industries in rural
areas is to generate better employment opportunities, raise
income levels & standards of living of people. Small scale
industries are essential for providing subsidiary or alternate
occupations and utilization of local labour & raw materials.
They facilitate an effective mobilization of resources of capital
and skill and also stimulate the growth of industrial
entrepreneurship.
Ministry of Micro Small & Medium Enterprises Contributes
Nearly 8% in GDP, 40% in manufacturing output & 45% in
Exports.
They are the nursery for entrepreneurship and innovation
Thus, the development of small scale industries is an integral
part of the overall economic, social and industrial development
of a country.

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EMERGENCE OF MSME
1948-1991: In all the Policy Resolutions from 1948 to 1991, recognition
was given to the micro and small enterprises, termed as an effective
tool to expand employment opportunities, help ensure equitable
distribution of the national income and facilitate effective
mobilization of private sector resources of capital and skills. The
Micro, Small and Medium Enterprises Development Organization
[earlier known as Small Industries Development Organization
(SIDO)] was set up in 1954 as an apex body for sustained and
organized growth of micro, small and medium enterprises.

1991-1999: The new Policy for Small, Tiny and Village Enterprises of
August, 1991 laid the framework for government support in the
context of liberalization, which sought to replace protection with
competitiveness to infuse more vitality and growth to MSEs in the
face of foreign competition and open market. Supportive measures
concentrated on improving infrastructure, technology and quality.
Testing Centers were set up for quality certification and new Tool
Rooms as well as Sub-contracting Exchanges were established. The
Small Industries Development Bank of India (SIDBI) and a
Technology Development and Modernization Fund were created to
accelerate finance and technical services to the sector
1999 onwards: The Ministry of MSME [earlier known as Ministry of
Small Scale Industries and Agro & Rural Industries (SSI & ARI)] came
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into being from 1999 to provide focused attention to the
development and promotion of the sector.

PRESENT POLICY FRAMEWORK AND FOCUS AREAS

The Micro, Small and Medium Enterprises Development (MSMED)
Act, 2006 seeks to facilitate the development of these enterprises as
also enhance their competitiveness. It provides the first-ever legal
framework for recognition of the concept of enterprise which
comprises both manufacturing and service entities. It defines
medium enterprises for the first time and seeks to integrate the three
tiers of these enterprises, namely, micro, small and medium. The Act
also provides for a statutory consultative mechanism at the national
level with balanced representation of all sections of stakeholders,
particularly the three classes of enterprises; and with a wide range of
advisory functions. Establishment of specific Funds for the
promotion, development and enhancing competitiveness of these
enterprises, notification of schemes/programs for this purpose,
progressive credit policies and practices, preference in Government
procurement to products and services of the micro and small
enterprises, more effective mechanisms for mitigating the problems
of delayed payments to micro and small enterprises and assurance of
a scheme for easing the closure of business by these enterprises are
some of the other features of the Act.

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PAGE 4
Overview of MSME

MICRO ENTERPRISES
Micro enterprise generally refers to a small business employing
10 people or less
It is an enterprise in which investments in plant and machinery
is between 5lakh to 25 lakh.
These enterprises works and operates not by choice but out of
necessity
Mainly prevalent in village areas as a side business along with
agriculture
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SMALL ENTERPRISES
Small enterprise generally refers to a business employing 50
persons or less
It is an enterprise in which investments in plant and machinery
is between 25 lakh to 5 crores.
These enterprise works and operates to earn a small amount of
profit.
MEADIUM ENTERPRISES
Medium enterprise refers to a business employing maximum to
250 employees
It is an enterprise in which investment in plant and machinery is
between 5 crores to 10 crores
These enterprises works and operates to earn a fair amount of
profits to increase their standard of living.

CHARACTERSTICS OF MSME
Low cost of production
High capacity to innovate exports
High employment generation
Reduction of regional imbalance
Greater flexibility

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PERFORMANCE AND CONTRIBUTION OF MSME
Available data from the Fourth All India Census of MSME in 2006-07,
indicate that around 60 % of these enterprises are based in rural areas of
the country and 45% of total manufacturing output is contributed by the
MSME sector. The share of MSME sector in the total exports of India is
about 40%. Statistics reveal that the number of such enterprises set-up,
employment generated and the investments made in the MSME sector
in India has shown an increasing trend over the years as evident from
Table 1

The contribution of MSME sector towards GDP and total manufacturing

output has been depicted in Table 2. It is clear that the share of service
sector MSMEs to the GDP has been increasing indicating robust growth
and changing nature of economy.

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Flow of credit or availability of finance from banking institutions is a
major factor contributing to the growth and success of MSMEs.
Available information on flow of credit to this sector indicates a
declining trend from 17.34% in 2010 to 10.20 % in 2013.The credit flow by
the Scheduled Commercial Banks to this sector in subsequent years has
however, shown an increased trend as depicted in Table-3

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EMPLOYEMENT IN MSME SECTOR

EMPLOYMENT
800 number in lakh695.40
person 732.24
695.38
700
595.66 626.34

600

500

400

300

200

100

0
2009-10 2010-11 2011-12 2012-13 2013-14

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 POTENTIAL FOR GROWTH
Micro, Small and Medium Enterprises have substantially contributed to
the economic development of our country. The MSME sector in India
occupies the second position next alone to agriculture in terms of
employment generation. This sector accounts for about 95% of the
industrial units, 45% of manufacturing output, 40% of exports total
exports of the country. MSMEs have greater opportunities to grow as
ancillary industries to unleash higher industrial growth. MSMEs being
less capital intensive and more employment-friendly have easier access
to raw materials, subsidies and other incentives under cluster programs.
The country has huge growth potential to create and enhance the
capacity of enterprises both in the manufacturing and service sector by
using the available resources. There are huge opportunities for the
MSMEs to grow as ancillary industries to unleash greater industrial
growth. Development of the sector is therefore extremely important as it
holds the key to inclusive growth and plays a pivotal role in holistic
development of the country.
The roadmap for MSME development should include a target for increase in
the share of their contribution from the present 8% to 15% by 2020, a
substantial increase in generation of employment avenues up to 50%, an
enhancement in MSME contribution in the key public and private industry
sector by meeting the growing domestic demand, indigenization and
important substitution and growth in foreign exports15.The recent Make in
India initiative by Government of India would make a substantial impact in
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the area of indigenization and would also attract sizable foreign investment.
Similarly, the Digital India programed offers huge opportunities to MSMEs
to participate in big way in the Information and Communication Technology
(ICT) sector.

ISSUES AND CHALLENGES

Despite the pivotal role and strategic importance in the context of industrial
development and economic growth of the country, the MSME sector
experiences several constraints and challenges. Several key issues remain to
be addressed properly and measures yet to be taken in the interest of
sustainable industrial development. The Committee on financial architecture
of MSME sector in their Report submitted in the February, 2015 have
identified some key issues16. These include; i)Equity as a source of financing
is underutilized and the prevalence of investment by venture capital and
angel investors is low, ii) MSMEs face the problem of delayed payments from
their buyers which adversely impacts their working capital as well as their
next cycle of production, iii) MSMEs lack adequate information about various
schemes and benefits available by the government, iv) Financial
institutions/Banks face challenges in credit risk assessment of MSMEs, v) The
utilization of the available credit guarantee and insurance schemes by banks
has been low.
Some of the major challenges confronted by these enterprises include; lack of
adequate credit and capital, poor and inadequate infrastructural facilities,
inadequate access and marketing linkages, technological obsolescence and
inadequate application of new technology, lack of skilled human resources,
dilatory and cumbersome regulatory practices for clearance and poor
adaptability to emerging international trends. This calls for the need for
strategic intervention to improve coordination and linkages between various
stake-holders including the Government , Industries and other
agencies/associations working in this field.

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