MSME

Definition & Classification

Type Investment in Plant & Machinery / Equipment (INR)
Micro Up to 1 crore (plant & machinery)
Small Above 1 crore and up to 10 crore
Mediu Above 10 crore and up to 50 crore
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Introduction

 According to the Ministry of MSME (2023), the sector contributes around 30% to India’s
GDP, 45% of exports, and employs over 120 million people. These figures highlight the
critical role MSMEs play in driving India’s economic growth and social equity.
 MSMEs are vital instruments of inclusive growth and social justice, aligning with the
Directive Principles under Article 43 of the Indian Constitution, which advocate for
promoting cottage industries in rural areas.
 The COVID-19 pandemic exposed the vulnerabilities of India’s MSME sector but also
underlined its resilience and economic significance. Strengthening MSMEs is now key to
achieving a sustainable and self-reliant economy.
 With initiatives like Atmanirbhar Bharat, the Indian government has recognized MSMEs as
the engines of self-reliant growth, aiming to enhance their global competitiveness and
financial sustainability through policy reforms and support systems.

Type Description Examples

Manufacturing Engage in the production of goods Textile units, furniture makers,
MSMEs (finished or semi-finished products). electronics manufacturing
Service MSMEs Provide services like transport, repair, Repair shops, hotels, BPOs,
hospitality, IT, etc. salons
Trading MSMEs Involved in buying and selling goods Grocery shops, e-commerce
(wholesale or retail). resellers, distributors

Significance
Area Significance Supporting Data
GDP Contribution Major driver of national ~30% of India’s GDP (Ministry
income of MSME, 2023)
Employment Generation Second-largest employer after ~120 million employed (2023)
agriculture
Export Contribution Key contributor to foreign ~45% of total exports
exchange earnings (especially textiles, leather,
gems)
Industrial Output Supports India’s ~40% of total manufacturing
manufacturing sector output
Inclusive Growth Promotes regional balance and ~50% of MSMEs are located in
rural industrialization rural areas
Entrepreneurship Encourages self-employment Large share of women- and
Development and first-generation SC/ST-led enterprises (Stand-Up
entrepreneurs India data)
Ancillary Support to Supplies components, tools, Integral to supply chains in
Industry and services to large industries automotive, pharma, textiles
Low Capital, High Generates high employment High labour-to-capital ratio vs
Employment per unit of investment large industries
Self-Reliant Economy Reduces import dependence, Digital MSME & PLI schemes
(Atmanirbhar Bharat) boosts Make in India agenda targeting MSME productivity

Useful Examples
Example Sector Significance
Amul (Gujarat) Dairy (Cooperative Started as a small cooperative; now a
MSME) global dairy brand supporting rural
livelihoods.
Lijjat Papad Food Processing Iconic women’s cooperative → provides
(Women-led) employment to over 45,000 women.
Khadi & Village Handloom & Rural Promotes Gandhian values, rural self-
Industries Manufacturing employment, and traditional skills.
FabIndia Textile & Retail Sourced from 55,000 rural artisans; scaled
Indian handicrafts globally.
Usha Silai School Skilling / Service Empowered over 15,000 women in rural
MSME India through sewing training and micro-
enterprises.
Agastya International Education / Promotes low-cost STEM education
Foundation (Karnataka) Innovation MSME through mobile labs → grassroots
innovation.
Tisser Artisans Handicrafts / E- Promotes tribal and folk art through
(Maharashtra) commerce MSME modern marketing & online platforms.
Biotech Startups (Kerala, Tech & Innovation Contributing to India’s bioeconomy,
Hyderabad) MSMEs supported by MSME and startup policies.

Challenges
Challenge Area Description Supporting Data
Credit Access Collateral and risk-averse banks 83% lack formal credit (IFC, 2022)
limit access
Delayed Affects liquidity and ₹20,000+ crore dues pending on
Payments sustainability Samadhaan (2023)
Tech & Digital Outdated machinery, low e- 70% tech obsolete; <15% fully digital
Gap commerce adoption (CII/MSME Ministry)
Compliance Complex tax and regulatory GST + 25+ other registrations for some
Load norms sectors
Skilling Deficit Untrained manpower lowers 80% workers lack formal skills (NSDC)
productivity
Infrastructure Weak roads, power, and 45% MSMEs in rural areas face infra
Gaps logistics in rural zones constraints
Market & Low global visibility, poor <5% export-ready (EPCH/NSIC)
Branding domestic reach
Informality Unregistered firms excluded 90%+ MSMEs still informal (Economic
from schemes Survey 2023)

Government Initiatives & Schemes

Initiative Description Example/Details
Prime Minister’s Employment Subsidy for new micro Subsidy 15-35% based
Generation Programme enterprises on area
(PMEGP)
Credit Guarantee Fund Scheme Collateral-free loans for Covers up to ₹2 crore
(CGTMSE) MSMEs loans
Udyam Registration Online MSME registration Simplifies registration &
replacing old system compliance
MSME Samadhaan Portal To address delayed payments Payment grievance
redressal
Technology Upgradation Fund Supports adoption of modern Helps MSMEs upgrade
tech machinery
Cluster Development Programme Improves competitiveness Boosts quality and
through shared infrastructure productivity
Stand Up India Loans for SC/ST and women Promotes inclusive
entrepreneurs entrepreneurship
Digital MSME Scheme Promotes digital literacy and e- Helps MSMEs go online
commerce adoption

Recent Data & Stats

 MSMEs contribute 29% to India’s GDP (Economic Survey 2023).

 Provide employment to approx. 120 million people.
 MSME exports were valued at $120 billion in 2023.
 Approx. 63 million MSMEs registered in India (as per Udyam Portal).
 COVID-19 Impact: Nearly 25-30% MSMEs faced shutdown during lockdowns.
 Only 16% of MSMEs access formal credit (IFC).
 MSMEs contribute 45% to exports
 90%+ MSMEs are still informal (Economic Survey 2023).
 Way Forward

Area Recommendations
Access to Finance ✔ Expand formal credit via digital lending, fintech partnerships.
✔ Increase reach of CGTMSE (Credit Guarantee Scheme).
✔ Implement TReDS platform for invoice financing effectively.
Timely Payments ✔ Strict enforcement of 45-day payment rule under MSME
Development Act, 2006.
✔ Strengthen MSME Samadhaan Portal to fast-track grievance
redressal.
Technology Adoption ✔ Promote Industry 4.0 tools via Credit Linked Capital Subsidy
Scheme (CLCSS).
✔ Expand Digital MSME Scheme for wider outreach.
Ease of Doing Business ✔ Simplify compliance norms (GST, labor laws).
✔ Promote single-window clearances and self-declaration
mechanisms.
Skill Development ✔ Align MSME needs with Skill India Mission.
✔ Promote industry–academia–ITIs linkages.
Market Access ✔ Enhance export potential through ZED certification, E-
commerce onboarding.
✔ Strengthen GeM (Government e-Marketplace) participation.
Formalization ✔ Promote Udyam registration through incentives.
✔ Link informal MSMEs to formal schemes (insurance, credit,
digital payments).
Cluster Development ✔ Upgrade common facility centers under MSE-CDP (Cluster
Development Programme).
Green & Sustainable ✔ Incentivize adoption of clean energy and sustainable practices.
MSMEs ✔ Integrate MSMEs into circular economy models.
Public-Private ✔ Leverage CSR and corporate mentorship to build innovation
Partnerships ecosystems for MSMEs.

Conclusion

In the era of Atmanirbhar Bharat, MSMEs are pivotal to reducing import dependence, boosting
exports, and creating local employment. Empowering them is key to building a resilient and self-
sustaining Indian economy.

With over 63 million enterprises, contributing 30% to GDP and employing 120 million people,
the MSME sector cannot be sidelined. A robust ecosystem for MSMEs is not a choice but a
necessity for inclusive and sustained economic growth.