There are roughly 6.33 crore micro, small, and medium businesses in India (MSMEs). From 21.21 lakh units in 2019, the number of registered MSMEs increased by 18.5 per cent YoY to 25.13 lakh units in 2020. Microbusinesses account for 22.06 lakh registered MSMEs in 2020, up from 18.70 lakh in 2019, while small business units increased from 2.41 lakh to 2.95 lakh. During this time, the number of midsized firms climbed from 9,403 to 10,981 units.
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The MSME sector accounts for 6.11 per cent of manufacturing GDP and 24.63 per cent of service GDP, as well as 33.4 per cent of India’s manufacturing output. Over 120 million people are employed in the business across the country. Exports are an important part of the supply chain, accounting for 35-40% of total exports. They are also predicted to increase, implying a multiplier effect on the country’s economic growth. Despite obstacles such as poor digitalization, insufficient funding, bad infrastructure, digitalisation, scattered markets, a lack of compatible financial partners, and legislative clearances, the MSME sector continues to fuel India’s fortunes.
Micro enterprises in India are defined as companies with an investment of less than INR 1 crore (US$ 136,180) and a turnover of less than INR 5 crore (US$ 0.7 million), small enterprises are defined as companies with an investment of less than INR 10 crore (US$ 1.4 million) and a turnover of INR 50 crore (US$ 6.8 million), and large enterprises are defined as companies with an investment of less than INR 50 crore (US$ 6.8 million) and a turnover of less
The government is pushing for it.
With the coronavirus wreaking havoc on India’s economic growth, FDIs totalling INR 50-60 lakh crores (US$ 679–815 billion) is needed to boost liquidity and bring the country back on track. Infrastructure projects and the MSME sector can be used to get the funds. As part of its efforts to boost local manufacturing, the government has concentrated on the MSME sector.
To guarantee that MSMEs continue to lead the country toward economic prosperity, the government has launched a number of initiatives to aid the sector’s development. The government launched the ‘Atmanirbar Package,’ or the ‘Self-reliant India’ programme in May 2020, costing INR 20 lakh crore (US$ 266 billion) to enhance the country’s industrial growth.In addition, all Government of India offices and Central Public-Sector Enterprises (CPSEs) have been directed to clear all receivables within 45 days in order to boost MSMEs’ liquidity. Furthermore, government procurement tenders up to INR 200 crore (US$ 27.2 million) do not allow global bidding, which encourages domestic procurement. This move is intended to open doors for domestic businesses and boost the local economy.
The government created the ‘Champion site’ in May 2020 to help MSMEs with financing, raw materials, labour, and other issues. The platform also aims to assist MSMEs in tapping into new prospects such as medical items and accessory manufacturing, as well as identifying MSMEs with long-term growth potential.
The World Bank has awarded INR 5,600 crore (US$ 750 million) to the MSME sector as emergency response funding. This supplied liquidity and supported the government’s goal of channelling funds to MSMEs through non-banking financial companies (NBFCs) and small banks.
Access to credit
For quite some time, the MSME sector has been suffering from a credit shortage. To solve this issue, the government launched an emergency credit line for MSMEs, under which banks and financial institutions are suggested to approve loans to MSMEs worth up to INR 3 trillion (US$ 40.7 billion). In addition, the government has launched the Subordinate Lending Scheme, which provides promoters with a debt facility of up to 15% of the promoter contribution of INR 75 lakh (US$ 0.1 million), whichever is lesser, to aid MSMEs in obtaining equity capital. Banks will be able to fund the promoter’s contribution under this plan, and the funding will be confirmed by the government. In a word, this is a mechanism for the government to provide equity support without putting banks at risk. The promoter will then inject the money into the MSME unit as equity, increasing liquidity and keeping the debt-equity ratio low.
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Because many MSEs in India operate with old technology and machinery, the Credit-Linked Capital Subsidy Scheme (CLCSS) aims to encourage MSEs to modernise their technology by giving a 15 per cent capital subsidy. Another government programme, the Prime Minister’s Employment Generation Programme, aims to create jobs in rural and urban areas by establishing new self-employment ventures, projects, and micro-enterprises. The initiative also intends to give prospective craftsmen and jobless youngsters long-term work, boost artisans’ wage-earning potential, and contribute to the growth of rural and urban employment.