MICRO SMALL MEDIUM ENTERPRISES (MSME)
The definition of MSME varies from country to country. In India, an MSME is defined as a business with:
- Micro enterprise: Up to 10 employees and an investment of up to INR 1 crore (approximately USD 130,000)
- Small enterprise: Up to 50 employees and an investment of up to INR 10 crore (approximately USD 1.3 million)
- Medium enterprise: Up to 200 employees and an investment of up to INR 50 crore (approximately USD 6.5 million)
The importance of MSMEs in an economy includes:
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Employment Generation: MSMEs are significant contributors to employment, especially in economies with limited opportunities for large-scale industrial employment.
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Local Economic Development: MSMEs often operate at a local level, contributing to the development of local communities and economies.
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Innovation and Entrepreneurship: Many innovative ideas and entrepreneurial ventures start as MSMEs. They have the flexibility to adapt quickly to changing market demands and experiment with new business models.
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Diversity and Resilience: A diverse ecosystem of MSMEs can contribute to a more resilient economy by reducing dependence on a few large corporations.
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Contributions to GDP: The combined contributions of MSMEs to a country's Gross Domestic Product (GDP) can be significant, even if individual businesses are relatively small.
The new criteria for the classification of micro, small and medium enterprises (MSMEs) in India was notified by the Ministry of Micro, Small and Medium Enterprises (MSME) on June 1, 2020. The new criteria are based on the investment in plant and machinery or equipment and the annual turnover of the enterprise.
The following are the new criteria for the classification of MSMEs:
- Micro enterprise: An enterprise with:
- Investment in plant and machinery or equipment not more than Rs.1 crore (approximately USD 130,000)
- Annual turnover not more than Rs. 5 crore (approximately USD 650,000)
- Small enterprise: An enterprise with:
- Investment in plant and machinery or equipment not more than Rs.10 crore (approximately USD 1.3 million)
- Annual turnover not more than Rs. 50 crore (approximately USD 6.5 million)
- Medium enterprise: An enterprise with:
- Investment in plant and machinery or equipment not more than Rs.50 crore (approximately USD 6.5 million)
- Annual turnover not more than Rs. 250 crore (approximately USD 3.25 million)
Micro, small, and medium enterprises (MSMEs) play a vital role in the Indian economy, accounting for over 90% of all enterprises and employing over 40% of the workforce. However, MSMEs face a number of challenges, including:
- Access to finance: MSMEs often find it difficult to obtain loans from banks and other financial institutions due to their lack of collateral and track record. This can make it difficult for them to expand their businesses or invest in new technologies.
- Lack of skills: MSMEs often lack the skills and knowledge needed to compete in the global market. This can make it difficult for them to develop new products and services, or to adopt new technologies.
- Competition from large businesses: MSMEs often face competition from large businesses, which have more resources and economies of scale. This can make it difficult for MSMEs to compete on price or quality.
- Bureaucracy: MSMEs often face a number of bureaucratic hurdles, such as obtaining licenses and permits. This can be time-consuming and costly, and can discourage entrepreneurs from starting or expanding their businesses.
- Infrastructure constraints: MSMEs often face infrastructure constraints, such as poor roads and electricity supply. This can make it difficult for them to transport their goods and services, or to operate their businesses efficiently.
- Unstable government policies: MSMEs are often affected by unstable government policies, such as changes in tax rates or import duties. This can make it difficult for them to plan for the future and make investment decisions.
Here are some of the prominent schemes and programs for MSMEs by the Union Government of India:
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Micro Units Development and Refinance Agency (MUDRA) Yojana:
- MUDRA Yojana aims to provide financial support to small and micro enterprises by offering loans through various financial institutions. It consists of three categories: Shishu, Kishor, and Tarun, based on the loan amount.
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Pradhan Mantri Mudra Yojana (PMMY):
- PMMY is a scheme to provide financial assistance for the establishment, expansion, and modernization of MSMEs. It offers loans without collateral security up to a certain limit.
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Credit Linked Capital Subsidy Scheme (CLCSS):
- CLCSS provides capital subsidy to MSMEs for technology upgradation, modernization, and replacement of their plant and machinery to improve competitiveness.
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Zero Defect Zero Effect (ZED) Certification Scheme:
- ZED certification encourages MSMEs to adopt best practices and quality standards to enhance product quality while minimizing environmental impact.
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Make in India Initiative:
- The Make in India campaign encourages domestic and foreign companies to manufacture products in India, fostering the growth of the manufacturing sector and MSMEs.
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Stand Up India Scheme:
- This scheme aims to promote entrepreneurship among women and Scheduled Caste/Scheduled Tribe communities by providing loans for starting new enterprises.
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Technology Upgradation Support for MSMEs (TEQUP):
- TEQUP focuses on supporting MSMEs in adopting modern technology and upgrading their production processes to improve quality and competitiveness.
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National Manufacturing Competitiveness Programme (NMCP):
- NMCP includes various components such as Lean Manufacturing Competitiveness Scheme, Design Clinic Scheme, and more, aimed at enhancing the competitiveness of the manufacturing sector, including MSMEs.
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Entrepreneurial and Managerial Development of SMEs (EMD-SME):
- EMD-SME focuses on providing training, capacity-building, and skill development to entrepreneurs and managers of MSMEs.
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Skill India Initiative:
- While not exclusively for MSMEs, the Skill India program aims to provide skill training to individuals, including those in the MSME sector, to improve employability and entrepreneurship.
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Export Promotion Capital Goods (EPCG) Scheme:
- The EPCG scheme allows MSMEs to import capital goods for the purpose of upgrading technology and enhancing export competitiveness with certain duty benefits.
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Udyog Aadhaar Registration:
- The Udyog Aadhaar registration process simplifies the process of registering and obtaining various benefits for MSMEs, such as easier access to credit and government schemes.
Previous year Questions1. Consider the following statements with reference to India: (UPSC 2023)
1. According to the 'Micro, Small and Medium Enterprises Development (MSMED) Act, 2006', the 'medium enterprises' are those with investments in plant and machinery between Rs. 15 crore and Rs. 25 crore.
2. All bank loans to the Micro, Small, and Medium Enterprises qualify under the priority sector.
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both 1 and 2
D. Neither 1 nor 2
Answer: B
2. Which of the following can aid in furthering the Government's objective of inclusive growth? (UPSC 2011)
1. Promoting Self-Help Groups
2. Promoting Micro, Small and Medium Enterprises
3. 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
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