Micro & Small Enterprises Cluster Development Programme (MSE-CDP)
Context
The Indian economy thrives through the means of enterprise creation as one of the prime movers of the economy.
In this direction, the “Make in India and Made in India” movement is integral to entrepreneurship development across the country.
Key points
- Therefore, Micro, Small and Medium Enterprises (MSMEs) play a vital role in strengthening the Indian economy.
- MSMEs have been contributing to spreading entrepreneurial culture through business innovations.
- Unique feature of MSMEs is that they are widely dispersed across sectors of the economy producing a diverse range of products and services to meet local as well as global markets.
- Needless to mention that the contribution of MSME is 8 per cent of GDP, 45 per cent of manufacturing output and 40 per cent of exports of the country and uniquely they are least investment-driven with high returns.
- Employment creation is next to agriculture, thus MSME sector has the potential to tap individuals to associate with economic activities by way of self-employment.
MSME definition
The Government of India enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 in terms which the definition of micro, small and medium enterprises as Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
- A micro-enterprise, where the investment in Plant and Machinery or Equipment does not exceed one crore rupees and turnover does not exceed five crore rupees.
- A small enterprise, where the investment in Plant and Machinery or Equipment does not exceed ten crore rupees and turnover does not exceed fifty crore rupees.
- A medium enterprise, where the investment in Plant and Machinery or Equipment does not exceed fifty crore rupees and turnover does not exceed two hundred and fifty crore rupees.
Significance of MSMEs
Employment Generation
MSMEs are the second largest employer after the agriculture sector, giving employment to about 11 crore people with low capital and technology requirements.
Boost GDP and Exports
They account for almost 30% of the country’s GDP and half of the country’s exports come from products and services within this sector.
The Ministry of MSME has set a target to increase its contribution to GDP to 50% by 2025 as India becomes a USD 5 trillion economy.
Promotion of Industries and Innovation
They help in the promotion of industrial development in rural areas, capacity building, local resource mobilization and also an opportunity for budding entrepreneurs to build creative products.
Inclusive Society
They create an inclusive and sustainable society through the creation of non-farm livelihood. They promote balanced regional development, and gender equity and create opportunities for people to use banking services and products.
Considering the above points, they are called the ‘Growth Engine of the Nation’.
Challenges faced by MSMEs
Mounting NPAs of MSMEs
According to the RBI, bad loans of MSMEs now account for 9.6 per cent of gross advances of Rs 17.33 lakh crore as against 8.2 per cent in 2020.
Non-availability/Delays of Funds
Mounting losses and debts, non-availability of proper financial help and delays from the government, reluctance from the banks for the funding, etc.
MSMEs in India typically rely on NBFCs for their financing needs, which in itself has been enduring a liquidity crunch.
Lack of Infrastructure and Technology
Poor quality of power with unscheduled cuts, no substations, no proper roads, no effective stormwater drainage, and inadequate sewage treatment plants and transport facilities.
Most of India’s MSME sector is based on outdated technology, which hampers its production efficiency.
Poor quality of power with unscheduled cuts, no substations, no proper roads, no effective stormwater drainage, inadequate sewage treatment plants and transport facilities.
Most of India’s MSME sector is based on outdated technology, which hampers its production efficiency.
Lack of Formalisation
Almost 86% of the manufacturing MSMEs operating in the country are unregistered.
Out of the 6.3 crore MSMEs, only about 1.1 crores are registered with the Goods and Services Tax (GST) regime and the number of income tax filers is even less.
As a result, Indian MSMEs’ credit requirement has been largely unmet due to limited availability and access to data and legacy underwriting methods.
Red-Tapism
As the MSMEs require various approvals, the entrepreneurs have to run around various government departments for getting construction permits, enforcing contracts, pay taxes, start a business and trading across borders.
These lengthy and time taking processes, regulatory risks and policy uncertainty shake the investor’s confidence.
Issues with Manpower and Scale
There is a huge shortage of labour and also identifying candidates through skill development initiatives is a challenge.
The majority of the firms in MSMEs are micro-enterprises and scaling them up is a problem, especially when fund access is challenging.
Hampered Productivity
These issues hamper the productivity of small firms which is already very low relative to larger firms, which deters employment generation and dynamism in Indian manufacturing.
New Emerging Concerns
Significant signs of a slowdown due to Covid-19 (on the demand side) and structural reforms like GST rollout and demonetisation (on the supply side), which also had adverse effects on the MSME sector.
Initiatives by the Government
- The Ministry of MSME has been consistently enunciating policies resulting in enabling schemes and programmes for enhancing the competitiveness of enterprises.
- To revive activity, the RBI and the government introduced several measures including the Emergency Credit Line Guarantee Scheme (ECLGS) which provided Rs 3 lakh crore of unsecured loans to MSMEs and businesses.
- The RBI also extended the scheme of one-time restructuring of loans to MSMEs without an asset classification downgrade and permitted bank lending to NBFCs for on-lending to agriculture, MSMEs and housing to be classified as priority sector lending (PSL).
- The announcement of the stimulus package focused on the MSME sector under Atmanirbhar Bharat Abhiyan.
- Credit guarantee of Rs. 3 lakh crore, the revised definition for better means of identifying MSMEs, creation of a fund with a corpus of Rs. 50,000 crores for MSMEs, ReStart programme of Andhra Pradesh, Smart Industrial Village Policy, Promoting “Swadeshi” Ideology via Policy and Strategy Drafting and Safe Trade Policy.
- ASPIRE scheme, Credit Guarantee Scheme, Credit Linked Capital Subsidy Scheme (CLCSS), Zero Defect Zero Effect model, etc.
- The Government has approved the New Guidelines of the Micro & Small Enterprises Cluster Development Programme (MSE-CDP), which will be implemented during the 15th Finance Commission Cycle(2021-22 to 2025-26).
The scheme aims at enhancing the competitiveness and productivity of Micro & Small Enterprises by undertaking interventions such as:
Common Facility Centers (CFCs)
The central government grant will be restricted to 70% of the cost of the project from Rs. 5.00 crore to Rs. 10.00 crore and 60% of the cost of the project from Rs. 10.00 crore to Rs. 30.00 crore.
Infrastructure Development
The central government grant will be restricted to 60% of the cost of the project from Rs. 5.00 crore to Rs. 15.00 crore for the setting up of a new Industrial Estate / Flatted Factory Complex and the grant will be 50% of the cost of the project from Rs. 5.00 crore to Rs. 10.00 crore for up-gradation of existing Industrial Estate / Flatted Factory Complex.
Way Forward
- Form a conducive environment in which the government should control/regulate/support Micro and Small Enterprises from huge raw material price increases and also safeguard the interest of exporters.
- New infrastructure and development of the existing one with support to investments and provisions of other amenities like water supply, electricity, etc.
- Government should create an independent regulatory body which can advise and provide consultancy to MSMEs.
- Labor laws should try to maintain a balance between providing a growth-oriented framework for MSMEs and providing sufficient protection for the rights of workers.
- The sector should be incorporated with the new and emerging technologies like Artificial Intelligence, Data Analytics, Robotics and related technologies (collectively called Industry Revolution 4.0) for organized large-scale manufacturing.
Newslink- PIB
References- NCERT; IGNOU; Ministry of MSME; NITI Aayog
