SMALL INDUSTRIES
1. Context
Small-scale industries (SSIs) are privately or independently owned and operated businesses that produce goods or services on a small scale. They are characterized by lower investment requirements, fewer employees, and a smaller operational scale than other businesses in their industry. SSIs often serve local or niche markets and provide unique products or services that meet the needs of their communities
2. Micro Small Medium Enterprises (MSME)
Small-scale industries account for nearly 95% of all industrial units and are a crucial component of the nation's economic framework. Mahatma Gandhi emphasized the importance of cottage and small-scale industries for India's progress. As reported by the Ministry of Statistics and Programme Implementation (MoSPI), this sector provides employment to approximately 17.5 million people. Consequently, it plays a vital role in job creation. The sector encompasses a wide array of industries, including modern small-scale enterprises, unorganized traditional industries, and organized large and medium-sized businesses
| Classification of Industries |
| Classification/ Industry type | Micro | Small | Medium |
| Investment | Not more than Rs.1 crore | Not more than Rs.10 crore | Not more than Rs.50 crore |
| Annual Turnover | Not more than Rs. 5 crore | Not more than Rs. 50 crore | Not more than Rs. 250 crore |
3. Role of Small Industries in Indian Economy
- Expansion of Entrepreneurial Activities: The innovative approaches adopted by small industries have contributed to the growth of entrepreneurial ventures. This expansion has brought more economic sectors into the fold, offering a broader range of goods and services that cater to both domestic and international markets.
- Industrialization of Rural and Underdeveloped Areas: Small industries have helped reduce regional disparities, promoting a more equitable distribution of wealth and income throughout the nation.
- Employment Creation: Small industries are crucial to India's economic development, as they generate significant employment opportunities at a much lower capital investment compared to large-scale industries
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Village Small Industries (VSI)
The term "Village and Small Industry (VSI)" is commonly used to refer to unorganized traditional sectors and small-scale industries. The VSI sector is composed of seven sub-sectors: handicrafts, handlooms, Khadi and Village Industries, coir, sericulture, power looms, and small-scale industries
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4. Government Initiatives
- Prime Minister’s Employment Generation Programme (PMEGP): The aim of this program is to create employment opportunities by establishing new micro-enterprises, projects, and self-employment initiatives across rural and urban areas of the country. The Khadi and Village Industries Commission (KVIC) serves as the national nodal agency responsible for implementing the scheme, while its execution at the state level is managed by State KVIC offices, State Khadi and Village Industries Boards (KVIB), District Industries Centres (DIC), Coir Board (for coir-related activities), and Banks.
- Collateral-Free Credit Provision for MSMEs: Banks and other financial institutions, including NBFCs, are mandated to provide collateral-free credit to Micro and Small Enterprises. The scheme ensures that up to ₹5 crore (effective from April 1, 2023) per borrowing unit is covered for collateral-free credit facilities (term loans and/or working capital) extended to micro and small enterprises by eligible lending institutions.
- A Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE): The ASPIRE program has been approved for continuation from 2021-2022 to 2025-2026 with a budget allocation of ₹194.87 crore. Updated guidelines issued on January 28, 2022, focus on the following objectives:
- Reducing unemployment and generating jobs,
- Promoting an entrepreneurial culture in India,
- Encouraging innovation to enhance the competitiveness of the MSME sector.
- Entrepreneurship and Skill Development Programmes (ESDP): This program is designed to inspire youth from diverse social backgrounds, including women, SC/ST communities, disabled individuals, ex-servicemen, and those below the poverty line, to consider careers in self-employment or entrepreneurship.
- Scheme of Fund for Regeneration of Traditional Industries (SFURTI): The scheme aims to create competitive, sustainable employment opportunities for traditional industries and artisans by organizing them into clusters. It also seeks to enhance the marketability of products produced by these clusters, upgrade the skills of traditional artisans, provide better tools and equipment, strengthen cluster governance with active stakeholder participation, and foster innovative products, advanced technologies, processes, market intelligence, and new models of public-private partnerships.
- MSME Champions Scheme: This program, set to run from 2021-2022 to 2025-2026, is divided into three components:
- MSME-Sustainable (ZED) Certification Scheme
- MSME-Competitive (Lean) Scheme
- MSME-Innovative (for Incubation, IPR, and Design) Scheme
- Greening MSME: SIDBI has introduced the "Greening MSME" initiative, which offers financial assistance up to a maximum of ₹20 crore to MSMEs for adopting energy-efficient and environmentally sustainable technologies
5. Challenges
- Access to Finance: Access to funding is a major challenge for Indian MSMEs, with the total financing gap expected to reach $400 billion. While closing this gap will take time, targeted green finance initiatives in areas like waste management, electric vehicles, energy efficiency, and renewables can support MSME growth in these sectors.
- Interest Rates: The Central Government should lower interest rates and make consumer finance, housing loans, and vehicle loans more accessible to stimulate market demand.
- Climate Commitments and Transitioning to Low-Carbon: Small enterprises are limited to adhering to environmental regulations, while global supply chains increasingly shift to greener processes and products. There is currently no strategic plan to help MSMEs manage the risks associated with this transition.
- Unorganized Nature: Due to its fragmented structure and the predominance of micro-sized businesses, the MSME sector is one of the most vulnerable in the Indian economy. The COVID-19 pandemic has highlighted this vulnerability, with millions of MSMEs facing closure due to decreased demand caused by lockdowns.
- Green Transition of MSMEs: MSMEs are more exposed to policy and demand uncertainties, often with greater downside risks. Even if they recognize the benefits of going green, most lack the financial and technical capacity to invest in new initiatives. However, certain government programs can help address these barriers.
- Incentives and Penalties: Encouraging Small and Medium Enterprises (SMEs) to exceed mere compliance can be achieved by taxing negative externalities and offering subsidies or tax breaks for green investments. Updating environmental legislation should also consider the risks posed by different industries, and these policies should be assessed for their impact on MSMEs before widespread implementation
6. Way forward
MSMEs should embrace best practices like implementing low-energy strategies, adopting renewable energy sources, improving waste management, ensuring women's safety, and making timely wage payments.
Governments, business associations, civil society organizations, and other stakeholders can play a proactive role in promoting awareness, sharing best practices, and providing training and resources. Financial incentives, such as tax breaks, subsidies, grants, and low-interest loans, can be offered by governments and investors to encourage MSMEs to adopt sustainable practices or invest in sustainable technologies.
Larger companies can support MSMEs in adopting sustainable practices by offering training, technical support, and financial assistance
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For Prelims: Current events of national and international importance For Mains: GS III - Indian Economy |
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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Source: Indianexpress
