⁠THE ROLE OF MSMES IN BOOSTING THE INDIAN ECONOMY: CHALLENGES AND OPPORTUNITIES

Introduction

Medium, Small and Micro enterprises abbreviated as MSMEs and often referred to as Small Businesses in India are the backbone of the Indian economy. MSMEs and Small businesses have have a significant and remarkable impact on India’s economic development. MSME’s growth in an economy is a clear indication of a thriving and sustainable economy as they contribute significantly to not just GDP, exports, but also employment. 

Since India is one such place where small businesses and MSME’s dominate the economy, economic growth of the nation is inevitable. Hence, MSME’s growth in any economy is essential to its long term growth and development. However, MSME’s growth in any nation, especially in India, comes with its own set of MSME challenges and MSME opportunities. This article will delve deep into the various MSME challenges faced by small businesses in India and the opportunities which incentivise opening up a small business in India.

Entrepreneurship in India

India is experiencing an entrepreneurial drive with small businesses and MSME’s opening up in each part of the country right from metro cities to even the most remote and underdeveloped villages of the nation. Entrepreneurship in India is seeing a drastic rise thanks to the various government incentives, policies and opportunities in the market. This makes opening up a small business in India a great choice for any individual with entrepreneurial skills. 

With shows like Shark Tank India getting the unparalleled hype, viewership and popularity; the concept of entrepreneurship has seeped deep into the minds of the general public irrespective of their social or economic status. The scope of MSMEs growth is making entrepreneurship in India, a great option for the upcoming generation to pursue.

The Role of MSME’s Growth India’s Economic Development

The role of MSMEs or Small businesses in India’s Economic Development is extremely prevalent. One cannot deny the dominance that these MSMEs or small businesses play in boosting an economy, especially one like India where the job market is already over-saturated and population is at an all time high. This makes entrepreneurship a great option for individuals. Let’s discuss the Role of MSMEs / Small Businesses in India’s Economic Development in detail:

1. Employment Generation: One of the first and rather prominent outcome of MSMEs Growth in India’s Economic Development is that of Employment generation, simply called as job creation. With Indian population touching almost 140 crores, the government’s primary concern circles around employment generation for the world’s most populated country. This is where MSME’s play a significant role by generating job opportunities for people. As per McKinsey Global Institute report, MSMEs employee over 62% percent of India’s working population. More so, the jobs created by MSMEs is not restricted to Metro cities, rather the same is distributed throughout the territory of India by significantly covering rural & semi-urban areas which in turnreduces migration to metro cities and the problem of brain drain in the nation.
2. Contribution to GDP: The second most prominent outcome of Small Businesses in India’s Economic Development is that of its contribution to India’s GDP (Gross Domestic Product). With Prime Minister Narendra Modi’s vision of making India the third-largest economy in the world by 2030-31, the role of MSME growth becomes even more crucial as MSMEs contribute over 30% to India’s GDP. Thus MSMEs and Small businesses serve as the backbone of Indian economy with its yearly contribution to the country’s GDP having a steady and significant rise.
3. Enhancing Exports: It is not unknown to the public that Exports is perhaps the most effective and efficient manner to help an economy grow. MSMEs growth is precisely the answer to enhancing exports in India. As per government’s report, MSME’s contribute to 45.79% of India’s total exports. This is a significant number which is only bound to increase in the future. Thus, MSMEs growth also directly help India to strengthen its position in the global market
4. Encouraging Research, Development and Innovation:The fact that India’s is an extremely competitive market is not unknown to anyone. Hence, surviving in such competitive market acts as a MSMEs challenge. Small businesses can only overcome this challenge by investing more in research, development and Innovation. This in turn leads to Intellectual Property generation and the public getting better goods and services at competitive prices.
5. Rural Development and All round growth of the nation: GDP is not always the accurate indicator of a country’s strong economy since a significant contributor of GDP may come from large corporations and MNCs which are typically located in India’s First tier cities which leads to the rural and semi-urban areas of the nation being ignored. MSMEs and small businesses come as a saviour in this case. Since MSMEs and small businesses are not concentrated in the Metro cities, the development, economic and job opportunities can penetrate deeper into the relatively underdeveloped parts of the country.

The aforementioned as only few out of the innumerable benefits of MSME’s growth in a nation, especially for a nation like India.

MSME’s Growth Opportunities in India

India is one of the most diverse markets in the world with abundance of people of all sorts of likes, choices, purchasing power, preferences etc., existing in one single place. Recognising this , the government has introduced several schemes, initiatives and policies to help MSMEs grow. Some of such schemes, initiatives and policies introduced by the Indian government have been discussed hereinunder:

1. Government Schemes: One of the most popular initiatives taken by the government is that of introduction of the Government schemes such as Make in India scheme,PM Vishwakarma scheme,Self Reliant India Fund, Credit Guarantee Scheme, Raising and Accelerating MSME Performance (RAMP) etc.,thorough which the government has undertaken to decrease its reliance on Imports, empower MSMEs and help stabilize the Indian Economy. Under these schemes, the government has undertaken to incentivise MSMEs by providing to them low interest loans, subsidies, protection against delayed payments, easy credit facilities along with other financial, infrastructural support. This has significantly led to MSME growth in India.

2. Easy Loan/Credit Facilities: The Indian banks have been directed by the Indian government to provide cheap, low interest loans to MSMEs and Small Businesses in India to fuel MSME growth in the country. Further, the collateral requirements for businesses has also been eased to ensure the easy survival of MSMEs in today’s competitive market.

3. Reduction in Government Fees:The Indian Government has always taken proactive steps to provide subsidized prices for government services including fees for obtaining registrations, licences and certifications to MSMEs. This reduces their financial burden while ensuring that they stay legally compliant.

4. Low interest Loans: Through its plethora of schemes, funds and initiatives, the government has made sure that MSMEs be given loans at low interests. This also significantly reduces their financial burden and helps then stay afloat. Further, loan repayment conditions are much more relaxed for MSMEs. Small businesses in India are also legally protected against delayed payment in certain cases.

5. Tax Benefits: The government has extended tax benefits to Small businesses in India to ensure that they can reinvest their profits and revenue back into their businesses instead of getting caught up in tax obligations. Tax rates for MSMEs is thus, deliberately lowered.

6. Infrastructural Support: The government also provides infrastructural supports by making places like the Special Economic Zones (SEZs) wherein the government undertakes to provide infrastructural facilities, water, electricity etc., at subsidized rates to businesses which choose to open up at such paces.

7. Relaxed Legal Obligations: MSMEs in India have several exemptions from legal obligation like certain exemptions in labour laws and tax laws. This ensures that small businesses in India could focus on their businesses rather than being caught up in unnecessary legal compliance.

Key MSME Challenges in India

Although, the benefits of opening up Small business in India far outweigh the MSME Challenges, one still needs to consider them. One major challenge faced by MSME in India is that of competing with big players and corporations in the market. These big players have plethora of resources, opportunities as well as strong standing which helps them dominate the market. In such case entrance of MSMEs in the market becomes challenging.

Other key challenge faced by small businesses nationwide is the lack of capital, investments and other financial constraints. This financial constraints limit the scope of MSME growth, expansion and diversification stopping the MSME to operate at its full potential.

Further, although the compliances and other regulatory requirements have been significantly eased for MSMEs, still, the existing regulatory and compliance burden might be challenging to mitigate.

Furthermore, the constant Technological and infrastructure advancements are difficult to keep up with. MSMEs do not have money to invest in high-tech technology and this acts as a significant MSME Challenge.

All this adds up to make starting and running a MSME in India a challenging task.

Conclusion

India’s economic development relies on MSME’s Growth. Small Businesses in India are India’s answer to becoming world’s third largest economy. Thus, the government needs to take significant steps to boost entrepreneurship in India and help MSME to smoothly navigate its challenges. Entreprenurs also need to be educated regarding the government schemes and various benefits available to them as Small Businesses Owner in India. At the same time, the government should also increase education regarding entrepreneurship in school courses to plant the idea ofentrepreneurship in young Minds. Also, register your MSME with TMWala.

Reference: https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2035073