International Micro, Small and Medium Enterprises Day - Role of MSMEs in Economic Development of India

The International Finance Corporation (IFC) estimates that 65 million firms, or 40% of formal micro, small and medium enterprises (MSMEs) in developing countries, have an unmet financing need of $5.2 trillion every year, which is equivalent to 1.4 times the current level of the global MSME lending. East Asia and Pacific accounts for the largest share (46%) of the total global finance gap and is followed by Latin America and the Caribbean (23%) and Europe and Central Asia (15%). The gap volume varies considerably from region to region. Latin America and the Caribbean and the Middle East and North Africa regions, in particular, have the highest proportion of the finance gap compared to potential demand, measured at 87% and 88%, respectively. About half of formal SMEs don’t have access to formal credit. The financing gap is even larger when micro and informal enterprises are taken into account.

Hence it is not surprising that 74th plenary meeting of United Nations General Assembly (UNGA) held, on 6th April 2017, a resolution numbering A/RES/71/279 was introduced by delegation of Argentina and was co-sponsored by 54 member states which was adopted without vote by 193 members of UNGA. Accordingly it was decided that 27th June be observed as Micro, Small and Medium-sized Enterprises (MSMEs) Day so as to recognize importance of MSMEs in achieving sustainable development goals (SDG’s) and for promoting innovation, creativity and sustainable work for all. The resolution also recognized the need to improve access to microfinance and credit for small business and MSMEs.

ROLE OF MSMEs IN ECONOMIC DEVELOPMENT OF INDIA

Since independence our country is facing two major challenges, rising unemployment (which is more prominent in rural areas) and consequent migration of labour from under developed areas to developed areas causing socio economic and political tensions. The stark reality became more visible during the Covid Pandemic when due to closure of industrial activities these workers faced hardship while returning to their native places. The rural economy is predominantly dependent on agriculture but due to its low productivity and lack of modernisation it is unable to provide employment to rural unemployed. In spite of best efforts by the present government to double the farmer’s income during last couple of years, it will take much longer time to offer employment to rural youths in agriculture/rural sector. The share of agriculture in GDP increased to 19.9% in 2020-21 from 17.8% in 2019-20. The last time the highest contribution of the agriculture sector in GDP was at 20% in 2003-04. However it is now accepted fact that development of agriculture alone will not resolve the rural distress. The post liberalisation euphoria which propagated that large scale industrialisation will lead to economic growth and provide employment opportunities seem to be waning and hence the emphasis on growth with employment generation is gaining momentum. The numbers of solutions are offered to address the issue but fortunately it is unanimously accepted by all now that the revival and development of Micro, Small & Medium Enterprises (MSMEs) can only address these issues.

The announcement by the Prime Minister to achieve an ambitious target of Five Trillion Dollar Economy has rekindled the debate. Even though in the aftermath of Covid Pandemic and ongoing Russia-Ukrain crisis it may require readjustment of time line to achieve the target but the recent launch of “Atmanirbhar Bharat Programme” and “Vocal for Local” initiative are certainly a step in the right direction.

As per latest Udyam Registration Data available on the site of Ministry of MSME there are total 92,45,105 MSMEs as on 24.06.2022 out of which 88,32,263 are Micro 3,75,769 are Small and 37,073 Medium Enterprises. However most comprehensive data is available as per the National Sample Survey (NSS) 73rd round, conducted by National Sample Survey Office, Ministry of Statistics & Programme Implementation during the period 2015-16. As per NSS there were 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities (196.65 lakh in Manufacturing, 230.35 lakh in Trade and 206.85 lakh in other services. Micro sector with 630.52 lakh estimated enterprises accounts for more than 99% of total estimated number of MSMEs. Small sector with 3.31 lakh and Medium sector with 0.05 lakh estimated MSMEs accounted for 0.52% and 0.01% of total estimated MSMEs, respectively. Out of 633.88 estimated number of MSMEs, 324.88 lakh MSMEs (51.25%) are in rural area and 309 lakh MSMEs (48.75%) are in the urban areas.

Contribution to GDP-Share of MSME Gross Value Added (GVA) in All India Gross Domestic Product at current prices (2011-12) for the year 2018-19 and 2019-20 were 30.5% and 30.0% respectively. The share of the MSME manufacturing in All India manufacturing gross value output during the year 2018-19 and 2019-20 were 36.9% and 36.9% respectively. The share of export of specified MSME related products to All India exports during 2019-20 and 2020-21 was 49.8% and 49.5% respectively.

Hence MSMEs are rightly called as Growth Engine of the Indian Economy. The government has set a target to increase their contribution to GDP to 50%, Exports’ contribution from the current level 49.5% to 75% while employment to 15 crore from present 12 crore, by the year 2025 as India dreams to become a $5 trillion economy by that time.

Employment Generation- As per the said NSS conducted during the period 2015-16, MSME sector has been creating 11.10 crore jobs in the rural and the urban areas across the country. Micro sector with 630.52 lakh estimated enterprises provided employment to 1076.19 lakh persons that in turn accounts for around 97% of total employment in the sector. Small sector with 3.31 lakh and Medium sector with 0.05 lakh estimated MSMEs provided employment to 31.95 lakh (2.88%) and 1.75 lakh (0.16%)persons of total employment in MSME sector, respectively.

MSMEs are the second-largest employment generating sector after agriculture. Their capacity to generate employment is much more than large corporate if compared on the yardstick of investment to employment ratio. They promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society. During Covid Pandemic, the large-scale migration of workers to native places exposed the myth that urbanisation will solve all problems. MSMEs are the only ray of hope to address the issue of rising unemployment and social unrest. In a democratic structure no government can afford to ignore the aspirations of younger generation for gainful employment which otherwise may lead to socio political unrest in addition to economic recession.

The Covid pandemic has worsened the socio economic condition of the world in general and developing economies in particular. The ongoing Russia-Ukrain crisis has further deteriorated the situation and it is apprehended now that it will take at least a decade to overcome the situation. These factors have caused large scale unemployment, migration of labour, health related issues among poor masses. The resultant supply side constraints have resulted in highest inflation since last 40 years worsening the socio economic condition of the masses in general and poor people of developing economies in particular. The India is not insulated from these problems.

However timely and innovative response of Government with effective implementation of various schemes like providing food and other amenities to poor has limited the damage. But this cannot be a permanent solution as large scale migration of labour from industrial towns to their native places has exposed the myth of large scale industrialisation. It cannot be denied that large scale industries are playing a great role in our economy but their capacity to provide employment to ever growing population is limited.

The Origin of Indian MSMEs can be traced to prehistoric days. Historically Researchers found it amazing that without large scale industrialisation, India had the highest GDP growth rate in the world and perhaps that was one of the reasons for frequent invasions by foreigners. Indian MSMEs worked for the self sufficiency with spiritual growth of mankind. Mahatma Gandhi was firm believer of Rural and cottage industries. The theory of “Ekatm Manavvad” propagated by Pandit Dindayal Upadhay also vouched for the same. The concept of “Atmnirbhar Bharat” and “Vocal for Local” implemented by Shri Modiji also underlines the role of MSMEs.

As we are determined to achieve the target of 5 trillion dollar economy, Indian MSMEs are making great contribution to achieve this target. Hence there is an urgent need to strengthen MSMEs by providing them a level playing field. Celebrating International Micro, Small and Medium enterprises day will be fruitful if we can sensitise all stakeholders to develop a conducive ecosystem for the rapid growth of MSMEs in India.