27th June is observed as International Micro, Small and Medium Enterprises (MSMEs) Day every year since 2017. It will be interesting to know the history and reason for celebration of this day.
According to report of the World Bank, Small and Medium Enterprises (SMEs) play a major role in particularly in developing economies. SMEs account for the majority of businesses worldwide and are important contributors to job creation and global economic development. They represent about 90% of businesses and more than 50% of employment worldwide. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. It is estimated that 600 million jobs will be needed by 2030 to absorb the growing global workforce, which makes SMEs development a high priority for many governments around the world. In emerging markets, more than 70% formal jobs are generated by SMEs.
However, lack of conducive ecosystem and access to finance from formal financial institutions are key constraint to SME growth. These are major obstacles faced by SMEs to grow their businesses in emerging markets and developing countries as they find it difficult to obtain bank loans as compared to large firms; instead, they rely on internal funds, or cash from friends and family, to launch and initially run their enterprises. 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.
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 on 6th April 2017, 74th plenary meeting of United Nations General Assembly (UNGA) 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 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 decreased to 18.3% in 2022-23 from 19% in 2021-22 and 20.3% in 2020-21 respectively. 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 with the launch of “Atmanirbhar Bharat Programme” and “Vocal for Local” initiatives are certainly steps in the right direction.
As per Udyam Registration Data available on the site of Ministry of MSME there are total 1,69,41,354 MSMEs as on 22.06.2023 out of which 1,63,35,285 are Micro 5,53,602 are Small and 52,467 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. Out of these 633.88 lakh, 630.52 lakh are Micro Ennterprises which 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 was 30.50%, 30.50% and 26.83% during 2018-19, 2019-20 and 2020-21 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 2018-19, 2019-20 and 2020-21 was 40.60 %, 49.8% and 49.5% respectively
Hence MSMEs are rightly called as Growth Engine of the Indian Economy. Government has set a target to increase their contribution to GDP to 50%, Exports’ contribution from the current level of 49.5% to 75% while employment to 15 crore from the 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 provided 11.10 crore jobs in the rural and urban areas across the country. The micro sector with 630.52 lakh enterprises provided employment to 1076.19 lakh persons in turn accounts for around 97% of total employment in the sector. Small sector with 3.31 lakh and the 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 the 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 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 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 Government has taken a number of recent initiatives to support MSMEs in the country, which inter alia include:
Rs. 5 lakh crore Collateral Free Automatic Loans for business, including MSMEs.
- Rs. 50,000 crore equity infusion through MSME Self-Reliant India Fund.
- New revised criteria for classification of MSMEs.
- No global tenders for procurement up to Rs. 200 crores.
- “Udyam Registration” for MSMEs, for Ease of Doing Business.
- Launching of an online Portal “Champions” in June, 2020 to cover many aspects of e-governance including grievance redress and handholding of MSMEs.
- Inclusion of Retail and Wholesale trades as MSMEs w.e.f. 02nd July, 2021.
- Non-tax benefits extended for 3 years in case of an upward change in status of MSMEs.
- The Gross Bank Credit to Micro and Small Enterprises and Medium enterprises has increased by 14% and 13.4% respectively from financial year 2022 to 2023.
- Deployment of Gross Bank Credit to MSMEs (Source RBI)
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.