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MSME Sector in India

2024 MAY 9

Mains   > Economic Development   >   Indian Economy and issues   >   MSMEs


GS 3 >> Indian Economy >> MSMEs


The MSME sector is a crucial pillar of India's economy, encouraging entrepreneurship and generating substantial employment opportunities with minimal capital expenditure. However, despite its significant contributions, the MSME sector faces several hurdles, such as securing financial resources, embracing technological advancements, and competing in international markets.


  • MSME stands for Micro, Small and Medium Enterprises.
  • MSMEs are businesses that produce, process, and preserve goods and commodities. These are broadly classified based on their investment in plant and machinery for manufacturing or equipment for service enterprises, as well as their annual turnover.
  • In 2007, the Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries merged to form the Ministry of Micro, Small, and Medium Enterprises.
  • This ministry develops policies, facilitates programs, and monitors implementation to support MSMEs and aid in their growth.
  • The Micro, Small, and Medium Enterprises Development Act of 2006 addresses various issues affecting MSMEs, establishes a National Board for MSMEs, defines the concept of "enterprise," and empowers the Central Government to enhance MSME competitiveness.
An Outlook on the New Structure of MSME Classification - Corpbiz


  • Contribution to GDP and Job Creation: MSMEs are instrumental in India's economic engine, contributing about 30% to the Gross Domestic Product (GDP). This sector is vital for economic advancement. Moreover, MSMEs are major employment generators, providing jobs to over 110 million people across various industries. For example, the textile sector, predominantly made up of small-scale units, is a significant employer in activities such as spinning, weaving, and garment production.
  • Impact on Manufacturing Output: MSMEs make a substantial contribution to the national manufacturing output, especially in industries like food processing, engineering, and chemicals. Take, for instance, the Agra footwear industry, largely made up of MSMEs, which contributes 28% to India's total footwear exports.
  • Enhancement of Exports: MSMEs account for nearly 45% of India’s total exports, strengthening India's position in global markets with a diverse range of products often tailored for niche markets. The Indian handicraft sector, dominated by small-scale artisans, notably impacts the international market and brings significant export earnings to the country.
  • Promotion of Rural Industrialization: MSMEs are crucial in driving industrialization in rural areas and fostering inclusive economic growth. The Khadi and Village industries, consisting of small-scale units, play a significant role in creating employment opportunities in rural areas and empowering local communities.
  • Cultivation of Innovation and Entrepreneurship: The MSME sector encourages innovation and entrepreneurship, as smaller businesses can typically adapt more swiftly to market changes and introduce innovative products or services. For example, India's thriving startup ecosystem, largely fuelled by MSMEs, has spurred numerous innovative ventures in areas like e-commerce and fintech.


  • Financial Accessibility Issues: Despite initiatives like Mudra loans, MSMEs continue to face significant challenges in securing financing. Traditional banks often view them as high-risk due to their limited credit histories and lack of collateral, hindering their capacity for expansion, innovation, and managing operational costs.
  • Payment Delays: A critical obstacle for MSMEs is the delayed receipt of payments from larger corporations or government entities. These delays can severely impact their cash flow and working capital, compromising their operational efficiency and threatening their sustainability.
  • Workforce Skill Gaps: Many MSMEs encounter difficulties in recruiting adequately skilled employees capable of operating advanced machinery or adopting new technologies. This shortage can cause operational inefficiencies, production setbacks, and diminished product quality.
  • Challenges in Branding and Market Reach: MSMEs often struggle with limited resources and expertise in marketing their products and establishing brand recognition. This restricts their ability to compete with larger entities and well-known brands, particularly in the digital marketplace.
  • Infrastructure Deficiencies: Poor infrastructure, such as inadequate road connectivity, unreliable power supply, and limited access to modern facilities, poses substantial barriers to the operation and growth of MSMEs. For example, a small food processing unit in a rural area might face difficulties in transporting products due to poor roads or experience frequent production interruptions due to unstable electricity.


  1. Pradhan Mantri MUDRA Yojana (PMMY): Provides loans up to 10 lakh to non-corporate, non-farm small/micro enterprises to promote entrepreneurship.
  2. Credit Guarantee Schemes (CGTMSE): Offers collateral-free credit for MSMEs through a trust that guarantees loans given by financial institutions.
  3. MSME SAMADHAAN: A portal to address the issue of delayed payments to MSMEs by facilitating the filing of complaints against defaulters.
  4. Government e-Marketplace (GeM): An online platform for procurement of goods and services by government departments, organizations, and PSUs.
  5. Udyam Registration: A government registration portal that provides a unique identity number and certificate to help MSMEs access benefits and support.
  6. CHAMPIONS Portal: A technology-driven initiative to assist Indian MSMEs by solving their grievances, and encouraging, supporting, helping, and handholding efforts.


  • Creation of MSME Innovation Hubs: The establishment of MSME innovation hubs, either physically or virtually, can offer pivotal support by connecting small and medium enterprises with industry experts, researchers, and mentors. These hubs are designed to facilitate the exchange of knowledge, co-create innovative products, and provide access to cutting-edge technologies and design expertise. For example, an MSME specializing in apparel could work alongside a design expert within the hub to develop a distinctive clothing line, thereby promoting innovation and differentiation in the marketplace.
  • Implementation of Blockchain-Powered Smart Contracts: Utilizing blockchain technology for smart contracts could fundamentally transform the payment processes for MSMEs. Developing a blockchain-based platform would ensure secure, transparent transactions between MSMEs and their clients, including larger enterprises and government entities, thus streamlining the payment cycle.
  • AI-Enhanced Mentorship Programs: Introducing AI-powered mentorship programs can offer MSMEs tailored advice and guidance, utilizing specific industry data and insights. This approach can particularly benefit MSMEs in remote areas by providing them access to crucial mentorship resources.
  • Adopting Digital Transformation: To stay competitive in the digital era, MSMEs need to integrate technology into their operations. This could include engaging with e-commerce platforms, adopting digital marketing strategies, and implementing operational automation and digitization. Supporting initiatives such as upskilling programs, digital literacy campaigns, and incentives for technology adoption will facilitate this essential transformation.
  • Promoting Sustainable Entrepreneurship: Encouraging MSMEs to adopt sustainable and socially responsible business practices can have a beneficial impact on both the environment and society. This strategy might involve promoting eco-friendly production techniques, supporting green entrepreneurial endeavors, and offering incentives for using renewable energy sources.
  • Expanding Into Global Markets: In the context of increasing globalization, it is crucial for MSMEs to be prepared to enter international markets. Programs that promote exports, international trade facilitation centers, and mentorship from experienced exporters can equip MSMEs with the necessary tools and knowledge to navigate the complexities of global trade.


Q. Examine the significance of the MSME sector. Discuss the challenges faced by MSMEs, and provide practical solutions. (15M, 250W)