Micro, Small and Medium Enterprises (MSME)

Context: The Economic Survey highlighted areas for MSME growth.

Micro, Small and Medium Enterprises (MSME)

• Regulatory Framework: MSMEs are regulated under the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006.
• Governing Body: The Ministry of MSME manages MSMEs in India.
• Classification Changes (Effective July 2020): Previously based only on investment in plant and machinery/equipment, now includes annual turnover.
  • Micro Enterprise: Investment < INR 1 crore and Turnover < INR 5 crore.
  • Small Enterprise: Investment < INR 10 crore and Turnover < INR 50 crore.
  • Medium Enterprise: Investment < INR 50 crore and Turnover < INR 250 crore.

Statutory Bodies under the Ministry of MSME

• Khadi and Village Industries Commission (KVIC): Promotes and develops khadi and village industries to enhance rural employment and economy.
• Coir Board: Focuses on the overall development of the coir industry and improving the living conditions of its workers.
• National Small Industries Corporation Limited (NSIC): Established in 1955, NSIC aids, promotes, and fosters the growth of micro and small enterprises in India on a commercial basis.
• National Institute for Micro, Small and Medium Enterprises (NI-MSME): Founded in 1960, responsible for promoting entrepreneurship, enterprise creation, conducting policy-formulating studies, etc.
• Mahatma Gandhi Institute for Rural Industrialisation (MGIRI): Aims to accelerate rural industrialisation, empower traditional artisans, and innovate through research and development using local resources.

Significance of MSMEs

• MSMEs are crucial to the Indian economy, contributing 35.4% to India’s manufacturing output.
• They employ a large portion of the labour force.

Challenges for MSMEs

• Compliance Burden: Heavy licensing, inspection, and compliance (LIC) requirements from state and local governments restrict the growth potential of MSMEs and their ability to create jobs.
• Space Regulations: Indian factories require twice the space for workers compared to those in Southeast Asian countries like Hong Kong, Singapore, or the Philippines, limiting employment opportunities within the same amount of floor space.
• Access to Credit: MSMEs face difficulties in accessing timely and affordable credit, which hampers their operational and expansion capabilities.
• Management Training: There is a lack of adequate training in critical areas of enterprise management, which is necessary for the effective operation and growth of MSME businesses.
• Data Collection: Inadequate data collection on production and employment indicators in MSMEs hinders effective policy making.

Recommendations

• Reduce Compliance Burden: Suggests loosening the stringent LIC requirements to enable MSMEs to grow and create more jobs.
• Regulatory Alignment: Recommends aligning Indian regulatory standards with those of countries like Malaysia to increase the employment capacity within existing facilities.
• Enhance Training Programs: Stresses the need for targeted, practical training for MSME entrepreneurs in enterprise management, including human resources, financial management, and technology.
• Upgrade Data Collection: Calls for improved data collection mechanisms to provide better statistics on the dynamics of production and employment within MSMEs.
• Financial Schemes Improvement: Highlights the importance of schemes like the Pradhan Mantri Mudra Yojana and the Credit Guarantee Fund Trust for Micro and Small Enterprises in improving access to credit.
• Rethink Incentive Structures: Advises the implementation of sunset clauses in threshold-based incentives to prevent these incentives from discouraging MSMEs from expanding beyond certain size thresholds.

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