[RC Parida]
Micro, small and medium enterprises (MSME) play a dynamic role in economic development. It is the backbone of many economies, including India. This sector immensely contributes towards job creation, local industrial growth, startups/entrepreneurship promotion, and thereby towards the overall economic prosperity. MSMEs produce a diverse range of goods and services, often catering to niche markets that large enterprises need. It has critical role towards driving inclusive economic growth at the grassroots level too. The MSME sector in India has consistently demonstrated remarkable resilience and adaptability, significantly contributing to the nation’s GDP over the years. The gross value added (GVA) by MSMEs in India’s GDP was 29.7% in 2017-18, rising to 30.1% in 2022-23. Even amid the unprecedented challenges posed by the Covid-19 pandemic, the sector sustained a contribution of 27.3% in 2020-21, rebounding to 29.6% in 2021-22. These figures highlight the sector’s pivotal role in driving economic growth and stability, reflecting its enduring strength and importance to the Indian economy.
India is a fastest growing economy in the world and is the world’s fifth-largest economy. We are targeting to be 5 trillion economy and require at least 8% GDP growth. That is why budget plays a significant role.
Besides boosting India’s economy and strengthening global trade, MSMEs exports have witnessed a remarkable progress, increasing from Rs 3.95 lakh crores in 2020-21 to Rs 12.39 lakh crores in 2024-25.The total number of exporting MSMEs in 2024-25 has also increased considerably from 52,849 in 2020-21 to 1,73,350 in 2024-25, with an exemplary growth trajectory, contributing 45.73% to exports in 2023-24, which increased to 45.79% by May 2024, highlighting their growing impact on India’s robust trade performance.
A significant number of enterprises transitioned to medium enterprises between 1 July, 2020 to 24 July,2024. During the financial year 2020-21 to 2021-22, 714 micro enterprises scaled up to medium and 3,701 small enterprises were upgraded to medium enterprises. This number increased steadily with the financial year 2023-24 to 2024-25 witnessing further growth, with 2,372 micro enterprises and 17,745 small enterprises scale up to medium. This progression reflects the robust growth, dynamism and vibrancy of the MSME sector in India.
The government has robust initiatives to support MSMEs, like providing subsidised loans, grants, and credit guarantees to facilitate access to capital, supporting training programmes to enhance the skills of MSME workforce, market linkages, improving infrastructure in rural areas, etc, to support MSME growth.
A lot of challenges are also posed before MSMEs in India, including difficulty in obtaining loans, working capital from banks, competing with larger corporations due to limited marketing capabilities, constraints of access to proper training and skill development, regulatory issues, etc.
The growth in MSME sector is reflected in the scaling up of small and micro enterprises into medium enterprise. In accordance with the revised classification applicable wef 1 July, 2020, MSMEs are classified as below:
- Micro enterprise: Where the investment in plant and machinery or equipment does not exceed one crore rupees and annual turnover does not exceed five crore rupees.
- Small enterprise: Where the investment in plant and machinery or equipment does not exceed ten crore rupees and annual turnover does not exceed fifty crore rupees.
- Medium enterprise: Where the investment in plant and machinery or equipment does not exceed fifty crore rupees and annual turnover does not exceed two hundred and fifty crore rupees.
In the Budget 2025-2026, union Finance Minister Nirmala Sitharaman vehemently addressed the MSME sector, especially for labour intensive sectorslike leather and footwear industry, toy manufacturing, and food processing.
For generating employment and prompting startups/entrepreneurship the schemes include:
- Focus product scheme for footwear & leather sectors: The scheme is expected to facilitate employment for 22 lakh persons, generate turnover of Rs 4 lakh crores and exports of over Rs 1.1 lakh crores.
- Measures for the toy sector: To focus on development of clusters, skills, and a manufacturing ecosystem that will create high-quality, unique, innovative, and sustainable toys to represent the ‘Made in India’ brand.
- Support for food processing: Establishment of a National Institute of Food Technology in Bihar, enhanced income for the farmers and skilling, entrepreneurship and employment opportunities for the youths.
Revision (as per budget) in classification criteria for MSMEs.
Significant enhancement of credit availability (as per budget) with guarantee cover.
Moreover, the budget enshrines scheme for 5 lakh first-time entrepreneurs (including women, scheduled castes and scheduled tribes, and a new scheme to be launched to provide term loans up to Rs 2 crores during the next 5 years). The focus is also on ease and cost of doing business, future ready workforce for in demand jobs, a vibrant and dynamic MSME sector, availability of technology, quality products, clean tech-manufacturing for climate-friendly development. It also targets to facilitate easy access to export credit, cross-border factoring support, and support to MSMEs to tackle non-tariff measures in the overseas markets. (The contributor is Professor, Dept of Commerce, RGU, Rono Hills. He can be reached at rama.parida@rgu.ac.in.)
