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MSME Sector: A catalyst for socio-economic transformation of the country

Dr. Gurbandini Kaur

India is emerging as one of the highest growing economy in the world. Indian Economy thrives through the process of creation of enterprises. The Micro, Small and Medium Enterprises (MSME) sector has emerged as a vibrant and dynamic sector of the Indian economy. MSME play a key role in the development of the economy with their effective, efficient, flexible and innovative entrepreneurial spirit. The MSME sector contributes significantly to the country’s manufacturing output, employment and exports and is credited with generating the highest employment growth as well as accounting for a major share of industrial production and exports. The growth of this sector is extremely critical to meet the substantial financial inclusion and generation of significant level of entrepreneurship development and employment in urban and rural India.

The MSME sector is an important pillar of Indian economy as it contributes greatly to growth of Indian economy with a vast network of around 46 million establishments and creating employment of about 106 million people directly and indirectly. MSME have been contributing to expansion of entrepreneurial culture through several innovations. The MSMEs are widely dispersed among all sectors of economy producing diverse range of products and services. The MSMEs sector is contributing 8 % in GDP, 45% in manufacturing sector and 40% in exports from the country. The MSME sector also accounts for 95 per of industrial units and has a great potential to spread industrial growth across the country through inclusive growth. MSME in India has potential to increase the share of contribution to GDP from present 8 percent to 15 percent by 2020.

With 46 million MSMEs across various industries have employed 106 million people. On contrary to large enterprises, MSMEs generate large employment opportunities in the country at relatively lower capital costs. The MSME sector are complementary to large industries as ancillary units and it is expected to play a significant role in the growth of the socio-economic development of India. Concomitantly, there is potential to increase its contribution to employment to over 30 percent by next decade. In order to achieve this , it is imperative to bring all unregistered, informal unorganized enterprises to formal MSMEs ecosystem through registration. This will facilitate in providing growth incentives in form of privileges and direct benefits for the MSMEs, which will ultimately enhance their opportunities for economic growth and overall development. Current employment through MSME is 28 percent of overall employment. As per Sixth Economic Survey (2013), the ten states namely, West Bengal , Uttar Pradesh, Maharashtra, Tamil Nadu, Andhra Pradesh, Kerala, Rajasthan, Gujarat, Karnataka and Madhya Pradesh account for 70 percent of total MSME establishments across the country. Further, these 10 states also account for 70 percent of total employment generated within MSME establishments. The distribution of MSME establishments in rural and urban areas is uneven. The MSME establishments in rural areas account for just over 50 percent of total establishments. Survey also indicate that the average employment in MSME establishment with at least one hired worker was substantially more than those without hired worker across all sectors, which is an encouraging fact. It indicates that MSMEs are not just small self-employment establishment rather are helping in generating more employment for others within the economy. It is largest source of employment in rural areas after the agriculture sector.

The involvement of MSME has to spread in all major sectors such as agriculture, manufacturing and service sectors so that it can generate employment and has significant contribution on all-inclusive economic growth. However, the present growth is not uniform among all sectors and a huge disparity exists in growth of enterprises across services and manufacturing sectors. Many significant measures have to be taken by all sectors in order to achieve holistic and balanced growth pattern.

Besides above, MSME can serve as building block for industry sector and other opportunity area by providing quality suppliers, vendors as well as customers. MSME sector plays critical role in the industrial development of any economy as could be seen in the historical records of presently developed countries. These units act as ancillary units and provide processed raw material to advanced industrial units. Thus the quality of final products of advanced industrial units, to a large extent, depends on the material supplied by MSME units. In addition to this, these units also provide unskilled and semi-skilled labour to advanced industrial units. Several MSMEs also directly produce and supply final products to consumers also. If these MSMEs receives continuous demand orders from domestic and export markets then it may create platform to improve their status as advanced industrial units. MSMEs have opportunities as well as best options for cost efficiencies and global competitiveness. These industry sectors include Telecommunications, Electronics, IT, media, healthcare, pharmaceuticals, biotechnology, automotive, Transport and logistics, Industrial manufacturing sector, Engineering and process equipment, chemicals, textile, renewable energy, food and agriculture, retail, gems and jewelry, tourism and hospitality, education, civil aviation, real estate, deference and aerospace. Infrastructure, power and energy are few other sectors providing multiple opportunities to MSMEs.

MSMEs are instruments of inclusive growth which is the only source of livelihood for most vulnerable and marginalized families. This sector empower these people to break the cycle of poverty and deprivation. It focuses on people’s skills and agency. However, different segments of the MSME sector are dominated by different social groups. MSME also controls rural-urban migration by providing people living in isolated areas with a sustainable source of employment.

According to a survey, exports from MSME units have been on the rise, despite increased cost of raw materials, global demand and stiff international competition. The sector produces a wide range of products, from simple consumer goods to high-precision, sophisticated finished products. The four commodities (Gems & Jewelry, electrical and electronics equipment, apparels, and pharmaceuticals) together account for about 60 per cent of total MSME exports. Non-traditional products account for more than 95% of the MSME exports (dominating in the export of sports goods, readymade garments, plastic products etc.). Most of these products are handcrafted and eco-friendly, thus there exists a tremendous potential to expand the quantum of MSME led exports. The globalization have opened up ample opportunities for growth of the manufacturing sector. India can significantly diversify its export portfolio, both in terms of products and goods exported as well as regional coverage. An impetus to the sector is likely to have a multiplier impact on economic growth.

MSME has been instrumental in many Government initiatives such as “Make in India” and “Digital India” revolution. Many future high growth businesses of national and international level around the globe can invest in “Make in India” with zero defect and zero effect (ZED) and bring about significant impact on economy. This ensure continuous development of business with optimum delivery of right product, with right quality, right solution and right service at competitive price in global market. MSME through usage of information communication and technology (ICT) contribute to new era of digitization under “Digital India” revolution.