Wednesday, April 17, 2024

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MSME- an abbreviation of Micro, Small & Medium enterprises- is the pillar of economic growth in many developed, and developing countries in the world. Often rightly termed as “the engine of growth” for India, MSME has played a prominent role in the development of the country in terms of creating employment opportunities-MSME has employed more than 50 million people, scaling manufacturing capabilities, curtailing regional disparities, balancing the distribution of wealth, and contributing to the GDP-MSME sector forms 8% of GDP. Though India is still facing infrastructural problems, lack of proper market linkages, and challenges in terms of flow of institutional credit, it has seen a tremendous growth in this sector.

The advantage of this sector is it requires less investment, thus creating employment on a large scale, and reducing the employment and underemployment problems. Moreover, this sector has survived almost all threats emerging out of still completion from both domestic and international market.

Importance of MSME ACT 2006:

With the introduction of the MSME Act in the year 2006, the service sector that was not yet included in this sector was included in the definition of the Micro, Small & Medium sized Enterprises making a historic change to this Act, thus leveraging the scope of the sector even now government simplified the MSME Registration Online with the paperless work.

Share of MSME in Manufacturing, Exports and Employment sectors in India:


S.No. Sector Percentage(%) share
1 Manufacturing 45
2 Exports 40
3 Employment 69


The contribution of MSME to other sectors has been immensely instrumental. It is the biggest employer after agriculture sector, despite the fact that agriculture sector’s contribution to GDP is less than MSME. While it contributes about 45% to manufacturing sector, and perhaps 40% to Exports, it forms the highest share of Employment sector in India, contributing around 69% to it.

Let us take a look at some of the key importance of this sector in the development of India both in terms of economic, and social development:

  1. Creates large scale employment:

Since the enterprises falling in this sector require low capital to start the business, it creates huge employment opportunities for many unemployed youth. India produces about 1.2 million graduates per year, of the total number about 0.8 million are engineers. And, there is no economy in the world that can provide jobs to so many fresh graduates in one year. MSME is the boon for many of these fresh manpower.

  1. Economic stability in terms of Growth and leverage Exports:

MSME is a significant growth driver in India, with it contributing to the tune of 8% to GDP. As mentioned in the table, Exports sector in India constitutes about 40% of contribution from MSME alone. Looking at the kind of contribution of MSME to manufacturing, exports and employment, other sectors are also benefitting from MSME. MNCs today are buying semi-finished, and auxiliary products from small enterprises, for example, buying of clutches, and brakes by automobile companies. It helps create a linkage between MSME and big companies.even after the implementation of the GST 40% MSME sector also applied GST Registration which increase the government revenue by 11%.

  1. Encourages Inclusive Growth:

About 50% of wealth in India in owned by just 100 people which is due to unequal distribution of wealth. Inclusive growth is on top of the agenda of Ministry for Medium, and Small, and Medium sized enterprises for several years. While poverty and deprivation are a deterrent to the development of India, including marginalized sections of society is a key challenge lying before the Ministry of MSME.

  1. Cheap Labor and minimum overhead:

In large scale organizations, one of the key challenges is to retain the human resource through an effective human resource management professional manager. But in case of an MSME, the requirement of labor is less, and it does not need a highly skilled labourer. Hence, the indirect expenses incurred by the owner is also low.

  1. Simple Management Structure for Enterprises:

MSMEs do not require a huge capital to start. With limited resources available within the control of the owner, decision-making becomes easy and efficient. As in case of a large corporation wherein a specialist is required for every departmental functioning because of complex organizational structure, a small enterprise does not need to hire an external specialist for its management. The owner himself/herself can manage it. Therefore, it can be run single-handedly.

  1. Plays an important role in making “Make in India” possible:

Post the inception of ‘Make in India’, a signature initiative by the prime minister of India, the process of incorporating a new business has been made easy. Since the MSME is the backbone in making this dream a possibility, the government has directed the financial institution to lend more credit to enterprises in MSME sector.

Final Conclusion on MSME Sector:

Micro, Small and Medium-sized Enterprises (MSME) are one among the most important sectors, forming the backbone of the Indian economy. This sector has been instrumental in the growth of the nation, leveraging exports, creating huge employment opportunities for the unskilled, fresh graduates, and the underemployed, also extending the opportunities to banks for giving more credit to enterprises in this sector. The government should take utmost care of this sector in terms of providing more and more MSME Registration benefits through better regulations, Government simply , and enabling financial institutions to lend more credit at less interest rate for sustainability of this sector.


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