An Investigation into the Financial Performance of Micro, Small and Medium Enterprises (MSMEs) in Nanded, Maharashtra

Abstract

Micro, small and medium enterprises (MSMEs) are an indispensable part of the Indian economy. In terms of Gross Value Added (GVA) and Gross Domestic Product (GDP), MSMEs accounted for about 33% and 31% of India's GVA and GDP, respectively, in the year 2019-20. Unlike large enterprises that are concentrated in the metros, MSMEs are spread across smaller and larger rural as well as urban centres of India. They are also the biggest source of employment, especially in rural India, and contribute to the rural development and industrialisation. MSMEs also act as a great social bridge as smaller enterprises are owned by socially backward classes and women than are larger enterprises. For these reasons and more, the India government has always promoted the growth and development of MSMEs through policy initiatives, technology up gradation, and via other means. Consequently, MSMEs have also grown in multi-folds in the past decades in terms of the number of enterprises in operation and the collective revenue of the sector. Several challenges affect the growth of MSMEs, however. One of these is the limited academic studies into the financial performance of MSMEs, probably due to the unavailability of adequate data. The present research attempts to fill this gap by conducting a financial performance evaluation of 51 sample MSMEs based in the district of Nanded, Maharashtra. The research utilizes Data Envelopment Analysis (DEA) to compare the financial performance of sample MSMEs selectively using the suitable variables identified by Arasu et al. (2021). Findings suggest sharp differences in the financial performance of sample units. Inefficient units are suggested to improve their return on asset, return on capital employed, and net profit margin.