MSMEs: The Key to Entrepreneurship Development in India

Abstract

The term MSME means micro, small, and medium enterprises; SME means small and medium enterprises; while MSE means micro and small enterprises. In India, the Micro, Small, and Medium Enterprises Development (MSMED) Act 2006 defines MSMEs. It introduces the concept of 'enterprise' as opposed to the earlier concept of industry. The overall contribution of small firms—formal and informal—to the GDP and employment remain about the same across low, middle, and high-income group countries. As income increases, the share of the informal sector decreases and that of the formal SME sector increases. The main need is to generate large scale employment as countries develop the share of agriculture in providing employment and in GDP decreases. The MSME sector in India is heterogeneous, dispersed, and mostly unorganized. It includes diverse types of production units ranging from traditional crafts to high-tech industries. In this regard, the core challenges of MSMEs are the following; Inadequate Access to Credit and Working Capital, Dwindling of a Vibrant Sector, Non-Availability of Quality Raw Materials and Packaging Facilities on a Timely Basis, Insufficient Market Research, Linkages & Design Inputs, Rehabilitation of Sick SSI Units, Globalization, and Technology Upgradation and Achieving 'Economies of Scale'. At present, there is no subsector target for the MSE sector within the overall stipulated 40% ceiling for the priority sector lending. Since sub-targets have already been fixed at 18% for agriculture and at 10% for the weaker sectors, the MSE sector has to compete with real estate, housing, education, retail, etc. for the remaining 12%.