Comprehensive Look at the Life, Times and Future of MSMEs in India

The Micro, small & medium enterprises (MSMEs) play an important role contributing almost 29% to the GDP  of the Indian economy . As per the 2018-2019 Annual Report of the Department of MSMEs there are 63.4 million MSMEs in India employing 110 million people. Around 51% of the MSMEs are in rural locations. Thus they not only provide opportunities for entrepreneurs but create jobs for a wider spectrum of the population in terms of age, sex, geographies and perhaps more job satisfaction than in depersonalized large organizations. They help in the development of local communities and enable people to find their livelihood closer home. Further, 40% of the total export from India are produced by this sector . Thus, the health of MSMEs are vital for the health of a developing economy like India. 

The classification for identifying small units which was based on the investment was recently amended in May 2020 by the Government of India to enhance the upper limit of the investment and also bring in the factor of turnover. Accordingly the units are classified as follows:  

Micro Enterprise:  Investment up to Rs 1 crore, turnover up to Rs 5 crores 

Small Enterprise:  Investment up to Rs 10 crore, turnover up to Rs 50 crores 

Medium Enterprise: Investment up to Rs 50 crore, turnover up to Rs 200 crores   

Some of the challenges that MSMEs have been facing over the years include are finance related, marketing and managerial related, technology related, competition related and labour related challenges. In a way they are inter connected and become a vicious cycle when the organization is operating within tight financial constraints. 

The sector which was already facing difficulties associated with demonetization (operating largely in the informal domain, the overall credit availability for the sector diminished considerably), the arrival of Covid 19 and the national lock down on March 24th 2020 struck further blows. Many countries to which the MSMEs exported were affected by the pandemic and they in turn reduced or cancelled orders. Similarly raw materials supply from abroad was also adversely affected. The sector is  grappling with  poor cash flow, slowing demand and rising unemployment.   

The Government of India has released financial package to tide over the Covid 19 financial crisis in the form of relief measures by RBI and announcements by the finance minister (20 Lakh crore package). This includes a special refinance facility to Small industries development bank of India to the tune of 15,000 crore for passing on to small businesses through non bank/micro finance institutions, moratorium on term loan EMIs for a period of six months, 20,000 crore subordinate debt scheme, Rs 3 Lakh crore credit guarantee( will be repaid to financial company by Government if remaining unpaid), Fund of Fund corpus (Rs 50,000 crore) with contribution from Government , LIC and SBI.   

It may be too early to come to a conclusion as to whether the relief measures have helped MSMEs to bounce back. It is however a fact that 35% of MSMEs and 37% of self employed persons have gone out of business. The relief measures have either not reached them or were not adequate enough as revealed by a survey conducted by the All India Manufacturers' organization(Results published in June 2020). The unemployment rate also rose from 4% in April 2020 to 6% in May 2020. The sentiment amongst MSMEs is that the Government should have extended upfront liquidity and that providing loans has only increased the burden on businesses. Being an important pillar, MSME revival at the earliest is most essential.

It is suggested that like the single window concept for processing applications for new units, Government consider arranging services under one roof connecting MSMEs and the service providers in the areas of marketing, accounting, technology and HR. This would be mutually beneficial to both the MSMEs and the service providers. Regular training similar to those envisaged under the ZED program (Zero defect maturity levels) as also entrepreneurial development program will go a long way in strengthening MSMEs to meet the challenges as they shrug away the impact of the pandemic and move towards a bright future.  

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