Editorial Articles

volume-42,19 - 25 January 2019


MSME Sector-A Force to Reckon With As the Biggest Job Creator

Dr. Ranjeet Mehta

The importance of 65 million MSMEs, which account for about 120 million jobs and  30% of the country's economic output,  cannot be underestimated as it forms the backbone of the industrial landscape of the country contributing 49 per cent to the exports and 45 per cent to the manufacturing sector and also responsible for around 30%  of total employment   generation in India. The Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and dynamic sector of the Indian economy over the last few decades. It contributes significantly in the economic and social development of the country by fostering entrepreneurship and generating largest employment opportunities at comparatively lower capital cost, next only to agriculture. MSMEs are complementary to large industries as ancillary units and this sector contribute significantly in the inclusive industrial development of the country. The MSMEs are widening their domain across sectors of the economy, producing diverse range of products and services to meet the demand of domestic as well as international markets.

Small and Medium Enterprises (SMEs) are crucial for the economic growth and stability of any country and play a vital role especially for developing countries as they facilitate economic activity and provide employment thus contributing to poverty reduction. In the Indian context they can be considered as the backbone of national economy. The Micro sector with 630.52 lac estimated enterprises accounts for more than 99% of total estimated number of MSMEs. Small sector with 3.31 lac and Medium sector with 0.05 lac estimated MSMEs accounts for 0.52% and 0.01% of total estimated MSMEs, respectively.

One of the data from National Sample Survey (NSS) 73rd round  will further emphasize on  the significance of MSME sector in India as it states that  during the period 2015-16, MSME sector has been creating 11.10 crore jobs (360.41 lacs in Manufacturing, 387.18 lacs in Trade and 362.82 lacs in Other Services and 0.07 lacs in Non-captive Electricity Generation and Transmission) in the rural and the urban areas across the country. Micro sector with 630.52 lac estimated enterprises provides employment to 1076.19 lac persons, which accounts for around 97% of total employment in the sector. Small sector with 3.31 lac and Medium sector with 0.05 lac estimated MSMEs provides employment to 31.95 lac (2.88%) and 1.75 lac (0.16%) persons of total employment in MSME sector, respectively. Out of 1109.89 lacs employees in MSME sector, 844.68 (76%) are male employees and remaining 264.92 lacs (24%) are females.

India has been the breeding ground for ideas and entrepreneurs in the recent past. Start-up activity is at an all-time high. Start-ups have mushroo-med across markets and industries, despite all the murkiness and uncertainty in the policy framework.

India needs 6 to 7 million jobs a year and global data shows that it is the MSMEs including start-ups, not large enterprises that create net new jobs in any country. Start-ups are also the centers of innovation and are a great way to enhance employment creation in the economy.

The "Start-up India" initiative launched on January 16, 2016 aims at fostering entrepreneur-ship and promoting innovation by creating an ecosystem that is conducive for growth of Start-ups. The objective is that India must become a nation of job creators instead of being a nation of job seekers. The Startup India by Prime Minister of India has already  brought lots of positivity among the entrepreneurs in India. Industry  is  elated by the fact that India has the third largest number of start-ups globally. Fostering a fruitful culture of innovation in the country is a long and important journey. This initiative will go a significant way in reiterating Government of India's commitment to making India the hub of innovation, design and Start-ups.

We have noticed  that Prime Minister Narendra Modi has shifted his entire focus on revival of the MSME sector. The prime minister recently launched 'MSME Support and Outreach Program' and announced twelve big decisions to support the growth of small businesses in the country.

Here are 12 key decisions recently  taken by Modi government to support MSMEs

  1. 59-minutes loans

The GST-registered micro, small and medium enterprises (MSMEs) will be sanctioned a loan of Rs 1 crore in just 59 minutes through a new portal.This  wille anable MSMEs to get the loan approval within 59 minutes.

  1. Rebate in interest rate

The GST-registered MSMEs will get 2% subvention or rebate on incremental new loans of up to Rs 1 crore. Interest subvention on pre- and post-shipment credit for exports by MSMEs has also been increased from 3% to 5%.

  1. Cash flow certainty

It is now mandatory for companies with a turnover of more than Rs 500 crore to join Trade Receivables e- Discounting System (TReDS). This  provision will help MSMEs to have liquidity in their hands and will solve their cash flow  problems.

  1. Procurement by PSUs

Public sector companies, which were mandated to source 20% of their annual procurement from MSMEs, will now source at least 25% of their requirements  from MSME sector.

  1. Women entrepreneurs

Out of the 25% procurement mandated from MSMEs, 3% must now be reserved for women entrepreneurs.

  1. Government e-Marketplace (GeM)

All central public sector enterprises will have to take membership of the Government e-Marketplace (GeM) to facilitate online procurement of common use goods and services by various government departments and organisations.GeM is a great platform to boost the MSME sector. By facilitating business between the Government, Industry and entrepreneurs online, GeM helps in improving the quality and efficiency of the products and services on offer, particularly the ones sourced from the MSME sector.The MSMEs can bid for market tenders free of cost through the e-Procurement portal. This would allow MSMEs to actively participate in various Government Procurement programs. This would also enable the Public Sector Enterprises (PSUs) to achieve the mandatory 20% procurement from SMEs as stipulated in the Procurement Policy of 2012 and further contribute to the growth of MSMEs.

  1. Technological upgradation

The government announced Rs 6,000 crore package to facilitate better technological support and tools to small industries. The money will be used for 20 hubs and 100 tool rooms for technology upgradation.

  1. Pharma companies

The government will form MSME pharma clusters. 70% cost of establishing these clusters will be borne by the government.

  1. One annual return

MSMEs will have to file just one annual return on eight labour laws and 10 central rules.

  1. No more inspector raj

Inspections of factories in the MSME sector will be sanctioned only through a computerised random allotment and inspectors will have to upload reports on the portal within 48 hours therefore unnecessary harassment is eliminated.

  1. Relaxation in environ-mental clearances

MSMEs will now need single air and water clearance and just one consent to establish a factory.This  will help in ease of starting a business.


What are Micro, Small & Medium Enterprises ?

Definitions of Micro, Small & Medium Enterprises In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

  1. Manufacturing Enterprises- he enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries (Development and regulation) Act, 1951 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery.
  2. Service Enterprises:- The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

The limit for investment in plant and machinery / equipment for manufacturing / service enterprises, as notified,vide S.O. 1642(E) dtd. 29-09-2006 are as under:-

Manufacturing Sector

               Enterprises                                                                                            Investment in plant & machinery

               Micro Enterprises                                                                                   Does not exceed twenty five lakh


               Small Enterprises                                                                                 More than twenty five lakh rupees but

                                                                                                                         does not exceed five crore rupees

                Medium Enterprises                                                                            More than five crore rupees but does

                                                                                                                        not exceed ten crore rupees

Service Sector

               Enterprises                                                                                      Investment in equipments

                Micro Enterprises                                                                              Does not exceed ten lakh rupees

              Small Enterprises                                                                               More than ten lakh rupees but does

                                                                                                                         not exceed two crore rupees

                    Medium Enterprises                                                                     More than two crore rupees but does

                                                                                                                       not exceed five crore rupees

  1. Ordinance in Companies Act

An ordinance has been promulgated to simplify the levy of penalties for minor offences under the Companies Act. This will save lot of time and freedom from unwanted hassles for MSMEs.

Other important  initiatives taken by Government of India to promote MSMEs  are as follows:-


The Government also launched the MSME Samadhan Portal during October 2017 to resolve issues in case of delayed payments to MSMEs. The MSMEs under this scheme can register their cases online which would be taken up by the concerned Micro and Small Enterprise Facilitation Council (MSEFC), to be established by the state governments. Under Section 16 of the MSMED Act, delayed payment to supplier units, attracts compound interest with monthly rests at three times of the bank rate notified by the RBI.


On 8 December 2017, the Government launched the MSME Sambandh Portal, to monitor the implementation of Public Procurement from MSMEs by Central Public Sector Enterprises (CPSEs). The MSMEs would be able to access the information about various products through this online portal. The minimum 20% mandatory procurement of total products and services produced by MSMEs by Central Govern-ment Departments/ CPSEs could also be assessed effectively through this portal. Overall, the system will enhance ease of doing business for MSMEs and thus provide a further boost to the Government's Make in India initiative.

National  Scheduled Caste/ Scheduled Tribe Hub:

This Ministry of MSME approved a scheme for setting up of National Schedule Caste and Schedule Tribes (SC/ST) Hub on 25.07.2016. The said Hub was formally launched by the Hon'ble Prime Minister on 18.10.2016 at Ludhiana, Punjab. The Hub is set up to provide professional support to SC/ST entrepreneurs to fulfill the obligations under the Central Government Public Procurement Policy for Micro and Small Enterprises Order 2012, adopt applicable business practices and leverage the Standup India initiatives.

Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)

Started with an initial corpus of Rs. 20,000 crore to extend benefits to around 10 lakhs SMEs. You can  submit your business  plan and once approved, the loan gets sanctioned. You get a MUDRA Card, which is like a credit card, which you can be used to purchase raw materials, other expenses etc. Shishu, Kishor and Tarun are three categories of loans available under the promising scheme.

Start-Up Action Plan

Start-Up Action Plan has a 19-point agenda including incentives such as self certification for complying with labour and environment regulations, a panel of facilitators to help file patent and intellectual property applications, tax exemptions for seed funding, capital gains and three year holiday on income tax as well as a Rs. 10,000 crore financing support through a fund of funds for four years. The start-ups will adopt self-certification to reduce the regulatory liabilities. The self-certification will apply to laws including payment of gratuity, labour contract, provident fund management, water and air pollution acts.

Start-up India hub

An all-India hub will be created as a single contact point for start-up foundations in India, which will help the entrepreneurs to exchange knowledge and access financial aid.

Register through app

An online portal, in the shape of a mobile application, is being launched to help start-up founders to easily register.

Patent protection

A fast-track system for patent examination at lower costs is being conceptualised by the central government. The system will promote awareness and adoption of the Intellectual Property Rights (IPRs) by the start-up foundations.

National Credit Guarantee Trust Company

A National Credit Guarantee Trust Company (NCGTC) is being conceptualised with a budget of Rs 500 crore per year for the next four years to support the flow of funds to start-ups.

 No Capital Gains Tax

At present, investments by venture capital funds are exempt from the Capital Gains Tax. The same policy is being implemented on primary-level investments in start-ups.

No Income Tax for three years

Start-ups would not pay Income Tax for three years. This policy would revolutionise the pace with which start-ups would grow in the future.

Tax exemption for investments of higher value

In case of an investment of higher value than the market price, it will be exempt from paying tax

Building entrepreneurs

Innovation-related study plans for students in over 5 lakh schools. Besides, there will also be an annual incubator grand challenge to develop world class incubators.

Setting up incubators

A private-public partnership model is being considered for 35 new incubators and 31 innovation centres at national institutes.

Research parks

The government plans to set up seven new research parks, including six in the Indian Institute of Technology campuses and one in the Indian Institute of Science campus, with an investment of Rs 100 crore each.

Dedicated programmes in schools

The government will introduce innovation-related programems for students in over 5 lakh schools.

Thus by bringing new competitive dynamics in the economic system - Startup companies are the most dynamic economic organizations on the market, since they provide additional dynamics and competitiveness to any economic system. They act as catalytic agent for change, which results in chain reaction. Once an enterprise is established, the process of industrialization is set in motion. All these activities  foster entrepreneurship and create demand for various types of units and will in turn, lead to overall development of an area due to increase in demand and setting up of more and more units. Indigenous start-ups will not only make the lives of the people easier through their affordable and convenient services but will also act as a major booster for the develop-ment and the progress of the Indian economy. We believe that Startup India is about creating prosperity in India. Many enterprising young people who dream of starting their own business lack the resources. As a result, their ideas, talent and capabilities remain untapped - and the country loses out on wealth creation, economic growth and employment. Startup India is helping boost entrepreneurship and economic development - by ensuring that people who have the potential to innovate and start their own business are encouraged - with proactive support and incentives at multiple levels.

Finally,  with all these initiatives- MSME 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 transformational reform such as Goods & Services Tax(GST) has helped in bringing many of the Micro, Small & Medium Enterprises - MSMEs to the formal sector which was earlier in the informal economy.One of the reasons these small businesses are seeing so much success is because they are capitalizing on Digital India and leveraging the internet to market themselves and build an identity-and lead the digital transformation for India. Digital has democratized globalization-MSMEs with vision can now reach customers all over the world. The online space has opened up a whole new avenue of doing business which was just not available earlier. Which has in turn led to a growth of entrepreneurs as well as giving MSMEs an importance in our economy-something that simply wasn't possible earlier.

(Dr. Ranjeet Mehta is Principal Director, PH.D Chamber of Commerce and Industry New Delhi, Email ranjeetmehta@gmail.com)

(Images Courtesy : Google)