MICRO AND SMALL-SCALE ENTERPRISES

Introduction
The Micro, Small, and Medium Enterprises (MSME) embody the foundation of
an economy in nurturing a recognizable growth rate and engendering
employment juncture. This sector has been considered a device of socio-
economic development in many developing and developed economies. It
contributes significantly to India's industrial production, export, and
employment, and generates an extensive entrepreneurial base.
In India, MSMEs contribute nearly 8% of the country’s GDP, around 45% of the
manufacturing output, and approximately 40% of the country’s exports it won't
be wrong to refer to them as the backbone of the country.
The Government of India has introduced MSME or micro small and medium
enterprises in agreement with the micro small and medium enterprises
development act of 2006.
These enterprises are primarily engaged in the production, manufacturing,
processing or preservation of goods and commodities.
The Ministry of Micro, small, and medium enterprises are a branch of the
government of India that is the apex executive body for the formulation and
administration of rules regulations, and law related to micro small, and
medium enterprises in India.
The Minister of micro small and medium enterprises is Narayan Rane
The statistics provided by the annual report of the Ministry of Small and
medium enterprises show a rise in the plan amount spent on the khadi sector
from rupees 1942.7 million to rupees 14540 million and non-plan amounts
from rupees 437 million to rupees 2291 million in the period from 1994- 95 to
2014-15.
The interest subsidies to Kathy institutions increased from rupees 96.3 million
to rupees 3145 million in this period.
MSMEs are complementary to large industries as ancillary units and this sector
contributes enormously to the socioeconomic development of the country.
What are MSMEs?

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 which
was notified on October 2, 2006, deals with the definition of MSMEs. The
MSMED Act, 2006 defines the Micro, Small and Medium Enterprises based on

1. the investment in plant and machinery for those engaged in

manufacturing or production, processing or preservation
of goods and
2. the investment in equipment for enterprises engaged in providing
or rendering of services.

History

The Ministry of Small-Scale Industries and Agro and Rural Industries was
created in October 1999.
In September 2001, the ministry was split into the Ministry of Small-Scale
Industries and the Ministry of Agro and Rural Industries.
The President of India amended the Government of India Rules, 1961, under
the notification dated 9 May 2007.
The ministry was tasked with the promotion of micro and small enterprises.
The Small Industries Development Organisation was under the control of the
ministry, as was the National Small Industries Corporation Limited public sector
undertaking).
The Small Industries Development Organisation was established in 1954 on the
basis of the recommendations of the Ford Foundation.
It has over 60 offices and 21 autonomous bodies under its management.

Need
To promote e-governance for empowering citizens -
To promoting the inclusive and sustainable growth of the electronics.
To enhancing India's role in Internet governance adopting a multi-pronged
approach that includes development of human resources promoting R&D and
innovation.
Enhancing efficiency through digital services and ensuring a secure cyberspace
Providing infrastructure for delivery of e-services
Providing support for development of e-skills and knowledge networks
Promoting competitiveness and productivity in the MSME space
Enabling environment for the promotion and development of MSMEs.
Benefits provided to MSMEs

Loans under the priority sector lending scheme.

25% share in procurement by government and government-owned companies.

Promoters are allowed to bid for stressed assets under the insolvency law
(unlike big companies).

Various government schemes and funds.

Challenges of MSMEs in India

Lack of credit from banks-The banks are providing on an average 50% total
capital employed in fixed assets. The cost of credit is also high. Interest rates
on MSME loans are between 8.65% to 16.25%.

Poor infrastructure-Though, MSME`S are developing so rapidly but their

infrastructure is very poor. With poor infrastructure, their production capacity
is very low while production cost is very high.
Unavaila Lack of advanced technology-The owners of MSME are not aware of
advanced technuction.
Lack of distribution of marketing channels-The MSME`S are not adopting
innovative channels of marketing. The ineffective advertisement and poor
marketing channels lead to a very poor r selling.

Lack of training and skill development program-The owners are not aware of
the innovative methods of production. The skill developmental schemes
conducted by the government are not sufficient.
Problems faced by MSMEs in India :-

1. Financial assistance – The most common problem that all small-scale

businesses have faced, and are still facing is of credit. MSMEs struggle to
obtain financial assistance due to several factors like absence of collateral,
lengthy paperwork, and lack of trust in loan repayment capabilities. These
obstacles remain despite the government’s conscious effort to provide easy
credit line to MSMEs.

2. Marketing – Increasing marketability of products is a difficult task not just

for MSMEs, but for large-scale businesses as well. Inconsistence and sporadic
marketing efforts yield no results. When it comes to small-scale businesses, the
lack of resources – time, money, and skilled employees make it impossible to
increase visibility and generate quality leads. To help MSMEs overcome this,
the NSIC (National Small Industries Corporation (NSIC) under the Ministry of
MSME organizes frequent workshops to train enterprises in online and offline
marketing of their products and services.

3. Technology – The majority of the MSMEs in India operate on stale and

obsolete technology which obstructs them from keeping up with the new-age
world. This is despite the fact, that India is said to have the third largest pool of
technologically trained manpower. Adoption of new technology and training
employees with these technological upgradations is not only difficult, but also
costly – especially for manufacturing businesses where the scope is not just in
terms of software, but also in terms of production units. While lack of access to
IT education is partly responsible for the technological gap, the biggest factor is
lack of awareness which reduces willingness to investment in advanced tech
solutions.

4. Upskilling – Skilled employees are essential for growth of businesses. Multi-

national companies (MNCs) understand this and keep on-the-job training at
the centre of their functioning. Unfortunately, small-scale enterprises fail in
upskilling their manpower, unknowingly taking a hit.

5. Business expertise – While entrepreneurs may have subject matter

expertise relevant to their goods and services, they might lack the business
acumen needed to run an enterprise smoothly. These include funding &
financing, tracking sales, managing input & output costs, etc.
6. Procurement of raw material – The prices of raw materials have increased
manifold, especially since the beginning of the Covid-19 pandemic. For MSMEs
in the manufacturing sector, the procurement of raw material is extremely
important to continue operations. However, lack of bulk orders, credit facilities
and transportation of raw material make the procurement tedious. To
eliminate these limitations, the NSIC runs a ‘Raw Material Assistance Scheme’
which helps small businesses by financing the purchase of raw material – both
indigenous and imported.

7. Hiring – MSMEs struggle to hire skilled and competent manpower. Lack of

name recognition of the company reduces the talent pool from which MSMEs
can hire employees as there are fewer responses to job postings by small-scale
businesses. Even after finding the right candidate from this small pool, MSMEs
lose the right candidate due to inability to offer competitive salary, job security
and career development opportunities similar to larger organizations.

8. Innovation – The rate of changes is accelerating rapidly. The role of

creativity and innovation has increased in this change process for survival.
Businesses are becoming knowledge-based and their success & survival is
directly related to their creativity, innovation, discovery and inventiveness.
MSMEs will have to learn and imbibe the process of innovation in their day to
day working to remain competitive.

9. Stiff competition from giant businesses – Indian MSMEs are finding it

difficult to sell their products in the domestic and international markets
because of increasing competition. Small-scale enterprises face a tough
competition from their global counterparts due to liberalisation, as well as
from domestic giants due to their immense scale of operation. While the
government does run protective schemes for such small-scale enterprises, the
competition remains one-sided by and large.

Hence The problems faced by the small traditional enterprises with poor
support system and little exposure, particularly in accessing technology and
maintaining competitiveness, have been formidable. The non-availability of
institutional finance on affordable and easy terms is seen as the biggest
challenge faced by MSMEs. Further adding to the limitations of MSMEs are lack
of formalized contractual relations and the reliance on cash payments.
Features
MSME's work for the welfare of the workers and artisans they help them by
giving employment and by providing loans and other services.
Msmes provide credit limits or funding support to banks.
They promote the development of entrepreneurship as well as upgradation of
skills by launching specialized training Centers for the same.
They support the upgrading of development technology infrastructure
development and the modernization of the sector as a whole.
MSMEs are known to provide reasonable assistance for improved access to
their domestic as well as export markets. They also offer modern testing
facilities and quality certification services.
Msmes now support product development design innovation interventions
and packaging
MSMEs are playing a major role in the Government's 'Make in India' initiative
to give an impetus to
MSMEs work to improve the lives of employees and artisans. They assist them
by providing jobs, loans, and other services.
MSMEs provide banks with credit limits or financing assistance.

Pros
Close supervision -The small producer can himself supervise the minutest
details of the business.
Nature of demand -The small producer has an advantage over the long
producer when the demand is either small or constantly changing. More
employment- The development of small industries is a great help to create
more employment opportunities.
Easy arrangement of funds -The foremost advantage is the easy arrangement of
loans is because MSME enterprises effortlessly satisfy the eligibility criteria for
the same.
Flexibility - Another advantage associated with its flexibility, it allows one to
borrow and repay on flexible terms.
Increase in the number of registrations - To avail the facility of a bank loan one
need to register the enterprise with the government under the law.

Cons
Less financial power - Msmes have more difficulties to find funding as they do
not have the financial power that large companies have.
Higher cost - MSME’s will have enormous impediments to benefit from the
economy of scale which will cause cost to be higher in certain type of business
lack of financial capability- Despite being more flexible in dealing with the
changes, the lack of financial capability can cause costs major problem for an
MSME.
Difficult to reach customers -It may be difficult to reach many customers and
earn their trust.
Low bargaining power - MSME have low bargaining power with suppliers and
customers.

MSME Framework

The MSME ministry to strengthen the backbone of the country targets to

increase its contribution towards GDP by up to 50% by 2025 as India moves
ahead to become a $5 trillion economy. But to understand the reasons better,
let’s look at it from a P-M-E framework.

1. MSME Production & Manufacturing

With approximately 45 lac MSMEs throughout the country, it contributes
around 6.11% of GDP from manufacturing and 24.63% of GDP from service
activities. They are crucial to the production and manufacturing of a variety of
products for both domestic as well as international markets. They have
collaborated and worked with concerned ministries, state governments, and
stakeholders towards the upbringing of rural areas through the growth and
development of khadi, village, and coir industries.
Moreover, small businesses promote innovation as they provide an
opportunity to budding entrepreneurs to build creative products and boost
competition in business and fuel growth.

2. MSME Employment
MSMEs employ around 120 million persons, becoming the second-largest
employment generating sector after agriculture. They have played an essential
role in providing employment opportunities in rural areas. These opportunities
result in the need for people to use financial services and products like banks
which in turn helps drive the growth of the country’s GDP. The industrialization
of these areas with a low capital cost has only been possible only due to the
MSME contribution.

Role of MSME in Indian economy

Since its formation the MSME segment has proven to be a highly highly
dynamic Indian economy sector. MSME produce and manufacture variety of
products for both domestic as well as international markets.

They have helped promote the growth and development of khadi village and
coil industries

MSME's have played an essential role in providing employment opportunities

in rural areas they have helped in industrialization of these areas with a low
cost capital cost compared to the large industries.

Acting as a complementary unit to large sectors the MSME sector has

enormously contributed its socio economic development .

MSME plays an important role in countries development in different areas like

requirement of low investment, flexibility in operations, mobility through
locations ,lower rate of import and a high contribution of domestic
production .
Recent Initiatives
As part of the National Manufacturing Competitiveness Programme (NMCP) –
specific initiatives were taken to enhance the competitiveness of the entire
value chain of the MSME sector.
Limited Liability Partnership (LLP) Act, 2008 was introduced to enable early
corporatization of MSMEs and tap the capital market for fund raising.
Accordingly, MSME platforms are created in BSE and NSE in 2012.
To develop a roadmap for the development and promotion of MSMEs, a task
force was created by the Prime Minister of India in 2009. The Task Force, which
comprised, among others, six specific theme-based sub-groups (on credit,
marketing, infrastructure, technology, skill development, exit policy, labor, and
taxation) submitted its report in 2010 suggesting:
(1) Immediate policy measures
(2) Medium-term institutional measures
(3) Legal and regulatory structures to create a conducive environment for
entrepreneurship and growth of MSMEs.
The Inter-Ministerial Committee for Accelerating Manufacturing in Micro, Small
and Medium Enterprises made recommendations on – (a) the promotion of
start-ups (b) facilitating operation and growth (covering credit, technology, and
marketing) (c) closure and exit (d) labour laws and regulations.
These policy initiatives are clear and consistent, aimed at transforming the
ecosystem for the MSMEs sector by influencing:
(1) Birth (encouraging Start-Ups)
(2) Operations and growth (by simplifying laws and regulations, and facilitating
their access to credit. Better technology and dynamic markets, apart from
skilled labour and reliable infrastructure)
(3) Orderly and easy exit
Importance

The further importance of MSME's in India as follows

It creates large scale employment enterprises that are inclusive in this sector
requires low capital to start up new business moreover it creates a vast
opportunity for the unemployment economic stability in terms of growth and
leverage export it is the most significant driver in India contributing to the turn
of 80% of the GDP considering the contribution of MSME to manufacturing
exports and unemployment and also benefiting from it.

Encourages inclusive growth inclusive growth is at the top level of the agenda
of the ministry for small and medium-sized enterprises for several years.

The main role in the mission of Make in India the signature initiative by the
Prime Minister of India “Make in India” has been made easy with MSMEs it is
taken as a backbone in making this dream a possibility.

Cheap labor and minimum overhead When it comes to MSME the

requirements of Labor is less and it does not need highly skilled labor.

Classification

Earlier scenario till 13th May 2020 classification of MSME's have been done on
investment in plant and machinery

MSME are classified into two categories.

Manufacturing enterprises the enterprises engaged in the manufacture of

production of goods pertaining to any industry specified in the first schedule to
the industries development and registration act 1951.

Service enterprises the enterprises engaged in providing or rendering of

services defined in terms of investment and are in equipment.
Government Policies

PM Employment Generation Programme:The Scheme is implemented by Khodi

& village Industries. commission functioning as the modal agency at the
national level, under this there are 3 other credit and Subsidy related Schemes.

Technology Upgradation and Quality certification:This Category has 9 schemes

related to finding promoting competitiveness,IPR, ASPIRE, NMCP, marketing
Support, certification etc.

Development of Khadi, village & Coir Ind:This includes Six Schemes related to
khadi, coir, export promotion, market promotion, and market promotion and
fund regeneration.

Marketing Promotion Schemes:This covers 3 Schemes for international

cooperation, marketing assistance, and P& MS.

Budget Allocation for MSMEs

Union Budget 2022-23: credit guarantee trust for MSMES is set to see a
revemp and will ensure the allocation of Rs2Lakh crore more to the Growth of
the sector

Over the next five years, the Government intends to Rs6,000 crore worth of
programs to rate MSMEs.

The Union Budget has also taken into consideration the need for an infusion of
funds into the sector. Great guarantee trust for MSMEs are set to see a revamp
and will ensure the allocation of Rs2Lakh care more to the growth of the
sector.

This would also help MSME dedicated lenders to have the confidence to
expand credit to MSMEs Sector basis the credit Guarantee of trust.
Role of MSMEs in 'MAKE IN INDIA"

New policies were framed under "make in India" campaign to facilitate the
Expansion of Micro Small and medium Enterprises (MSME) and increase the
focus on innovations.

It includes the launch of INR 10,000 crores venture capital fund dedicated to
MSMEs.

The Government has made strategic visits overseas to drive increased

investment.

Another key area of Progress for India would be the development of its MSME
to achieve and scale effectively. our supply chains are over dependent on
MSMEs.

The MSMEs Sector Employs Over 80 million in 36 million units and contributes
45% of the unit output.

Government is committed to providing all possible support to promote and

encourage MSMEs in the country by providing a Sustainable platform for
growth and development.

Role of MSMEs in Atmanirbhar Bharat Abhiyan

MSMEs are the backbone of the Indian Economy with more than 6.3 core
micro small and medium-sized enterprises (MSME), contributing nearly 29% to
the country's GDP. There is an immense scope to Scale up these segments.

A key driver to this anticipated Growth is the “Atmanirbhar Bharat Abhiyan"

which means and aims at creating a self-reliant India. The Program is built on 5
major pillars

1) Economy - which drives Quantum change rather than incremental change.

2) Infrastructure

3) System - which is based on 21st century technology - driven arrangements

4) Democracy - which is the source of Energy for a self-sufficient India

5) Demand- in which the Strength of our supply chain is fully utilized.

The Covid-19 pandemic impact on MSMEs

Formal and informal micro small and medium sized enterprises MSMEs make
up over 90% of all firms and account, on average for 70% of total employment
and 50% of Gross domestic product. So, providing the right support to MSMEs,
is key to ensure a sustainable and inclusive recovery from the pandemic

The report provides a snapshot of the current competition and market access
challenges faced by MSMEs around the world as they seek to deal with the
impact of COVID-19 on their operation. It focuses on the competition-related
challenges caused by the pandemic the ability to access existing and new
markets, regulatory responses to the situations that especially affect MSMEs,
and related observable trends relevant to small and Medium enterprises.

While examples are provided from a wide range of different nations around
the world, the principal focus is on developing countries and their MSMEs
populations.

Impact of Russia-Ukraine war on MSMEs exports to be assessed after

situation stabilizes --MSE Minister.

Even as the ongoing way between Russia – Ukraine is likely to have some
impact on India's trade with likely the two countries, more precise implications
on MSMEs including that of sanctions imposed on Russia can be assessed only
after the situation stabilizes.

According to the data on MSMEs exports to Russia & Ukraine shared by the
minister MSMEs had a share of 51% amounting to Rs 1632 crore in India's total
Export to Russia worth Rs 2854 crore during the April-January period.
As of now exports are not happening to the two countries, hence it is certainly
impacting exporters as there is no payment mechanism currently in place.
Once the way might see some opportunities as well as emerging for India

The minister noted that the Government is in the of taking appropriate steps
which may arise to the war.

CASE STUDY

Ramnarayan blue art pottery

Traditional Indian craft has been passed down from generation to generation
and is still practised in different parts of the country. Kot Jewar, a village from
Rajasthan is known for its blue art pottery and has glorified its name in the
international market. Ramnarayan Blue Art Potteries run by Ramnarayan
Prajapat is a second generation business which has spread its wings not only in
India but in overseas too. In an interview with SMBStory, 20-year-old Vimal
Prajapat shares how his father revived the fading craft of Rajasthan blue
pottery and popularised this traditional artisan work across the world.

How did the company start?

On asking Vimal Prajapat how the company started, he says, “My father
started the work at the age of 15. He went to Jodhpur to learn about the blue
art pottery and took training. He then returned to his village Kot Jewar and
initiated the work."
The company was started in 1980 as a bootstrap. In recent years, it
participated in various MSME training programmes and generated some
income which they invested in the business.

How did it manage to reach internationally?

Ramnarayan Blue Art Potteries export its products to New York, Canada,
California and Netherlands and when we asked about how did it manage to
reach internationally, Vimal says, “The internet has helped a lot. We have a
website where people from across the world order and we make sure to
deliver their desired products. My father is not much into marketing and so I
and my brother Nand Kishore look after the export of product."
The wide range of products

The art of blue pottery is the only technique which is produced without clay. It
uses quartz powder, multani mitti (Fuller’s Earth), gum and water. The artisans
produce a wide range of products in Ramnarayan Blue Art Potteries ranging
from bathroom sets, flower pots, hanging plates, bowls, tray, soap case,
planters and many more.

The impact of work on customers and society

The blue pottery is the traditional Jaipur craft work and Kot Jewar is its
production hub. Tourists from across the world visit this village to behold
themselves with the beautiful artisan work India has for them. “The students
visit us to learn the pottery. People from abroad also come here and
appreciate this craft a lot”, says Vimal. “We have 250 rural artisans who
produce these items and we have created employment opportunities for
women as well. We aim to generate employment for the people of Kot Jewar
and neighbouring villages and provide them with a source of income", he adds.

A key milestone of the journey

Vimal shared that they recently received an order from the Netherlands worth
Rs 2 crore and completing that order was a challenge for them. He said that
creating blue pottery products is extremely difficult and time-consuming. As it
involves manual work and is sensitive, the damages are inevitable. However,
they managed to deliver the order and achieved a milestone in their business
which definitely gave them a historic boost.

Micro small and medium enterprises a case study of Maharashtra

Micro small and medium enterprise sector has emerged as a highly vibrant and
dynamic sector of the Indian economy.

The state of Maharashtra has stopped position in industrial sector of India but
there are a few people who have entered medium and large scale sectors over
the last few decades small entrepreneurs have emerged as leaders in industrial
sector

MSME scenario in Maharashtra

As for the regional development of MSME is concerned it was found that

western Maharashtra had 41% units followed by konkan region having 26.49%
a unit and vidarbha region accounted 13.6% of the total msmes in Maharashtra

The region lagging behind in development of msmes were northern

Maharashtra and marathwada having 11.86% and 6.60 units respectively

Progress of MSME in Maharashtra

The manufacturing and service categories of enterprises have been classified

into micro small and medium enterprises based on their investment in plant
and machinery for manufacturing equipment enterprises and on equipment in
case of enterprise providing or entering services

Conclusion

Micro small and medium enterprises contribute significantly to economic

growth and increasing exports increasing employment after the study research
found that government has been taken major decisions for sustained growth in
this sector but major problems are lack of awareness among the entrepreneurs
for sustain the growth in the sector the government has to develop the
channel of providing facilities so that will create more opportunities to MSMEs