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MSME - Micro, Small, and Medium Enterprises are the backbone of the Indian economy. They account for nearly 8% of the country’s GDP, around 45% of the total manufacturing output, and approximately 40% of the country’s exports.

In accordance with the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006, the Indian government has introduced MSME, or Micro, Small and Medium Enterprises. These businesses specialize in the manufacture, manufacturing, processing, or storage of products and commodities.

How are enterprises classified into Micro, Small and Medium Enterprises?

Enterprise Classification

Act of 2006

Bill of 2018

 

Manufacturing

Services

All enterprises

 

Investment Towards Plant & Machinery

Investment Towards Equipment

Annual Turnover

Micro

Rs.25 Lakhs

Rs.10 Lakhs

Rs.5 Crores

Small

Rs.25 Lakhs to Rs.5 Crores

Rs.10 Lakhs to Rs.2 Crores

Rs.5 Crores to Rs.75 Crores

Medium

Rs.5 Crores to Rs.10 Crores

Rs.2 Crores to Rs.5 Crores

Rs.75 Crores to Rs.250 Crores

Role of MSMEs in the Indian Economy

As mentioned earlier, MSMEs are the backbone of the Indian economy. They provide employment to more than 12 crore Indians across the country. MSMEs are widely regarded as a source of economic growth and a way of achieving more equitable development. They are recognized for having the highest rate of economic growth. MSMEs have propelled India to new heights due to their low investment requirements, flexibility in operations, and ability to develop suitable native technology.

Data on MSME Contribution to Indian Economy 

YearMSME- Addition of Gross ValueGrowth (%)Total Addition of Gross ValueShare of MSME in GVA (%)Total GDPShare of MSME in GDP (in %)

2011-12

2622574

8106946

32.35

8736329

30

2012-13

3020528

15.17

9202692

32.82

9944013

30.40

2013-14

3389922

12.23

10363153

32.71

11233522

30.20

2014-15

3704956

9.29

11504279

32.21

12467959

29.70

2015-16

4025595

8.65

12566646

32.03

13764037

29.20

2016-17

4405753

9.44

13841591

31.83

15253714

28.90

Importance of MSMEs to Indian Economy

  • MSMEs employ about 12 crore people, making them the second-largest source of jobs after agriculture.
  • It contributes about 6.11% of GDP from manufacturing and 24.63% of GDP from service activities, with about 45 lakh units across the country.
  • As India strives to become a $5 trillion economy, the MSME ministry aims to raise its contribution to GDP by up to 50% by 2025.
  • They account for approximately 45% of India's total exports. 
  • MSMEs promote inclusive growth by creating job opportunities, especially for people from lower socioeconomic backgrounds in rural areas.
  • MSMEs in tier-2 and tier-3 cities contribute to the creation of opportunities for people to use banking services and goods, which can result in the final accounting of MSMEs' contribution to the economy.
  • MSMEs encourage creativity by assisting aspiring entrepreneurs in developing innovative goods, thereby increasing market competitiveness and fueling growth.

What are the prominent features of MSMEs?

  • 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.
  • They encourage the growth of entrepreneurship as well as the upgrading of skills by establishing specialized training centres.
  • They are in favour of improving developmental technology, expanding infrastructure, and modernizing the sector as a whole.
  • MSMEs are dedicated to providing fair assistance in gaining access to domestic and international markets.
  • They also have quality certification programmes and modern testing facilities.
  • MSMEs are also supporting product creation, concept creativity, engagement, and packaging, in line with recent trends.
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