All About Micro, Small, and Medium Enterprises in India
For anyone with entrepreneurial zeal, the MSME sector provided the perfect launchpad to set up a small business in any field. To know more, read on.
In 2006, the Indian government introduced the Micro, Small, and Medium Enterprises Development (MSMED) Act 2006 to encourage small enterprises to manufacture, process, or preserve goods and everyday commodities. The Act was passed in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006.
MSMEs contribute about eight percent of India’s GDP and about 45% of the country’s manufacturing In India. They contribute nearly 8% of the country’s GDP, around 45% of the manufacturing yield, and about 40% of India’s exports.
Defining MSMEs
An important sector of the Indian economy, MSMEs contributed significantly to developing India socio-economically. This sector generates employment and works alongside the government to develop the most backward parts of the country to make them financially self-reliant. A March 2022 statistic reveals 79.27 lakh MSMEs in India, of which micro-enterprises account for 75.41 lakh. Additionally, there are 3.50 lakh small enterprises and 35,773 medium businesses operating in India.
According to the MSME Act, a micro-enterprise is one whose investment is under Rs. 1 crore, and its turnover is less than Rs. 5 crores. A small enterprise calls for an investment of under Rs. 10 crore and a turnover of Rs. 50 lakhs. A medium enterprise begins with an investment of Rs. 50 crore and has a turnover of Rs. 250 crores.
CLASSIFYING MSMEs
Basic Elements of MSMEs
- MSMEs work to help artisans and skilled workers get employment. They also provide loans and other related services.
- Start-ups also receive credit limits from banks.
- They encourage the entrepreneurial spirit and upgrade their workers’ skills by establishing training centers.
- They contribute to upgrading their relevant technology and infrastructure while also modernizing the entire sector.
- MSMEs offer significant assistance for better access to export and domestic markets.
- They set up centers for modern testing and quality certification services.
- They also support design innovation, product development, packaging, and intervention.
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Benefits of Registering Your Business as an MSME
The most obvious advantages are that you are not an employee but an entrepreneur. Initially, you might be able to work independently, but as your business grows, you will need some help. So, you give employment to a few others, which is the second benefit of registering your venture as an MSME.
What are the other benefits you can reap as an MSME? Here they are:
#1. Easy Funds Procurement
An MSME usually satisfied any loan criteria, enabling getting a loan easily. Since banks like to associate themselves with new ventures, they are happy to give small loans to these start-ups. Small ventures are less risky, so the payment of the loan amount is assured. This puts banks in a comfortable position, and they are willing to help small ventures with capital.
#2. Low Rates of Interest
Banks give MSMEs loans at low-interest rates, often not exceeding 15%, which they find easy to repay.
#3. Repayment Flexibility
By registering as an MSME, one can borrow and repay money flexibly and without penalty.
#4. Extra Tax Benefits
MSME loan provides an extra tax benefit as well. It reduces the taxable income of the enterprises, which eventually leads to low taxes.
#5. Loan Facility
These days, there are several MSME loans that one can avail of. What one chooses depends on one’s capital needed, tenure, risk appetite, starting a business, or expanding it.
#6. Managing Through Tough Times
Businesses see good days and bad. When they go through lean times, MSME loans see them through and boost their confidence.
#7. Subsidy on Patent Registration
Those who pay patent registration fees get a 50% subsidy from the ministry. Small businesses are thus encouraged to innovate and work on new technologies and ideas.
#8. Fewer Electricity Bills
Start-ups can get concessions on their monthly electric bills with an MSME Registration certificate. This helps businesses increase production and accept more orders without worrying about electricity bills and other issues.
Role of MSMEs in the Indian Economy
A dynamic entity in India, MSMEs manufacture a vast range of products for the domestic and export markets. Over the years, they have significantly helped to promote and develop khadi, coir industries, and village-centric industries. They have developed rural areas with their specialized skills and knowledge in collaboration with the government.
They are instrumental in providing jobs to people in rural areas. Often, these people are unskilled or semi-skilled, but with specific training, MSMEs ensure that they are employed according to their talents and skills. Their efforts have also helped industrialize vast parts of the country while working on low capital costs compared to prominent and renowned industries. They complement large sectors and continue to contribute in no mean way to the country’s socio-economic development. MSMEs contribute to the nation’s development with low investment needs, flexible operations, low import rates, and high domestic production.
Lastly, MSMEs are potent instruments of comprehensive growth that improve the lives of the most marginalized people in India. For many families, the employment they get from MSMEs is their lifeline and sole source of livelihood. By rendering such yeoman service, the MSME sector should help break the shackles of poverty and give people a chance to live well.
Importance of MSMEs to the Indian Economy
All over the world, MSMEs play a stellar role in fueling economic growth and promoting justifiable development. If they are known as the backbone of an economy, it’s no mean achievement as they bring about the highest growth rate in our economy. So far, they have employed about 120 million people, ranking No. 2 employment generator sector in the country after agriculture.
There are about 45 lakh MSME units all over India, jointly contributing about 6.11% of GDP from goods manufacturing and 24.63% of GDP from services. It also contributes nearly 45% of the country’s exports. By 2025, the MSME ministry’s goal is to increase its GDP contribution up to 50%.
MSMEs also increase the employment level in the country by providing jobs to those of the weaker sections of society.
MSMEs operating in tier-2 and tier-3 cities help develop opportunities for people to avail of banking products and services.
MSMEs pay attention to the spirit of innovation by providing small business people with the chance to build products and increase competition in business and growth.
Conclusion
The MSME sector is the mainstay of the Indian economy. It has proved its mettle in various ways: contributing to the nation’s economy, creating huge labor opportunities, and leveraging exports. MSMEs also provide opportunities for banks to enhance their credit limit for micro, small and medium enterprises. Banks should recognize the worth of this sector and give it encouragement so that those with an entrepreneurial spirit can set up their ventures in India.
FAQs: MSMEs
Q. What is meant by MSME?
Ans. MSME is an acronym for Micro, Small, and Medium Enterprises. The Government of India passed the relevant Act in agreement with the MSMED (Micro, Small, and Medium Enterprises Development) Act of 2006. This Act lays down that MSMEs are those small enterprises that process, produce and preserve goods and commodities.
Q. How many types of MSMEs Are There?
Ans. There are two main types of MSMEs—Manufacturing Enterprises and Service Enterprises, further subdivided according to their annual turnover and equipment investment.
Q. What Is the MSME Investment Limit for Each Category?
Ans. For micro-enterprises, the investment limit is less than Rs. 1 crore, and the turnover limit is less than Rs. 5 crores. For small enterprises, the investment limit is Rs. 1 crore-Rs. 10 crores and the turnover limit is Rs. 1 crore – Rs. 25 crores. For medium enterprises, the investment limit is Rs. 10 crores- Rs. 50 crores and the turnover limit is Rs. 25 crores-Rs. 250 crores.
Q. How can I avail of an MSME loan?
Ans. Anyone wanting an MSME loan can avail of it by following these steps:
- Filling up the online application form for SME/MSME loans
- Submit your KYC documents, proof of address, proof of business ownership, and financial documentation.
- Receive a loan in your bank account within 24 hours.
Q. How do you benefit from MSME?
Ans. The benefits of registering as an MSME in India are:
- One can avail of bank loans without collateral.
- An entrepreneur can get government tenders from the Udyam Registration Portal.
- A start-up owner will be protected from delayed payments.
- The MSME will reimburse the small businessman for any SO Certification charges.
Q. What are the eligibility criteria to avail of MSME benefits?
Ans. One can avail of the benefits of MSME by registering on Udyog Aadhar.
Q. What is Udyog Aadhar registration?
Ans. Registering on Udyog Aadhar is an entirely online process, and free. Those industries that register on this platform are entitled to receive benefits laid down by certain government schemes, including subsidies, easy loan approvals, etc.
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