NEWS HIGHLIGHTS
Theme : Mobilization of Resources, Growth & Development
Paper : GS - 3
Formulation of targeted policies in the areas of infrastructure development, technology adoption, backward and forward linkage, can help MSMEs to achieve their full potential and propel the Indian economy in a higher growth trajectory.
TABLE OF CONTENT
- Context
- Significance of MSME Sector for India
- Current Challenges
- Government Initiatives for MSMEs
- Road Ahead
Context : Formulation of targeted policies in the areas of infrastructure development, technology adoption, backward and forward linkage, can help MSMEs to achieve their full potential and propel the Indian economy in a higher growth trajectory.
Significance of MSME Sector for India :
- Boon for Rural Development: Compared with large-scale companies, MSMEs aided in the industrialisation of rural areas at minimal capital cost. The sector has made significant contributions to the country's rural socio-economic growth and complemented major industries as well.
- Front Runner in Make in India Mission: As India aims that the products that are 'Make in India' are also ‘Made for the World,’ adhering to global standards of quality. MSME is acquiring the center stage in the mission. It is taken as a backbone in making this dream a possibility.
- Simple Management Structure for Enterprises: Considering India’s middle-class economy, MSME offers a flexibility that it can start with limited resources within the control of the owner. From this decision making gets easy and efficient.On the contrary, a large corporation requires a specialist for every departmental functioning as it has a complex organizational structure.
- Economic Growth and Leverage Exports: It is the most significant driver in India contributing to the tune of 8% to GDP.
- Nowadays, MultiNational Companies are buying semi-finished, and auxiliary products from small enterprises. It offers immense potential in creating a linkage between India’s MSME base and big companies.
Current Challenges :
- Financial Constraint: In the Indian economy, access to finance has always been an issue for smaller firms and businesses. This is a major hindrance for businesses as well as the MSME sector.
- Lack of Innovation: Indian MSMEs lack innovation, and the majority of the products that they produce are based on outdated technologies. There is a severe lack of entrepreneurs in this sector, which has prevented it from adopting new technologies and tools.
- Majority of Small Firms: Micro and small businesses account for more than 80% of MSMEs. Therefore, due to communication gap and awareness, they cannot take advantage of the government's emergency line of credit, stressed asset relief, equity participation, and fund of funds operation.
- Lack of Formalisation Amongst MSMEs: MSMEs lack formalization and this contributes to the credit gap.Almost 86% of manufacturing MSMEs in the country are unregistered.
Government Initiatives for MSMEs :
- Raising and Accelerating MSME Performance (RAMP) Scheme
- Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
- Interest Subsidy Eligibility Certificate (ISEC)
- A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
- Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
Road Ahead :
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Regulatory Mechanism: The growing importance of the data economy necessitates the government creating an independent body to advise and offer consultancy to MSMEs and establish regulatory measures to protect them from economic shocks.
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Supply Chain Finance: It can help MSMEs meet urgent working capital requirements and allow them to make early payments or have quicker access to funds that they are owed and to inculcate Zero Defect & Zero Effect (ZED) practices in manufacturing done by Indian MSMEs.
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Linking Government Projects with Local MSME: The government can play a crucial role in creating domestic manufacturing capabilities by the leverage of proposed public procurements and projects.For instance, public projects such as Sagarmala, Bharatmala, and industrial corridors can be linked with the MSME sector.
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Industry-Academia Channel: A greater connection between government industry-academia is required to identify the evolving requirements in manufacturing and prepare an employable workforce, contributing to Industrial Revolution 4.0.
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Dedicated MSME Portal: A portal can be created for MSME formalization and registration. It will not only bring transparency but also help in reducing frauds and misappropriation of data.
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It can also be developed as a full-fledged marketplace for MSMEs through which sellers can develop forward and backward linkages.
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Aadhaar or PAN can be used as a unique identifier for all compliance purposes and annual registration process as a vendor must be simplified or can be done with this identifier.
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E-Courts for Dispute Resolution: Often the National Company Law Tribunal (NCLT) proceedings lead to drainage of precious financial resources for the MSME sector.
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To push for faster resolution of cases, there is a need to strengthen the NCLT framework with introduction of alternate methods of debt resolution, such as via e-courts.
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FAQs :
1. What is the Issue of Lack of Formalization of MSMEs?
Answer : MSMEs lack formalization and this contributes to the credit gap.Almost 86% of manufacturing MSMEs in the country are unregistered.
2. Name various Government Initiatives for MSMEs.
Answer :
- Raising and Accelerating MSME Performance (RAMP) Scheme
- Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
- Interest Subsidy Eligibility Certificate (ISEC)
- A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
- Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)