MSME Overview

• MSMEs are crucial to the economic growth process and play an important role in the country’s overall production network. They are drivers behind a large number of innovations and contribute through creation of employment, investments and exports. The MSME participation in the global economy reveals mainly three lines of activity – trade, technology and investment.
  
  
• The MSMEs play a pivotal role in the overall industrial economy of the country. India has nearly 13 million MSMEs which produce a diverse range of products (about 8000 odd items), including consumer items, capital and intermediate goods. In terms of value, the sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country.
  
  
• In India, MSME is the most important employment-generating sector and is an effective tool for promotion of balanced regional development. This sector is the second largest manpower employer, after agriculture. This sector employs an estimated 60 million persons.
  
  
• The factors – strengths coupled with opportunities – that work in favor of Indian MSMEs include their high contribution to domestic production, significant export earnings, low investment requirements, operational flexibility, location-wise mobility, low intensive imports, capacities to develop appropriate indigenous technology, import substitution, contribution towards defense production and competitiveness in domestic and export markets. The sector, therefore, presents an opportunity to harness local competitive advantage to achieve global dominance in industrial production and provide even greater employment.
  
  
• The challenges faced by micro, small & medium enterprises (MSMEs) includes inadequate access to finance due to the lack of information and non-formal business practices, fragmented markets for inputs and products, lack of easy access to inter-state and international markets, limited access to technology and product innovation and lack of awareness of global best practices. They also face considerable delays in the settlement of dues and payment of bills by large buyers.
  
  
• Recognizing the importance of the MSME sector, Government has announced several initiatives aimed at increasing the flow of credit to this sector. The objective is to double the flow of credit to the sector from Rs 67,600 crore in 2004-05 to Rs 1,35,200 crore by 2009-10, i.e., within a period of 5 years. It also suggested rationalizing the cost of loans to MSME sector by adopting a transparent rating system with cost of credit linked to the rating of an enterprise.
  
  
• RBI has also initiated a number of measures to increase credit flow to the MSME sector which, inter alia, includes asking all banks’ branches to make a concerted effort to provide credit cover to at least five new SMEs, speedy disposal of loan applications of small-scale units, introduction of a debt restructuring mechanism to nurse sick SME units back to health and a one-time settlement scheme for sick small NPA accounts, specialized SME branches in an identified cluster or centre, and periodic review of the flow of credit to SMEs.