What is MSME? Its Meaning, Full Form, Role, and Importance

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What is MSME?

MSME full form is Micro, Small & Medium Enterprises (MSME), which are engaged in the production, manufacturing, processing, or conserving the products and commodities.

Indian economy is dependent upon the MSME sector which is the backbone of the nation. The sector is the main reason for generating employment opportunities for the large skilled and unskilled population.

In this article let us discuss the article, about the meaning, classification, features, role in the development of the Indian economy.

Comparison of the New and Old MSME Classification

 Old ClassificationNew Classification
 ManufacturingServiceManufacturing and Service, Both
MicroInvestment Shall not exceed Rs 25 lakhInvestment shall not exceed Rs. 10 lakhInvestment less than Rs. 1 crore Turnover less than Rs. 5 crore  
SmallInvestment more than Rs 25  lakh but not exceeding Rs 5 croreMore than Rs. 10 lakh, shall not exceed Rs. 2 croreInvestment less than Rs. 10 crore Turnover up to Rs. 50 crore  
MediumInvestment More than Rs. 5 crores, shall not exceed Rs. 10 croreMore than Rs. 2 crores, shall not exceed Rs. 5 croreInvestment is less than Rs. 50 crore Turnover up to Rs. 250 crore  

What is the importance of the MSME sector?

Provide economic stability

Implementation of GST generated 11% of the government revenue. Around 40% of the export contribution is from the MSME sector. The raw materials and the ancillary products manufactured by the MSME act as fodder for MNCs.

MSME leads to the inclusive growth

There is an unequal distribution of income in the economy, where a small fraction of people has maximum revenue. To bridge this gap, the government is trying to boost the MSME sector, which will help in the eradication of poverty and deprivation which important to develop the nation.

Low cost of operation

The MSME sector works on the asset-light model because of which the cost of operation is less. They do not require skilled labor for implementation of the task and in case they are required then they hire it on a contractual basis, hence the indirect expenses turn out to be less.

Simple organization structure

MSMEs are very simple and easy to operate unlike the complex structure of the big organizations having various departments creating a lot of chaos. MSMEs can be easily managed by a single owner, who is skilled enough in multi-tasking.

‘Make in India’ ventures moving towards building nation

The make in India wave initiated by our Prime Minister has made the government direct the financial institutions to provide credit at a lower rate of interest to the MSME registration to grow their business which will, in turn, grow the nation.

Role of MSME in the economic growth

The role of MSME is immense in the Indian diaspora as indulged in the following  

  • Production and manufacturing of a wide variety of products for domestic as well as international market
  • Promotion & Development of Khadi, Village & Coir Industries with the support of state ministries and government

Various opportunities in the MSME sector

  • Manpower training facilities are provided
  • Less capital required for operation
  • Have a wide network to procure raw material and machinery
  • Tooling and Testing support
  • Growth in the demand for the domestic product
  • Funding and subsidy facilities
  • Export demand from the International market for the Indian products
  • MSMEs are working on good project profiles

Challenges of the MSME sector

Inadequate and lack of timely finance

  • IL&FS crisis had a poor impact other NBFC created liquidity crunch for the MSMEs Due to this, MSMEs are not able to invest in manufacturing, purchase raw materials on time, access new technologies, or acquire new skills  
  • Increase case of delinquency has stalled the funding of the MSMEs by the banks

Obsolete Technology

  • Indian MSME functions like an old school, without adopting the latest technology, hence are not competitive with the Internation firms which are way technologically advanced
  • The popularity of the latest technologies like artificial intelligence, Data analytics, robotics in the international market has made it very challenging for the Traditional MSME to operate in the globalized world

Hurdles from the Government

  • Many a time government department acts as a major roadblock for getting license, permits, and various approvals and the entrepreneurs have to waste a lot of time running through these departments for getting the required approvals

Conclusion

Unsecured or collateral-free business loan at a competitive interest rate is the need of the hour for these MSMEs which will ease out the financial crunch that they have to face from time to time.

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