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MSME Sector’s Contribution To India’s GDP

For someone like today’s youth, for whom Ministry would mean the big highlighted departments like Home Ministry, Finance, Defense and upto some extent Human Resources, something like the MSME ministry would be a new world in itself. So, to know the contributions of MSME sector one must first understand what it actually is.

MSME aka Ministry of Micro , Small and Medium Enterprises

MSME is a branch of the Government of India responsible for the formulation and administration of the rules, regulations, and laws regarding the micro, small, and medium enterprises in India. Since 31 May, 2019, the MSME minister has been Mr. Nitin Gadkari and the Minister of State has been MR. Pratap Chandra Sarangi.

MSME latest Classification (as of July 1st,2020) as per Investment in Plant and Machinery/ Equipment and annual turnover:

Manufacturing Enterprises and Enterprises rendering servicesInvestment < INR 1 Cr and annual turnover < INR 5 CrInvestment < INR 10 Cr and annual turnover < INR 50 CrInvestment < 50 Cr and annual turnover < INR 250 Cr

MSMEs are well known for generating huge employment opportunities at comparatively lower capital costs than large scale industries. They have also helped in industrialization of rural and backward areas, thus improving their conditions and at the same time assuring more equitable distribution of national income and wealth.

The Ministry regulates:

  • Khadi and Village Industries Commission
  • National Commission for Enterprises in the unorganized sector
  • National Small Industries Corporation.Ltd
  • Indian Institute of Entrepreneurship, etc.

Benefit Schemes For MSME

The Government of India has worked hard to implement benefit schemes and ensure that MSMEs can avail the benefits with ease.

For availing the government scheme benefits, MSMEs need to have an Udyam registration certificate and the unique number provided during registration. The idea of Udyam registration is to make the registration procedure that was hectic, time consuming, and involved a lot of paperwork, hassle free.

In recent times, under the Atmanirbhar Bharat Scheme, various additional benefits have been included that the MSMEs can avail, such as:

  • MSME loans of around 3 lakh Crore for the purchase of raw materials, to meet operational requirements and restart businesses post the pandemic.
  • Disallowing global tenders upto INR 200 Cr so as to help the domestic companies.
  • Clearance of MSME dues by the Government and Public Sector Units (PSU’s) within 45 days.

Now that a brief idea has been provided about MSME, the focus shifts to

MSME sector’s contribution to India’s GDP

The MSME sector in terms of Mr. Nitin Gadkari, is the backbone of the national economic structure and has acted as a strong force in shaping India’s economic success over the years.

Currently, MSMEs contribute around 30% to the overall GDP of India which the government intends to take upto 50% in the next 5 years.

The MSME sector contributes around:

  • 6.11 % of the manufacturing GDP
  • 24.63% of the GDP from service activities
  • 33.4% of India’s manufacturing ouput

This sector is also responsible for providing employment to around 120 million personnel and also providing contributions of around 48% of the total exports from India.

It has been observed under the Prime Minister’s Employment Generation scheme that the employment generation in this sector has shown a steady growth over the years. In the year 2014-15 it was around 3.5 lakhs, in 2017-18, it was around 4.08 lakhs and by 2019 around 5.8 lakhs.

Apart from direct and visible contributions to the GDP, the indirect contribution of the MSME sector could be that it provides a safe space for gender roles, sociological balance and also an environment-conscious livelihood.

Growth opportunities for MSMEs

The MSME sector has a great potential to further strengthen their economic contributions and thus grow by acting as top quality suppliers as well as customers to large companies in various sectors.

1. Food and Agro:

  • MSMEs can focus on innovative food packaging techniques for processed food items.
  • More investment in processed food, milk and dairy, and packaged foods.

2. Electronics:

  • Manufacturing of electronic gadget parts, semi – conductor designs, and hi- tech manufacturing.
  • Low- cost consumer electronics, microelectronics.

3. Telecommunications:

  • Domestic manufacturing of telecom networking equipment like routers.
  • Next generation software defined networking equipment.
  • Manufacture of low cost mobiles, handsets, etc

MSME Loans

For achieving such a scenario where the MSME sector’s contribution to the GDP increases in manifolds, the most basic and primary condition is that MSMEs don’t shut down and run efficiently. For working efficiently by meeting their working capital or investment requirements, like every small scale or large scale company they too require money in the form of loans.

  • Most banks public as well as private ones provide loans to MSME’s at varying interest rates depending on business requirement.
  • Interest rates can vary from as low as 7 % to higher than 15%.
Loan AmountRepayment TenurePart- payment ChargesLoan Cancellation Charges
There is no minimum limit but max is upto 1 Cr.12 months to 5 years0-4 %Varies from bank to bank

Loan eligibility criteria:

  • Age- 18 to 70 years
  • Eligible entities- Individuals, MSME business owners, traders, manufacturers
  • Client must have a good credit score of above 750
  • He/She must be an Indian citizen with no criminal record

Types of Loans

Term loan:

A term loan is a monetary loan that has to be repaid in regular payments with a specified period of time which generally ranges from 1 year to as high as 30 years. It is often used by companies to purchase fixed assets, which could be some machinery or building. There are 3 types of term loans, namely short-term loan (runs for 18 months ) for the companies that don’t qualify for a line of credit, intermediate-term loan which runs for 1 to 3 years and the long term loan that runs from 3 to 25 years.

Mudra loan (Under the Pradhan Mantri Mudra Yojana):

The Pradhan Mantri Mudra Yojana is a scheme launched on 8th April, 2015 by Prime Minister Narendra Modi for providing loans upto INR 10 lakhs to the non- corporate, non-farm micro, small and medium enterprises. These loans are provided by the commercial banks, small finance banks, MFIs and NBFCs. MSMEs can either approach these banks directly for the loan or can apply online through www.udyamimitra.in.

PMEGP (Prime Minister’s Employment Generation Programme):

The Prime Minister’s Employment Generation Programme is credit linked subsidy scheme for the MSME sector initiated by the Govt. of India. Under this scheme MSME schemes can take a loan of INR 9.5 to 23.75 lakhs for a tenure of 3 to 7 years for their project. The maximum project cost is INR 25 lakhs for the manufacturing sector and INR 10 lakhs for the service sector. Any person above the age of 18 years can apply for this loan

Working Capital Loan:

This is the loan that a company takes to finance its day to day operations. They aren’t meant to buy assets or for an investment but are to provide money for the company’s short-term operational needs. Whether it is a large company or an MSME, everyone requires a working capital loan to run their businesses smoothly.

Loan benefits for MSMEs

  • Lower interest rates
  • Minimal documentation
  • Quick approval in recent times
  • Low processing fees

The MSME sector in India today is on the verge of competing with MSME sectors of developed countries in terms of contribution towards the GDP. It is just that the government has to take care of this sector like a prodigal son with proper nourishment and time to time investments as a strong potential to improve India’s economy and take it to uncharted territories in the near future.

Factors like export promotion, tooling and technology, manpower training, technological and managerial skills have given enormous opportunities for the growth of MSMEs in recent times and one can hope that it continues in the long run.

Thus, if the Government ensures that proper care is taken of this sector then Indian economy is certain to reach new heights of economic prosperity.

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