Significance of MSMEs in the Indian Economy

MSME industries are defined on the basis of the investment they have done in their businesses and the turnover as per the MSME Act of 2006. These small-scale industries

Introduction

MSMEs are the backbone of the Indian economy — they have contributed 30 per cent to the GDP in the financial year of 2022. They are a testament to the zeal of the Indians to thrive in any way possible — that is how the small-scale industries scaled to big brands such as Mother Dairy or Verka. Furthermore, realising the potential of the SMEs government of India launched tremendous schemes for this sector, ranging from the emergency credit line to e-commerce marketplaces such as ONDC.

Role of MSMEs in Job Creation

The MSME sector generates numerous jobs for both skilled and unskilled labour, thus becoming one of the largest employment generators in India. Also, they brought a certain level of industrialization to rural areas cost-effectively by establishing industries in the countryside. In this sector, it has the potential to generate more employment than big industries because they require low capital to set up but need numerous workforce to sustain the operations. An example of this phenomenon is Amul; it started in the 1940s as a small cooperative in Gujrat. It scaled its operations through India, and today, it employs 1.6 million people. 

Though MSMEs are facing considerable challenges in creating jobs, such as:

  • Constrained access to capital: Gaining access to capital is always the biggest pain point for MSMEs. The formal sector cannot fulfil the monetary requirements of the businesses. Therefore, cash flow optimization becomes crucial to maintain healthy working capital. Through platforms like CredFlow, organizations can easily optimize their cash flow to run their business smoothly. 
  •  Regulatory compliances: The law and compliances hinder the operations of the MSMEs. There are numerous compliances that they have to go through, affecting the ease of business for MSMEs. For instance, many businesses cannot get registered due to compliance burdens, and it is not mandatory, but it puts them at a disadvantage. They cannot get access to the central and state government lending options. 

Why does MSME is an Integral Part of the Supply Chain in India

It is imperative to think about Indian supply chains working without the intervention of MSMEs at various touch points. For instance, in the global supply chain, MSMEs are the largest auto parts manufacturers exporting to the European continent.  

Indian government launched the IndiaXports portal, which will provide information to MSMEs to compete in the global market. It will help them understand the rules and regulations of foreign countries that they need to follow to do business in any overseas markets.  

Thus, MSMEs have the potential to be globally competitive and market leaders in their respective areas of expertise. 

Conclusion 

The MSME sector is the principal driver of the transition of the Indian economy from an agricultural-dependent market to an industrialized economy. There is a long way with hurdles and challenges along the way, but without the MSME sector, the Indian economy cannot develop.

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