MSME Full Form – Meaning, Definition, and Features

The full form of MSME is Micro, Small, and Medium Enterprises. The Government of India introduced the concept through the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. These enterprises, overseen by the Ministry of MSME (MoMSME), produce, manufacture, process, or preserve goods and commodities.

Considered the backbone of the Indian economy, the MSME sector contributes approximately 27% to the country’s GDP. Its primary focus is on the development of individuals in backward and rural areas. According to the official MSME annual report for 2021-22, India boasts a total of 6,33,88,000 MSMEs. Among these, 3,24,88,000 MSMEs (51.25%) are located in rural areas, while 3,09,00,000 MSMEs (48.75%) are situated in urban areas.

As of November 25, 2022, data from the Udyam Registration Portal, provided by the Ministry of Micro, Small and Medium Enterprise (MoMSME) through www.ibef.org, reveals a total of 12,201,448 registered MSMEs in India. Micro-enterprises constitute 11,735,117 (96.17%), small enterprises make up 426,864 (3.49%), and midsized enterprises account for 39,467 (0.32%).

To explore more about the world of MSMEs in India, it’s important to know their classifications and loan schemes and understand their pivotal role in driving socio-economic development across the nation.

What is the Classification Followed by Micro, Small, and Medium Enterprises (MSME)?

The recent revision in the MSME classification has brought about a significant change by eliminating the distinction between manufacturing and services enterprises. The revised criteria now consider both the investment amount and annual turnover, irrespective of the sector in which the enterprise operates.

The updated MSME classification is as follows:

Under this merged criteria, businesses engaged in manufacturing, services, or both will be categorised based on the combined parameters of investment in plant & machinery or equipment, as well as annual turnover. The new thresholds aim to provide a more streamlined and comprehensive classification system for Micro, Small, and Medium Enterprises (MSMEs).

MSME Loan Schemes Launched by the Government of India

Several financial initiatives and schemes have been introduced by the Indian Government, along with support from various financial institutions, to empower Micro, Small, and Medium Enterprises (MSMEs). Here is an overview of some prominent MSME loan schemes:

• CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
• CLCSS: Credit Linked Capital Subsidy Scheme
• Credit Guarantee Scheme
• MUDRA Yojana under PMMY: Pradhan Mantri Mudra Yojana
• National Small Industries Corporation (NSIC) Subsidy
• PMEGP: Prime Minister Employment Generation Programme
• PMRY: Prime Minister’s Rozgar Yojana
• PSB Loans in 59 minutes
• Standup India
• Startup India

These MSME loan schemes play a crucial role in fostering the growth and development of small enterprises, contributing to the overall economic progress of the country.

Key Features of MSMEs

• Market Access Facilitation: MSMEs play a crucial role in enhancing access to both domestic and international markets for businesses, contributing to economic growth and trade expansion.
• Support for Innovation and Product Development: MSMEs actively contribute to product development, design innovation, and packaging strategies, fostering creativity and adaptability within the business landscape.
• Technology Upgradation and Modernization: MSMEs contribute to the technological advancement of industries by supporting the upgrading of technology, infrastructure, and overall modernization, thereby enhancing competitiveness.
• Employment Generation: A significant characteristic of MSMEs is their role in generating employment opportunities. These enterprises often serve as key sources of livelihood for a large segment of the population, particularly in diverse sectors.
• Financial Assistance and Loans: MSMEs serve as recipients of loans and financial support, contributing to their growth and sustainability. Access to credit enables these enterprises to invest in operations, expansion, and technological upgrades.
• Credit Limits and Funding Support: MSMEs contribute to the financial ecosystem by providing credit limits and funding support to various banks and financial institutions in the country. This collaboration helps facilitate the flow of capital within the economy.
• Flexible and Adaptive Operations: MSMEs are known for their flexibility and adaptability, allowing them to respond swiftly to market changes, customer demands, and evolving industry trends.
• Local Economic Development: MSMEs often play a vital role in the economic development of local communities and regions, contributing to poverty alleviation and overall socio-economic progress.
• Diverse Sectoral Presence: MSMEs operate across a wide range of sectors, including manufacturing, services, and trade. This diversity contributes to the overall economic resilience and stability of a nation.
• Entrepreneurship Promotion: MSMEs serve as a breeding ground for entrepreneurship, encouraging individuals to start and manage their businesses. This fosters a culture of innovation and self-reliance within the business ecosystem.

Why are MSMEs Important in the Indian Economy?

The Micro, Small, and Medium Enterprises (MSME) sector in India has emerged as a force to be reckoned with, playing an instrumental role in shaping the trajectory of the nation’s economy. The multifaceted contributions of MSMEs have significantly influenced various aspects of economic development:

1. Product Diversity and Market Growth: MSMEs contribute substantially to the production and manufacturing of a diverse range of products, catering to both domestic and international markets. Their versatility has played a crucial role in promoting the growth and development of various product segments and industries.
2. Employment Generation in Underprivileged Areas: MSMEs have emerged as significant employers, particularly in underprivileged areas. By providing employment opportunities in regions with limited economic resources, MSMEs contribute to poverty alleviation and the overall socio-economic development of these areas.
3. Industrialization with Low Capital Costs: The role of MSMEs in industrializing underdeveloped regions is noteworthy. Compared to larger industries concentrated in urban centres, MSMEs have facilitated industrialization in areas with lower capital costs, promoting inclusive economic growth.
4. Flexibility in Operations: MSMEs are characterized by their flexibility in operations. This adaptability allows them to respond swiftly to market changes, adjust production processes, and meet the evolving demands of consumers, contributing to economic resilience.
5. Low Import Dependency: The MSME sector has played a role in reducing dependency on imports by focusing on domestic production. This is crucial for promoting self-sufficiency, protecting domestic industries, and contributing to a more balanced trade environment.
6. High Contribution to Domestic Production: MSMEs have made a substantial contribution to domestic production across various sectors. Their ability to produce goods and services locally has strengthened the country’s self-reliance and fostered a vibrant ecosystem of indigenous industries.
7. Requirement of Low Investment: The MSME sector’s ability to thrive with relatively lower investment requirements has democratized entrepreneurship. This characteristic encourages individuals to venture into business, promoting innovation and economic participation.

Interest Rates Offered by Top Banks in India (2023)

Disclaimer: Please note that the interest rates are indicative and subject to change based on various factors and the discretion of the respective banks/NBFCs. Always check with the financial institution for the latest and most accurate information before making any financial decisions.

Features of the Ministry of MSME

The Ministry of MSME is an organisation dedicated to the well-being of artisans and labourers and actively facilitates credit limits and funding support from banks. This entity promotes the development of entrepreneurship and the enhancement of skills through specialized training centres. Additionally, it actively supports the modernization of technology, infrastructure, and industrial processes.

Furthermore, this organisation plays a pivotal role in facilitating improved access to both domestic and export markets. It extends its assistance to artisans and workers by providing access to modern testing facilities and ensuring quality certification. Emphasizing the importance of packaging, product development, and design intervention, this entity strives to enhance the overall competitiveness of its beneficiaries.

Key entities operating under the Ministry of Micro, Small, and Medium Enterprises (MoMSME) include:

• A Scheme for Promotion of Innovation, Rural Industries, and Entrepreneurship (ASPIRE)
• Khadi and Village Industries Commission (KVIC)
• Mahatma Gandhi Institute for Rural Industrialization (MGIRI)
• National Institute for Micro, Small, and Medium Enterprises (NIMSME)
• National Small Industries Corporation (NSIC)
• Scheme of Fund for Regeneration of Traditional Industries (SFURTI)

These entities collectively contribute to the holistic development and empowerment of artisans, workers, and entrepreneurs in the micro, small, and medium enterprise sectors.

What are the Challenges faced by MSMEs?

Despite the remarkable growth of Micro, Small, and Medium Enterprises (MSMEs) in India, the sector encounters significant challenges that impede its progress. Among these challenges, financial constraints emerge as a primary hurdle. Many MSME proprietors face difficulty securing loans from banks due to a lack of proper collateral and a consistent income stream.

Another critical challenge is the heavy reliance on informal workers within the MSME sector. These workers often lack the necessary skills and expertise to enhance productivity, placing Indian MSMEs at a disadvantage compared to their counterparts in other countries.

Moreover, a notable obstacle to the sector’s growth is the absence of managerial, entrepreneurial, and marketing skills. The dearth of these skills hampers the effective functioning of MSMEs, hindering their ability to compete on a global scale. Successful sales and customer acquisition demand a strategic blend of marketing approaches, posing an additional challenge.

Furthermore, the limited awareness among MSMEs about modernized technology acts as a hindrance to their growth. Many businesses in this sector miss out on the benefits of technological advancements due to a lack of awareness, preventing them from optimizing their operations and competing more efficiently in the market. Overcoming these challenges will be crucial for ensuring the sustained and inclusive growth of the MSME sector in India.

In Conclusion

The MSME sector in India stands at a crossroads, poised for continued growth provided it adeptly navigates these challenges. With a concerted effort from stakeholders, including government bodies, financial institutions, and industry players, the MSME sector can not only overcome obstacles but emerge as a resilient force driving India’s economic landscape toward greater inclusivity and prosperity.

FAQs about MSMEs