MSME Financing - Key Issues and

Solutions

Overview of MSME Sector in

India

Part 1
 Overview of MSME Sector in India
Micro, Small and Medium Enterprises (MSME) sector is a significant
contributor to the economic growth of the country. It not only acts as the
backbone of manufacturing, agriculture & engineering and services, but also is
among the top employment generating sectors. Being complementary to large
industries, it contributes enormously to the country’s GDP besides fostering
the entrepreneurial spirit. Today, the sector produces a wide range of
products, from simple consumer goods to high-precision, sophisticated
finished products; demonstrating high growth potential and stake in
manufacturing and value supply chain.
 Overview of MSME Sector in India

The sector is characterized by low investment requirement, operational

flexibility and location wise mobility. This enables providing employment at
lower capital cost and also helps in correcting regional imbalances through
industrialization of rural and backward areas, towards an efficient and
inclusive growth model. Micro, Small and Medium Enterprises (MSME)
contribute nearly 8 percent of the country’s GDP, 45 percent of the
manufacturing output and 40 percent of the exports. They provide the largest
share of employment after agriculture. They are the nurseries for
entrepreneurship and innovation. They are widely dispersed across the
country and produce a diverse range of products and services to meet the
needs of the local markets, the global market and the national and
international value chains
 Overview of MSME Sector in India
The Ministry of Micro, Small and Medium Enterprises has a number of
programmes to help and assist entrepreneurs and small businesses. If you are
planning to set up business, you may contact National Institute for
Entrepreneurship and Small Business Development (NIESBUD), National Institute
for Micro, Small and Medium Enterprises (NI-MSME), Indian Institute of
Entrepreneurship (IIE) or the Development Commissioner (DCMSME) for details
about their programmes. If you are an existing entrepreneur and would like to
improve your competitiveness, you may contact DC, MSME who can be of
assistance in various ways. If you are wanting to set up a village industry or want
to know more about Khadi or Coir Products, you may contact KVIC or Coir Board.
Ministry of MSME encourages and honors innovation and enterprise. The State
Governments, Industry Associations, Banks and other stakeholders through their
numerous field offices and technical institutions act as catalysts to help the
‘engines of growth’ throughout the country.
 Overview of MSME Sector in India
The latest 4th all India Census of MSME sector has revealed that of the total
working enterprises, 95.05% belong to micro enterprises, 4.74% to small
enterprises and balance 0.21% are medium enterprises. Also it is observed
that 45.38% enterprises are operating in rural areas. Though MSE sector,
micro in particular, is of great importance in respect to generating
employment and contributing inclusive growth of the economy, this segment
of industry is deeply credit constrained.
 Overview of MSME Sector in India
Key highlights of the MSME Sector:
• MSMEs account for about 45% of India’s manufacturing output
• MSMEs accounts for about 40% of India’s total exports
• The sector is projected to employ about 111.4 million people in more than
48 million units spread across the country
• MSMEs manufacture more than 6,000 products ranging from traditional to
high tech items
 MSMEs CONTRIBUTION TO
ECONOMY
MSMEs have contributed significantly to the Indian economy, with more than
48 million units employing more than 111.4 million persons. Further,
productivity of the MSME sector has been improving significantly with fixed
investments and employment growing consistently over the past few years.
This is a direct indication of the efforts focused on this sector to integrate the
workforce with technological enhancements to increase production.
 Employment Generation
MSME sector in India creates largest employment opportunities, next only to
Agriculture. It has been estimated that a lakh rupee invested in fixed assets in
the sector results in generating employment for four persons. Some of the
interesting observations related to employment in MSMEs are related to
generation of employment according to the industry. For instance, food
products industry ranked first, followed by non-metallic mineral products and
metal products. Additionally, Chemicals & chemical products, Machinery
parts except Electrical parts, Wood products, Basic Metal Industries, Paper
products & printing, Hosiery & garments, Repair services and Rubber &
plastic products also contributed to generate employment.
Employment Generation
 Production
MSMEs play a crucial role in the growth of the country by accounting for 40
per cent of the gross manufacturing output. As per estimation, a lakh rupee
of investment in fixed assets in the sector produces 4.62 lakh worth of goods
or services with an approximate value addition of ten percentage points. The
space has registered impressive growth over the past few years and the
growth rate recorded during the various plan periods have been very
impressive. Further, the transition period of the process of economic reforms
was also affected for some period by adverse factors such as foreign exchange
constraints, credit squeeze, demand recession, high interest rates, shortage of
raw material etc. Further, when the performance of this sector is compared
with the growth in the manufacturing and the industry sector as a whole, it
instils confidence in the resilience of MSMEs.
 Production
Production MSMEs play a crucial role in the growth of the country by
accounting for 40 per cent of the gross manufacturing output. As per
estimation, a lakh rupee of investment in fixed assets in the sector produces
4.62 lakh worth of goods or services with an approximate value addition of
ten percentage points. The space has registered impressive growth over the
past few years and the growth rate recorded during the various plan periods
have been very impressive. Further, the transition period of the process of
economic reforms was also affected for some period by adverse factors such
as foreign exchange constraints, credit squeeze, demand recession, high
interest rates, shortage of raw material etc. Further, when the performance of
this sector is compared with the growth in the manufacturing and the
industry sector as a whole, it instils confidence in the resilience of MSMEs.
 Export Contribution
Export Contribution MSMEs play a major role in India's export performance
by accounting for 45-50 per cent of total exports. The surprising fact is that
non-traditional products account for more than 95 per cent of the MSME
exports. The exports from the segment have registered enormous growth
during the last decade. Further, the growth in the segment has been mostly
fuelled by the performance of garment, leather and gems and jewellery units.
 Opportunities
MSMEs has performed outstandingly well and enabled the country to attain a
wide measure of industrial growth and diversification. By its nature of being
less capital intensive and more labor intensive, the sector has made
significant contributions to employment generation and also to rural
industrialization. This sector is ideally suited to build on the strengths of
traditional skills and knowledge, by infusion of technologies, capital and
innovative marketing practices.
 Opportunities
The opportunities of growth in the MSME sector are extensive due to the
following attributes, which makes it a more attractive investment option: Less
Capital Intensive
• Extensive Promotion & Support by Government
• Reservation for Exclusive Manufacture by small scale sector
• Project Profiles
• Funding - Finance & Subsidies
• Machinery Procurement
• Manpower Training
• Technical & Managerial skills
• Tooling & Testing support
 Opportunities
•Reservation for Exclusive Purchase by Government
•Export Promotion
•Growth in demand in the domestic market size due to overall economic
growth
•Increasing Export Potential for Indian products
 THANK YOU
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