Current Affairs

MSME in India


MSME in India

Importance of MSMEs

  • Micro, Small and Medium Enterprises (MSMEs) play a significant role in the economic growth of the country owing to their contribution to production, exports and employment.
  • In present scenario of business, the micro, small and medium enterprises have been accepted as the engine of growth for promoting equitable development .The MSME`S also have the vital role in dispersal of industries and generation of employment opportunities .The MSME`S are providing job more than 6 crore people.
  • The MSME sector is contributing 8% of country’s GDP, 45% of manufacture and 36% its exports. The MSME`s sector has consistently registered higher growth rate compare to the overall industrial sector.
  • As MSMEs are generally labour-intensive, they have the capability to create more jobs to cater to a young demographic country like India.
  • The MSME’S can be a good vehicle to minimize or remove the regional imbalances. The rural areas of the nation can equally develop through the running of MSME units in such areas. The MSME’S will utilize the work force of rural areas and lead to the removal of regional imbalance.
  • The MSME’S can be a means to enhance the export of India. There will be a great demand of Indian products at international level of market. The Indian items like –dari, kaleen, wooden items and other hand-made souvenir articles demanded in the world
  • Today, the sector produces a wide range of products, from simple consumer goods to high-precision, sophisticated finished products. It has emerged as a major supplier of mass consumption goods as well as a producer of electronic and electrical equipment and drugs and pharmaceuticals.

Problems faced by MSME

  • Problem of finance – The successful launch of the Jan Dhan Yojana (JDY) could be used to direct financial resources to targeted MSMEs. Still, access to bank finance may be difficult for some MSMEs, and therefore there is a need to consider various alternative sources of finance.
  • High Rate of Interest – Government needs to impose a cap on interest rates on loans that a money lender extends to MSMEs. As money lenders continue to play an important role in India, it is worth considering whether money lenders could be brought under regulation now, given technological progress, as achieved in the case of Japan, and an interest cap be imposed for lending to MSMEs.
  • Poor Conduct and Mis-selling – Further, MSMEs generally suffer from poor conduct by major banks. In some cases, mis-selling of financial products is a general complaint of entrepreneurs. This can take the shape of higher fee or interest rate, failure to explain exit costs, and sometimes threatening them with refusal to extend regular credit.
  • weighted average lending rate of commercial banks, as reported in the RBI’s latest AR, is the highest for MSMEs when compared with loans extended to agriculture, large industry and infrastructure
  • Financial education is very important for MSMEs in assessing appropriate start-up finance and in empowering them to use financial products and services to manage risks and other business needs.
  • Poor infrastructure-Though, MSMEs are developing so rapidly but their infrastructure is very poor. With poor infrastructure, their production capacity is very low while production cost is very high.
  • Lack of advanced technology-The owners of MSMEs are not aware of advanced technologies of production. Their methodology of production is outdated. The owners are using older method in the field of fabricated metal and textile.
  • The sector needs to be provided better market access facilities in order to sustain and further enhance its contribution towards output, employment generation and exports. A recent study reveals that MSMEs in India are broadly unaware of technology solutions and tools available to cater their marketing needs.
  • Common Database Creation – In addition to financing, there is a need for focussed coordination of activities of different government authorities to encourage MSMEs. This coordinating agency could serve in building a database and repository information on a shareable basis, measuring levels of productivity for different product groups, and identifying products in need of research and development.

Suggestion for improvement

  • Technological upgradation is the demand of time and need to be considered to stay in competition. A comprehensive list of all sorts of technologies should be prepared and made available accordingly to the MSMEs requiring it.
  • For the purpose of technological advancement and guidance , a panel of experts and consultants should be prepared, who can help the MSMEs within the region for effectively transfer the available technologies. The constitution of panel of these consultants could be nature wise of the activities of the MSME .
  • Skill Development of Bankers – Not all banks can do MSME financing as this is a specialised area and requires specialised skills to assess the institutions that can benefit from bank finance and yield higher production. Therefore, skill development of bankers is also necessary for assessing MSMEs that can be bank-financed. These skills would include:-
  1. Standardising simple format for accounting purposes for MSMEs,
  2. Competent development of human resources,
  3. Cultivating business ethics and standards,
  4. Imparting training to MSMEs which are being served by the bankers.
  • One of the important reasons for slow intake in the utilization of schemes is the lack of knowledge about schemes and their likely benefits. The current knowledge dissemination system is limited in its outreach. There is a need to develop a better communication strategy and use of new age media tools.
  • Banking system does not provide sufficient amount of credit to fulfill their requirement of establishment of MSME and as well as not for the operational activities. Therefore, there must be availability of credit according to the requirement at cheaper rate.
  • Labour laws in India are too complex which makes it very complicated for companies to employ permanent employees. There is need to reform labor laws for the betterment of labor and companies.
  • Further, in view of the continuing implications of climate change, it is necessary that the MSME sector is prepared to absorb millions who may be rendered unemployed in the agriculture sector.
  • If the country has to successfully launch the ‘Make in India’ programme, it needs to train young entrepreneurs, in addition to developing skills at skill development centres.

MSME sector is one of the most crucial sector of India. what problem this sector is facing and what measures government should take to tackle these problems?

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