Role of MSME Sector in Indian Economy: A Study with
special reference to Gujarat
Dr. Sarika Srivastava
Assistant Professor
Graduate School of Management Studies
Gujarat Technological University, India
Email Id: ap2_cgbs@gtu.edu.in
Abstract
The Micro, Small and Medium enterprises (MSME) sector has
emerged as a dynamic sector of the Indian economy and an essential driver of
economic process. It considerably helps in developing entrepreneurship and
generates second largest employment prospects. With a vast network of sixty-three
million three hundred eighty thousand enterprises, more than forty per cent of
exports, over twenty-eight per cent of the Gross Domestic Product and generating
employment for about one hundred eleven million people, the MSME sector
contributes in a significant way to the development of the Indian economy. The world
economy is growing at a slower rate thus a lot of emphasis is required on
developing MSME sector to extend employment opportunities specifically for
young people. Gujarat is known as a land of entrepreneurs and contribution of
MSME sector cannot be ignored while discussing the key issue of employment
generation. Gujarat has also achieved the distinction of being one of the most
industrially developed states. It has five per cent of the total Indian
population and contributes about a quarter of India’s products exports. The
industrial sector of the state comprises of over eight hundred giant industries
and six hundred three thousand Micro, Small and Medium Enterprises (MSME) which
give employment to three million eight hundred fifty-one thousand people of the
country. This research paper focuses on the contribution of MSME sector in
Indian economy and makes clear the importance of Gujarat as a state in
fostering entrepreneurship through MSME sector.
Keywords:
MSME, Entrepreneurship, Indian Economy, Gujarat
INTRODUCTION:
Overview of MSME Sector
Micro, Small and Medium Enterprises
(MSMEs) are amongst the powerful sources of employment generation, economic
development and doing innovation. With a vast network of about sixty-three
million three hundred eighty thousand enterprises, about forty-five per cent
contribution in manufacturing output, more than forty per cent of exports, over
twenty-eight per cent of the Gross Domestic Product and creating employment for
about one hundred eleven million people, the MSME sector is the growth engine
of the national economy. Employment in MSME sector stands next to agricultural
sector in terms of volume. Different kinds of products and services are
produced by MSMEs with adoption of latest technology so the market size of
business units also varies from handmade products to hi-tech products. The
National Manufacturing Policy forecasted to raise the share of manufacturing
sector in GDP from sixteen per cent at present to twenty-five per cent by the
end of 2022 to provide momentum to the manufacturing sector.
Revised
Classification of Micro, Small & Medium Enterprises (MSME)
The
Government of India has introduced new MSME definition in accordance with
Aatmanirbhar Bharat Package and it came into effect from 1stJuly,
2020.In revised guidelines, both manufacturing and service sector shall have
the same limit of investment and turnover (which is newly introduced in the
definition).
|
Table No. 1: Revised Classification of MSMEs |
|
|
Manufacturing and Service Sector |
|
|
Types of Enterprises |
Limit of Investment in Plant &
Machinery or Equipments and Limit of Turnover |
|
Micro Enterprises |
Investment < 1 Crore and Turnover < 5 Crore |
|
Small Enterprises |
Investment < 10 Crore and Turnover < 50 Crore |
|
Medium Enterprises |
Investment < 50 Croreand Turnover < 250 Crore |
|
Source:https://msme.gov.in/sites/default/files/MSME_gazette_of_india_0.pdf |
|
Functioning
of MSME Sector in India
The
Ministry of MSME runs various schemes aimed at financial assistance, Technology assistance and upgradation,
skill development and training, infrastructure development, enhancing
competitiveness and Market assistance of MSMEs. A number of statutory and
non-statutory bodies work under the aegis of the Ministry of MSME as mentioned
below-
Khadi
and Village Industries Commission (KVIC)
Khadi and
Village Industries Commission (KVIC) is a statutory organization under the
aegis of the Ministry of MSME with the role of promoting the production and
sale of Khadi. With a vast network of 2632
institutions and over 4.95 Lakh people, KVIC also supports 80 percent of women artisans.
The economic objective of KVIC
includes producing saleable articles while social objective adds providing
employment in rural areas. The wider objective of the organization is creating
self-reliance amongst people and building up a strong rural community spirit.
Coir
Board
India, being
the largest coir producer in the world, produces more than 80 % of the total
world production of coir fibre. The coir sector in India involves households,
co-operatives, NGOs, manufacturers and exporters. Beautiful artefacts, handicrafts and utility products from
coconut husks are produced by this sector. The coir industry employs about 7.30
lakh persons belonging to the economically weaker sections of society and 80%
of them are women.
The
National Small Industries Corporation Limited (NSIC)
Under ministry of MSME, The
National Small Industries Corporation Ltd. (NSIC) is an ISO 9001-2015 certified
Government of India Enterprise and works for expansion of micro, small and
medium units in the country. NSIC is a profit-making dividend paying company
and works on the mission to promote and support MSME by providing integrated
support services encompassing, Marketing, Finance, Technology and other
Services.
Mahatma
Gandhi Institute for Rural Industrialisation
The
Jamnalal Bajaj Central Research Institute (JBCRI), Wardha was revamped with the
help of IIT, Delhi in October 2008 and called Mahatma Gandhi Institute for
Rural Industrialization (MGIRI).The main objectives of the institute comprise acceleration
of rural industrialization for sustainable village economy, innovation through
pilot study/field trials, R&D for alternative technology using local
resources, attract professionals and experts to Gram Swaraj and empower
traditional artisans.
National
Institute for Micro, Small and Medium Enterprises, (NI-MSME)
The primary objective of NI-MSME
was to be the trainer of trainers but now it has widened its extent of
activities to consultancy, research, extension and information services. The institute
has identified thrust areas like NGO Networking Quality Management Services Entrepreneurship
Development, Environment Concerns, Technology Up-gradation & Transfer,
Policy Issues, Cluster Development, Management Consultancy, Financial Services,
and Information Services in line with the national objective of economic
development through industrialization.
LITERATURE REVIEW:
A report
titled “MSME Growth Driver of Indian Economy” published by CII and Resurgent
India (2019) mentioned
that over 1,00,000 SMEs have shown 13.9% increase in net jobs created in the
MSME sector in last four years. Gujarat, Maharashtra and Telangana have been
the largest job generators.
A
report titled “Making Indian MSMEs globally competitive” published by KPMG
(September 2019) mentioned that
MSME sector is a main driver of economy of India with a network of sixty-three
million entities. It generates employment for about one hundred eleven million
people and manufactures more than seven thousand five hundred products with a
share of around forty-eight per cent in the country’s total export.
Yogesh
C. Joshi and Kaushal Kishore (2018) found in their research that
considerable proportion of MSMEs are practising energy conservation but a lot
of efforts are required to increase the number of units practising the model of
energy conservation.
Nihar
Ranjan Jena and Lina R Thatte (2018) analyzed that the difference in performance of the MSME sector in
different states existed due to the differences in the presence or absence of
adequate enabling factors like labour force, economic infrastructure,
regulatory framework, size of GSDP and density of MSME clusters etc. and found
that Maharashtra was the leader in terms of performance of the MSME sector
which was closely followed by Gujarat, Tamilnadu, Andhra Pradesh, Uttar
Pradesh, West Bengal and Kerala.
Papiya
Manna and Dr. Tapas Mistri (September 2017)analyzed in their research that
MSMEs are increasing year by year and its share in national or state GDP has
also shown increasing trend with some fluctuations.
RESEARCH METHODOLOGY:
RATIONALE
OF THE STUDY
From the literature review it was found that many researchers have
conducted research on related areas of MSME sector but no relevant study has
been done specifically to understand the importance of Gujarat’s MSME sector.
Gujarat is known as the growth engine of Indian economy and it is not only due
to large manufacturing units but also has a significant contribution of MSME
sector. This research work has been carried out to fill this gap.
RESEARCH
DESIGN
Research Design of present study is descriptive in nature.
The researcher has used secondary information for the purpose of analysis and
conclusion.
RESEARCH QUESTIONS
1. What is the scenario of the Micro, Small and Medium
enterprises (MSME) sector in India?
2. How MSME sector of Gujarat is contributing in Indian GDP?
RESEARCH
OBJECTIVES
1.
To
know about the current scenario of MSME sector of India and functioning of
ministry of MSME.
2.
To
understand the role of MSME sector in economic growth of India.
3.
To
study the importance of Gujarat in the development of MSME sector.
4.
To
analyze the contribution of MSME sector of Gujarat in Indian economy.
DATA
COLLECTION
Current study is based on secondary data. Several
reports from authentic sources have been studied to know the current scenario
of MSME sector. Other secondary data have been collected from various published
sources which represents performance of MSME at state level and national level.
Present research is mainly based on the statistics available on annual report (2018-19)
of MSME published by Government of India, report published by Indian Brand
Equity Foundation (IBEF) in December 2019 and report of expert committee on
MSME published by Reserve Bank of India (RBI) in July 2019. Facts and figures
given in these reports have been considered for analysis purpose.
DATA
ANALYSIS:
OVERVIEW
OF PERFORMANCE OF THE INDIAN MSME SECTOR
The MSME
sector is considered as an important driver of economic growth. As MSME sector
has significant employment potential at very low capital cost, this gives
competitive edge to small scale units of the country. The Small and Medium
Enterprises (SMEs) play key roles in job creation and economic growth
especially in developing countries as it account for about ninety percent of
businesses and more than fifty per cent of employment worldwide.
Growth Pattern of MSMEs in India
India is
one of the highest increasing economies of the world. In the last ten years,
MSME sector has shown remarkable progress in terms of various parameters like
production, number of units, employment and exports. This sector has immense
potential to contribute much more in Indian economy provided to get the right
set of support systems.
Growth rate of MSME Sector in comparison with the
Overall Industrial Sector
It must also be studied that whether the MSMEs are growing in line with the overall industrial growth or not. The growth rate of MSME sector in comparison with the overall industrial sector has been depicted from 2000-01 to 2015-16 in Chart no.1. The MSMEs have recorded a higher growth rate than the overall growth of industrial sector in many years which shows the importance of MSME sector in economic development of the nation.
|
Chart No. 1: Comparison of MSME sector vis-à-vis
Overall Industry |
|
Source:
https://m.rbi.org.in//Scripts/PublicationReportDetails.aspx?UrlPage=&ID=924 |
CONTRIBUTION OF MSMES IN INDIAN ECONOMY
According
to the report of the expert committee on Micro, Small and Medium Enterprises
(MSME) published by Reserve of India (RBI) on 25th June 2019,MSMEs are widening their domain across
sectors of the economy, producing varied range of products and services to meet
demands of domestic as well as international markets. There are more than sixty
thousand products, ranging from traditional items to the items having advance
technology, which are being manufactured by the MSMEs in India.
Contribution
of MSMEs in Country’s Economy at Current Price
The contribution
of MSME sector in the country’s economy at current prices from 2011-12 to
2016-17 is given in Table No. 2. From 2011-12 to 2016-17, the contribution of
the MSMEs in Gross Domestic Product (GDP) of the country remained almost
similar. 30% is a significant number in terms of sharing GDP. There are no
major fluctuations observed in recent years.
|
Table No. 2:
Contribution of MSMEs in Country’s Economy at Current Price |
|
Source: Central Statistics Office (CSO), Ministry of Statistics &
Programme Implementation |
Estimated
Number of MSMEs (Activity Wise) in the Country
There
were 633.88 lakh unincorporated non-agriculture MSMEs in the country engaged in
different economic activities as per the National Sample Survey (NSS) 73rd
round, conducted by National Sample Survey Office (NSSO), MoSPI, during the
period 2015-16. Table No. 3 shows the distribution of MSMEs category wise.
|
Table No. 3:
Estimated Number of MSMEs (Activity Wise) in the Country |
|
Source: Annual Report of Ministry of MSME 2018-19 |
Estimated
Employment in MSME Sector (Broad Activity Category Wise)
Employment
is very important factor which needs to be addressed by MSME segment. It can be
seen in the given table that MSME sector is contributing in all categories.
Overall 32% share of employment is in manufacturing, 35% in trade and 33% share
is in services sector. Both rural and urban population is serving the nation
through small scale industries.
|
Table No. 4:
Estimated Employment in MSME Sector (Broad Activity Category Wise) |
|
Source: Annual Report of Ministry of MSME 2018-19 |
Comparison of MSME export to total
exports
It would be interesting to know
the facts and figures related to share of MSME sector export in total exports
of India to foreign countries. As per the information available on RBI website,
export of MSME was USD 127992 million in 2012-13 while overall exports was USD
300400 million so it was 43% share of MSME in total exports. In 2013-14 exports
by MSME were higher than previous year but share was less than 43%. It is very
clear that since 2012-13, the MSME sector has maintained the continuity of
having more than 42% share in overall exports from the country and now it is
nearly 50% contribution of MSMEs in export.
|
Table No. 5: Share of MSME
exports in total exports (Amount in USD Million) |
|||
|
Year |
Total Exports |
Exports by MSME |
Share of MSME Exports (%) |
|
2012-13 |
300400 |
127992 |
43 |
|
2013-14 |
314415 |
133313 |
42 |
|
2014-15 |
310352 |
138896 |
45 |
|
2015-16 |
262291 |
130768 |
50 |
|
2016-17 |
275852 |
137068 |
50 |
|
2017-18 |
303376 |
147390 |
49 |
|
Source: https://m.rbi.org.in//Scripts/PublicationReportDetails.aspx?UrlPage=&ID=924 |
|||
OVERVIEW
OF GUJARAT ECONOMY
About Gujarat
Geographical location of Gujarat is
strategic advantage for the development of state economy. 1600 km longest
coastline at western coast of India has robust facilitating infrastructure in
terms of well-developed major port at Kandla and 41 other
ports. Economy of any state cannot boost if it does not have global linkage and
fortunately Gujarat has strong air connectivity with rest of the world. One international airport and 18 domestic airports of
Gujarat help in managing international trading activities. Vibrant Gujarat is a
highly successful business model which is organized in every alternate year to
promote export – import and other joint projects in various spheres among
partner countries. Food processing
& Textiles sector and Chemical, Power, Oil and Gas are major industries.
Apart from that Gujarat is also known in the world for Pharmaceuticals
industry. Government of Gujarat also promotes tourism sector to generate huge
revenue. Automobile, IT, Gems and Jewellery, Minerals and Dairy sector also
have significant contribution in the economy of Gujarat.
Gujarat’s Contribution to Indian
Economy (2017-18)
|
Table
No. 6: Gujarat’s Contribution to Indian Economy (2017-18) |
||
|
Parameter |
Gujarat |
India |
|
GSDP as a percentage of all states’ GSDP |
7.7 |
100.0 |
|
GSDP Growth Rate (%) |
12.97 |
10.80 |
|
Per Capita GSDP (US$) |
2,654 |
17,503 |
|
Source: IBEF report on Gujarat State
(December 2019) available on www.ibef.org |
||
Industrial Development & Economic Growth in Gujarat
|
Table No. 7: Industrial
Development & Economic Growth in Gujarat |
|
|
Parameters |
Status of Gujarat |
|
Average
Annual Gross State Domestic Product (GSDP) from 2011-12 to 2019-20 |
Rs
17.01 trillion (US$ 243.45 billion) at a CAGR of 13.53 % |
|
Total
exports from the state during 2018-19 |
US$
67,401 million |
|
Exports of major agriculture
commodities from Gujarat in 2018-19 |
US$ 3.59 billion |
|
Major Export Item |
80 % of
India’s diamonds |
|
Power generation capacity |
34,544.67 MW |
|
Total
area covered under SEZs |
First
rank in India |
|
Clusters
and Special Economic Zones (SEZs) |
106 product clusters and 60 SEZs |
|
Refineries (Petroleum Capital of India) |
4 refineries with a combined capacity of 101.9 MMTPA |
|
Largest Produced Items |
Processed Diamonds with 72% share and Denim with 70
% share |
|
Source:
https://www.ibef.org/states/gujarat-presentation |
|
Major Initiatives Taken by the
Government to Promote Gujarat as an Investment Destination
|
Table No. 8:
Initiatives Taken by the Government to Promote Gujarat |
|
|
S. No. |
Initiatives |
|
1 |
High-Speed Rail passenger corridor from Ahmedabad
to Mumbai with the cooperation of the Government of Japan. |
|
2 |
Large scale investment is expected in Gujarat as
part of the US$ 90 billion Delhi-Mumbai Industrial Corridor (DMIC). |
|
3 |
Allocation of Rs 1559 crore (US$ 223.06 million)
to Mukhya Mantri Gram Sadak Yojana in the state Budget 2019-20. |
|
4 |
Allocation of US$ 824.63 million to the
Agriculture, Cooperation and allied activities sector. |
|
5 |
Incentive program for the Industries (General) to
attract investments in the manufacturing sector to create more employment
opportunities. |
|
6 |
79 linked Agricultural Produce Market Committees
(APMCs) with the National Agriculture Market (eNAM). |
|
7 |
Allocation of US$ 2.57 billion to the Energy,
Industry & Minerals. |
|
8 |
Incentive program for the Industries (General) to
attract investments in the manufacturing sector to create more employment
opportunities. |
|
Source: https://www.ibef.org/states/gujarat-presentation |
|
FDI Inflows in
Gujarat
|
Chart No. 2: FDI Inflows in Gujarat ( US$ million) |
|
Source: Department of Promotion of Industry and Internal Trade (DPIIT) |
According to the report of Department for Promotion of
Industry &Internal Trade (DPIIT), FDI inflows was US$ 7.156 million in FY
2000- FY 2011 which has reached up to US$ 20.545 million in FY 2001 – FY 2019. The
total share of Gujarat in the overall Foreign Direct Investment (FDI) inflows
in India is about five per cent.
OVERVIEW
OF PERFORMANCE OF THE GUJARAT MSME SECTOR
Overview of MSME Sector of Gujarat
Micro,
Small and Medium Enterprises have played highly significant role in overall
development of the state. They have proved to be a major contributor to the
economy of the state in terms of entrepreneurship development and employment
generation. MSME Gujarat is playing an
essential role in providing opportunities and employment in the areas of
Engineering, Textile, Chemical products, Plastic, Food Processing, Ceramic,
Pharmaceutical, etc.
State-Wise
Distribution of Estimated MSMEs
74% of the total estimated numbers of MSMEs in
the country are located mostly in ten states. The available information depicts
that Uttar Pradesh (UP) has highest number of MSMEs which is very closely
followed by West Bengal. Tamilnadu and Maharashtra both have nearly same number
of micro, small and medium scale units while Karnataka comes on fifth rank in
terms of number of MSMEs. Gujarat has 33.16 lakhs established MSMEs while
164.52 lakh units are spreaded in other states the country.
|
Chart
No.3: State-Wise Distribution of
Estimated MSMEs |
|
|
Recent Initiatives Taken By the
Government of Gujarat to Promote MSME Sector
·
Government of
Gujarat is very actively promoting small & medium size businesses through
various schemes of granting financial and technical support, establishing
incubation centres, supporting budding entrepreneurs, providing guidance to
young students who are initiating start-ups, introducing courses in
entrepreneurship, encouraging internships and summer internship projects in
MSMEs, organizing awareness programmes of Government schemes to assist MSME
sector.
·
Gujarat government
has set a target to have 30,000 MW renewable energy capacities by 2022 end and
has launched an incentive scheme for the MSMEs to generate electricity by
setting up solar plants and sell excess power to the electricity board of
state.
·
The Gujarat
government in February 2020 signed a MoU with State Bank of India (SBI) to
facilitate fast approval of loans to entrepreneurs in the MSME sector. This is
in line with the objective of central government to move up in the ranking of
Ease of Doing Business.
CONCLUSION:
It is very clear from the analysis that Micro, Small
and Medium Enterprise (MSME) sector has emerged as a very important segment which
is contributing significantly to employment generation, innovation, exports,
and inclusive growth of the economy. The reason is that the MSME sector has the
ability to make cost effective products and government is also providing full
support to boost up this sector. Currently MSME’s share in national GDP is
about 29% and is projected to touch 50% by 2024. With its inherent strengths, powerful
infrastructure and strong positioning at national and international level,
Gujarat has very clear vision for developing MSME sector and there is no doubt
in accepting the fact that Gujarat also has a status of favoured global
investment destination. Conductive business environment with ample growth
opportunities, good infrastructural facilities, better road connectivity,
largest coastline, supportive government initiatives and increasing ease of
doing business ranking makes Gujarat a promising state in the country to ensure
the development of MSME sector in line with the economic development policies
of central government. It can be said that MSME sector needs more attention
like any other large industrial units and it would certainly help India to
become economic powerful nation among all countries of the world.
REFERENCES:
Gujarat – The Growth
Engine of India (December 2019) report published India Brand Equity Foundation
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