MSME Sector: Driving Over 45% of India's Industrial Output

Home » Economy » MSMEs Power Over 45% of India’s Industrial Output: Driving Growth, Employment, and Innovation

Micro, Small, and Medium Enterprises (MSME) play a crucial role in India’s economic landscape, contributing significantly to industrial output, employment generation, and exports. As of the latest data, MSMEs account for over 45% of India’s total industrial output, making them the backbone of the country’s industrial sector. The relevance of MSMEs to the Indian economy cannot be overstated, given their diverse and widespread influence across various sectors.

The Role of MSMEs in India’s Economy

India’s MSME sector is vast, comprising over 63 million enterprises. The sector spans industries like manufacturing, services, textiles, handicrafts, and more, reflecting its dynamic contribution to the country’s overall economic development. According to the Ministry of Micro, Small & Medium Enterprises, the sector contributes around 30% to the nation’s GDP and accounts for 40% of India’s total exports.

As of 31.03.2024, a total number of 4,15, 04,899 MSMEs, including IMEs on UAP are registered. There are 80,12,542 enterprises registered in the Manufacturing category, 1,48,84,175 enterprises registered in the Service sector and 1,86,08,182 enterprises registered in the Trading category.

Employment generation by MSMEs

As of the fiscal year 2020-21, MSMEs employed over 110 million people, making it one of the largest employment providers in the country. The decentralization of the sector allows for substantial job creation, especially in rural and semi-urban areas, significantly reducing unemployment rates and promoting regional development.

The Micro sector with 630.52 lakh estimated enterprises provided employment to 1076.19 lakh persons in turn accounts for around 97% of total employment in the sector. The Small sector with 3.31 lakh and the Medium sector with 0.05 lakh estimated MSME provided employment to 31.95 lakh (2.88%) and 1.75 lahks (0.16%)persons of total employment in the MSME sector, respectively.

Distribution of employment in the MSME sector category-wise. (Source: MSME Report 2023-24)

Key Statistics and Recent Developments

The MSME sector has evolved significantly in recent years, especially with government interventions designed to bolster its growth. Recent data shows:

45% of India’s industrial output comes from MSMEs.
The sector contributes 49.4% of India’s total exports (FY 2020-21).
MSMEs constitute over 90% of India’s total enterprises.

In 2020, the Government of India revised the definition of MSMEs, which had a notable impact on the sector’s growth. The redefinition was based on investment and turnover criteria, encouraging more enterprises to seek registration and avail of benefits such as subsidies, credit access, and government schemes. As per the revised classification:

Micro Enterprises: Investment in plant and machinery or equipment does not exceed ₹1 crore, and turnover does not exceed ₹5 crore.
Small Enterprises: Investment does not exceed ₹10 crore, and turnover does not exceed ₹50 crore.
Medium Enterprises: Investment does not exceed ₹50 crore, and turnover does not exceed ₹250 crore.

This revision helped widen the scope of MSMEs, enabling more businesses to benefit from government policies designed to support the sector.

Challenges Faced by the MSME Sector

Despite their critical role, MSMEs continue to face numerous challenges that hinder their full potential:

Access to Finance: One of the biggest hurdles for MSMEs is limited access to formal finance. Many enterprises struggle to secure loans due to stringent eligibility criteria and lack of collateral.
Technological Gaps: A significant number of MSMEs lag in technology adoption, which impacts their productivity and competitiveness in an increasingly digital global market.
Regulatory Compliance: The complexities of tax regulations, labour laws, and compliance requirements impose a burden on small enterprises.
Market Access: MSMEs often struggle with market penetration, especially on a global scale, due to limited resources and networking opportunities.

Government Initiatives Supporting MSMEs

To address these challenges, the Indian government has introduced various schemes and initiatives aimed at supporting MSMEs. Some key initiatives include:

Credit Guarantee Scheme: Aimed at providing collateral-free loans to MSMEs, this scheme guarantees banks and financial institutions, making it easier for MSMEs to secure funding.
Udyam Registration Portal: A simplified registration portal designed to help MSMEs access government benefits, subsidies, and financial support.
Technology Upgradation Schemes: Programs like the Credit Linked Capital Subsidy Scheme (CLCSS) assist MSMEs in adopting modern technology to improve efficiency and production quality.

Conclusion

MSMEs are an integral part of India’s economic fabric, contributing significantly to the country’s industrial output and employment generation. However, for the sector to reach its full potential, challenges such as access to finance, technology adoption, and regulatory compliance need to be addressed. The government’s continued support through financial aid, technological upgrades, and simplified regulations is essential to unlocking the full potential of India’s MSMEs. By overcoming these challenges, the sector can drive sustainable economic growth and contribute even more to India’s industrial output and global presence.

For more information on how Brydgework Consultants can assist your MSME in achieving its goals, please reach out to us at talk@brydgework.com or visit our website at www.brydgework.com. We look forward to helping you succeed!