Neil Banerjee
Micro, small, and medium enterprises (MSMEs) form a crucial segment of the Indian business landscape. These enterprises, categorised based on their annual sales, play a significant role in the country’s economy.
“Businesses that fall into a certain segment in terms of size, turnover, and investment are referred to as MSMEs, or micro, small, and medium enterprises. The main characteristics of MSMEs are their limited scale operations, minimal investment in infrastructure and machinery, and employment of fewer people. Classic examples would include small to mid-sized retail & general stores, micro manufacturing units making food products, etc,” says Karan Desai, Founder, Interface Ventures.
What is an MSME?
MSME stands for micro, small, and medium enterprises. These enterprises are distinguished by their annual sales and are categorised based on their investment in plant and machinery or equipment, as well as their annual turnover. The classification of MSMEs in India is as follows:
Micro enterprises:
Investment in plant and machinery or equipment: Not more than Rs 1 crore.
Annual turnover: Not more than Rs 5 crores.
Small enterprises:
Investment in plant and machinery or equipment: Not more than Rs 10 crores.
Annual turnover: Not more than Rs 50 crores.
Medium enterprises:
Investment in plant and machinery or equipment: Not more than Rs 50 crores.
Annual turnover: Not more than Rs 250 crores.
Key features of MSMEs
MSMEs stand apart from larger enterprises due to their distinctive features. One of the primary differentiators is the number of people that they employ. While larger firms focus on value-added activities, MSMEs often engage in low-value activities that are integral to our daily lives. This difference in scale and scope allows MSMEs to cater to niche markets and contribute to the overall diversity of the business landscape.
“MSMEs play a crucial role in fostering innovation, entrepreneurship, and local manufacturing in India. They bring diversity to the business ecosystem, encourage the entrepreneurial spirit, and contribute to the development of new ideas and technologies. MSMEs also support local manufacturing by producing goods within the country, contributing to our collective efforts to reach our national goal of self-reliance and economic growth,” says Mandeep Arora, MD & Co-Founder, UBON.
Lending and financial support for MSMEs
“Financial support is required at every stage of a start-up. There are some key services that enterprises need when setting up their businesses or even in the later stages,” points out Ramkrishna V Raut, Head – Data Science and Technology, Happy- a neo fintech platform.
There are a range of financial services that MSMEs require for addressing their specific needs and supporting their growth.
1) Digital lending: MSMEs get access to credit through various lending platforms like Happy. This is done by collaborating with various technology aggregators and lenders to streamline the lending process and provide quick and convenient financing options.
2) Working capital loans: Working capital loans are loans that are provided to help organisations to manage their day-to-day operations and meet their short-term financial requirements. These loans can be used for inventory management, purchasing raw materials, paying suppliers, and covering other working capital needs.
3) Business expansion loans: Business expansion loans are provided to those MSMEs that are looking to scale-up their operations or enter new markets. These loans can be utilised for investing in new equipment, expanding production capacity, launching new products or services, and undertaking marketing initiatives.
“Furthermore, by implementing key features such as transparent loan proposals, thorough verification and risk assessment processes, a secure and private platform, and efficient dispute resolution mechanisms, we ensure a trustworthy environment for lenders and borrowers alike. Our commitment to transparency, security, and fair resolution cultivates a sense of trust and reliability, fostering a valuable relationship between all the parties involved,” says Raut.
Role and importance of MSMEs in India
Scuzo Ice ‘O’ Magic, founded by Gagan Anand, exemplifies the contribution of MSMEs to the Indian economy. MSMEs like Scuzo Ice ‘O’ Magic have leveraged various government programmes and schemes to enhance their output. However, despite the positive impact of these initiatives, there is a lack of consistency between different states, hindering the sector’s growth at the national level.
MSMEs play a vital role in India’s economy, encouraging entrepreneurship, generating employment opportunities, and driving economic development. They contribute significantly to the country’s GDP and have the potential to uplift communities by promoting inclusive growth. Furthermore, MSMEs often serve as the backbone of various sectors, including manufacturing, services, and retail, amplifying their importance in the overall economic landscape.
“We have been contributing to the empowerment of micro, small, and medium enterprises by providing them with access to finances, especially when they do not have a long credit history. We have been bridging the credit gap which has led to the growth and development of several MSMEs. These efforts and contributions have been in line with boosting the Indian economy, which effectively makes us an ‘impact tech’,” he further adds.
Unique challenges and opportunities for MSMEs
Through his experience with Scuzo Ice ‘O’ Magic, Gagan Anand highlights the unique challenges and opportunities faced by MSMEs in India. These include:
- Financial issues:
Access to finance has been a persistent challenge for smaller businesses and MSMEs. The limited availability of timely finance from formal banks often forces these enterprises to rely on their own resources. Even larger firms encounter difficulties in accessing cheaper credit, affecting their growth potential.
- Regulatory issues:
MSMEs face various regulatory hurdles, such as tax compliance and changes to labour laws. Despite attempts to enhance their competitiveness through labour reforms, these measures have failed to address the challenges faced by MSMEs. Compliance with regulations and tax registration often becomes an arduous task for them, leading to operational constraints and, in some cases, closures.
- Infrastructure:
Infrastructure plays a critical role in the success of MSMEs. In India, where industries such as e-commerce ventures and BPOs thrive, a robust infrastructure is essential. However, inadequate infrastructure can impede the growth of MSMEs, hindering their ability to scale their operations and reach broader markets.
- Low productivity:
MSMEs often face challenges in terms of productivity, especially when compared to larger firms. While they excel in cost-efficiency and can produce high volumes at low costs, the scale and margin limitations of their operations can hinder their overall productivity. This becomes a competitive disadvantage in certain sectors.
- Lack of innovation:
The lack of innovation in Indian MSMEs is a significant hurdle. Outdated technologies and a shortage of entrepreneurs prevent these enterprises from adopting the new tools and technologies that are prevalent in sectors like e-commerce and call centres. This lack of innovation contributes to low productivity levels and impedes the sector’s growth potential.
Bottom line
MSMEs form a vital part of the Indian business ecosystem, driving economic growth, fostering entrepreneurship, and creating employment opportunities. These enterprises also face some unique challenges like financial constraints, regulatory issues, infrastructure limitations, productivity concerns, and a lack of innovation.
“Embracing technology can enhance operational efficiency, improve productivity, and enable MSMEs to compete in the digital era. UBON encourages MSMEs to leverage digital tools, e-commerce platforms, and online marketing strategies to reach a wider audience, streamline their operations, and expand their market presence,” Arora points out.
Addressing these challenges and providing a supportive ecosystem for MSMEs is crucial for unlocking their full potential and for promoting sustainable economic development in India.
