UNIVERSITY INSTITUTE OF LEGAL STUDIES

PANJAB UNIVERSITY, CHANDIGARH

The project reported on the topic:

THE ROLE AND PROBLEM OF MSME IN INDIA
In partial fulfilment of the requirements for the syllabus of bcom.llb (3rd semester)

SUBMITTED TO: SUBMITTED BY:

DR. GULSHAN KESHIKA
PROFESSOR UILS ROLL NO: 373/23
PANJAB UNIVERSITY CHANDIGARH BCOM.LLB (3RD Sem)
 ACKNOWLEDGEMENT

I would like to convey my heartfelt gratitude to my Economics

Professor GULSHAN KUMAR for her tremendous support and
assistance in the completion of my project and for providing me with
this wonderful opportunity to work on this project. The completion of
the project would not have been possible without his help and insight

Regards
Keshika
 INDEX

Introduction……………………………………………………………………………………………….
 INTRODUCTION
For a country to grow, the government should actively promote business
enterprises.
Among business enterprises, the Micro, Small and Medium Enterprises (MSME)
deserve special attention. Though MSMEs are small investment enterprises,
their co the Indian economy very significant.
• Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
which was notified on October 2, 2006, deals with the definition of
MSMEs. The MSMED Act, 2006 defines the Micro, Small and Medium
Enterprises based on
1. the investment in plant and machinery for those engaged in
manufacturing or production, processing or preservation of goods and
2. the investment in equipment for enterprises engaged in providing or
rendering of services.

MSMEs contribute a staggering 30% to the country GDP, and around 45% of
the manufacturing output, and approximately 48% of the county’s exports.
Additionally, more than 11 crore people are employed in the MSME sector. They
are rightly referred to as the `backbone of the country’.
Micro, small and medium enterprises (MSME) sector has emerged as a highly
vibrant and dynamic sector of the Indian economy over the last five decades.
MSMEs not only play crucial role in providing large employment opportunities
at comparatively lower capital cost than large industries but also help in
industrialization of rural and backward areas, thereby, reducing regional
imbalances, assuring more equitable distribution of national income and
wealth. MSMEs are complementary to large industries as ancillary units and
this sector contributes enormously to the socio-economic development of the
country.
MSME envision a vibrant MSME sector by promoting growth and development
of the MSME sector, including Khadi, village, in the cooperation with concerned
Ministries/Departments, state government and the other stakeholders, through
providing support to existing enterprises and encouraging creation of new
enterprises.
The ministry of micro, small and medium enterprises, a branch of the
government of India, is the apex executive body for the formulation and
administration of rules, regulations and laws relating to micro, small and
medium enterprises is Nitin Gadkari and the minister of state is Pratap Chandra
Sarangi since 31 May 2019.
Under the Micro, Small and Medium Enterprises Development Act, 2006, the
Government of India established The National Board for Micro, Small and
Medium Enterprises (NBMSME) to examine the factors affecting promotion and
development of MSME. This board also reviews the existing policies and
suggests recommendations to the Government for the growth of the MSME
sector.
The services provided by the Ministry of MSME are as follows:
• Facilities for testing, training for entrepreneurship development
• Preparation of project and product profiles
• Technical and managerial consultancy
• Assistance for exports
• Pollution and energy audits.
ROLE OF MSME INDIA

In order to revive the Indian economy amid Covid-19 pandemic, the

government has announced an economic package under Atmanirbhar Bharat
Abhiyan. The main thrust of the announcements has been the massive ₹3-lakh
crore collateral-free assistance or sovereign credit guarantee to the Micro, small
and medium enterprises (MSMEs).
Like other sectors of the Indian economy, MSMEs have been hit badly due to
lockdown imposed by the government to tackle Covid-19 pandemic. However,
even before the current crisis, MSMEs growth has been marred by several
challenges.
In such a situation, providing merely a stimulus package may not be effective,
until adequate reforms are carried out to solve its pressing problems and to
utilize its potential.
Reason for Giving Credit Guarantees
A credit guarantee by the government helps as it assures the bank that its loan
will be repaid by the government in case the MSME falters.
Efforts to pump liquidity via the bank have not been successful in the past,
because banks simply do not want to lend any new money.
Banks, quite justifiably, suspect that any new loans will only add to their
growing mountain of non-performing assets.
So the issue was banks had the money but were not willing to lend to the credit-
starved sections of the economy.
Significance of MSMEs
The significance of the MSMEs sector can be noted from the fact that it is the
second-largest employment provider, after agriculture in India.
In India, at present, there are nearly 56 million such enterprises in various
industries, employing close to 124 million people.
Of these, nearly 14% are women-led enterprises, and close to 60% are based in
rural areas.
In all, the MSME sector accounts for 8% of India’s GDP and 45% of merchandise
exports.
Export: MSMEs’ contribution to the exports from India was recorded at 42.67%
by August 2022. Such high volumes of exports facilitate international trade and
contribute to industrial growth within the country.
Employment: As stated before, MSMEs create employment in rural and urban
areas of the country. These business enterprises are the second largest
employment sector in India after agriculture. By setting up units in rural and
underdeveloped areas, MSMEs contribute to the better living standards of
people from lower socioeconomic and rural areas as well.
Innovation: MSMEs bring innovation to various processes in the
manufacturing of goods and commodities. They provide the necessary skills,
tools, and technology for automation and advancement in their sectors. It
contributes to the overall technological upgradation of the country and
promotes research and development.
Entrepreneurship: MSMEs promote inclusiveness in the country by
facilitating the entry of aspiring entrepreneurs in various sectors. They promote
healthy competitiveness among entrepreneurs, which fuels industrial growth.

Micro, small, and medium enterprises (MSMEs) are one of the driving forces
propelling the Indian economy towards global greatness. As per the Udayam
portal, MSMEs employ over two crore people, firmly establishing themselves as
the bedrock of the economy.
Aided partly by supportive and reformatory government initiatives and
technological innovations, the MSME sector has grown exponentially,
accounting for ~46% of India’s total exports.

What government initiatives have supported MSME growth in India?

To support and foster MSME, the Ministry of MSME has launched and
implemented various schemes offering credit support, new enterprise
development, formalisation, technological assistance, infrastructural
development, skill development and training, and market assistance to MSMEs
through initiatives like:

Udyam Registration Portal

The government notified composite criteria for classifying an enterprise as
micro, small, and medium based on investment and turnover. To ensure
conformity to the new criteria and enhance the ease of doing business, the
government launched the Udyam Portal to facilitate the permanent registration
of MSMEs. There is no registration fee, and an enterprise is issued a digital
certificate based on self-declaration. The Udyam certificate enables MSMEs to
access several government initiatives such as:
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The CGTMSE, operational under the Government of India and the Small
Industries Development Bank of India (SIDBI), offers credit guarantees to help
MSMEs access bank credit without the hassles of crushing collaterals or third-
party guarantees. MSMEs can access collateral-free loans up to INR 5 Cr, with a
guaranteed coverage of up to 85% for multiple loan categories under CGTMSE.
The scheme has covered over 67 lakh beneficiaries in the first 22 years of its
existence and has had a positive impact on six major areas in the MSE sector,
viz., technology upgradation, skill degradation, market development,
sustainability of the scheme, economic impact, and social impact. During
January-November 2023, 12.50 lakh guarantees were approved, amounting to
INR 1.46 Lakh Cr.
The Prime Minister Employment Generation Programme (PMEGP)
Established to create employment opportunities for MSMEs in India, the
PMEGP provides loans and working capital — INR 25 Lakh for manufacturing
and INR 10 Lakh for service sector MSMEs — through bank disbursal.
The scheme is implemented at the national level by the Khadi and Village
Industries Commission (KVIC) and at the state and district levels by State KVIC
Directorates, State Khadi and Village Industries Boards (KVIBs), District
Industries Centres (DICs), and banks. Since its inception in 2008 and until 30
November 2023, over 9.29 Lakh micro-enterprises have been supported across
the country with the disbursement of a Margin Money subsidy of INR 34,517 Cr,
generating a total estimated employment for around 78.36 Lakh persons.
Raising and Accelerating MSME Performance (RAMP)
Launched in July 2022, under the aegis of the Ministry of MSME, the World
Bank-assisted RAMP scheme aims to improve the access of MSMEs to both the
global market and credit. RAMP aims to foster the sector by accelerating Centre-
State collaboration in MSME promotion and development, Enhancing the
effectiveness of existing Ministry of MSME schemes for technology upgradation,
Strengthening the Receivable Financing Market for MSMEs, Enhancing the
effectiveness of Credit Guarantee Trust for Micro & Small Enterprises
(CGTMSE), and promoting guarantee for greening initiatives of MSEs, and
women-owned MSEs, and Reducing the incidence of delayed payments to
MSMEs. An outlay of INR 6000 Cr has been assigned for five years to ensure the
implementation. The scheme aims to benefit over 5.5 Lakh MSMEs.
MSMEs as investment opportunities
As India steadily approaches the threshold of becoming a $5 Tn economy by
2026-27, interest in the nation as an investment destination is soaring. The
Indian MSME sector is projected to grow to $1 Tn by 2028.
Its many winning advantages encompass a diverse range of investment
opportunities across various industries and supply chain ecosystems, including
but not limited to textiles, food processing, agriculture, and more. Another
distinct advantage that MSMEs offer is the opportunity to invest in enterprises
beyond metropolitan cities. Investors can capitalize on the potential of the
rapidly expanding rural MSMEs catering to an accelerating consumer base,
disposable incomes, and a vibrant domestic market.
Moreover, with the relaxation of the FDI policy allowing a 100% FDI inflow
under the automatic route for MSMEs and the various tax exemptions and tax
holidays that the sector can avail, investments in Indian MSMEs have much to
attract astute investors.

The Digital Transformation of MSMEs

MSMEs are moving forward with renewed vim and vigour and a decided focus
towards innovation and digitisation of operational procedures. Adopting new
tools and systems ensures a sharper edge to their global competitiveness.
Moreover, schemes like the Digital MSME Scheme, which empowers all MSMEs
registered with the Udyam registration portal to adopt Information
Communication Technology (ICT) tools and applications in their production
and operations, ensure that the transition from traditional processes to digital
ones is as seamless as possible. Furthermore, the Ministry of MSMEs has been
allocated INR 22,137.95 Cr under the interim Budget 2024-25 for implementing
various schemes and technology upgrades.

The Role of MSMEs in Building a Sustainable and Inclusive Economy

MSMEs' role in fostering sustainability and inclusivity in the Indian economy is
irrefutable. 20.5% of the MSMEs registered on the Udyam Registration Portal
are led by women, accounting for 18.73% of the total employment generated by
Udyam-registered MSMEs.
While the numbers speak for themselves, to ensure the growth of the sector and
the economy remains inclusive, equitable, and sustainable, the Ministry of
MSMEs has undertaken various initiatives to foster MSMEs that value these
goals. For example, the Credit Guarantee Scheme for Micro & Small Enterprises
offers a 10% concession in annual guarantee fees and up to 85% guarantee
coverage for female entrepreneurs. Meanwhile, the SAMARTH initiative
provides more than 7500 women from rural and sub-urban areas with skill
development and market development assistance to encourage female
entrepreneurship.
On the other hand, the MSME Sustainable (ZED) Certification Scheme
encourages MSMEs to streamline their processes to transition towards
sustainability and reduce environmental costs. Furthermore, the scheme offers
a 100% subsidy for ZED Certification for Women-owned MSMEs.

Problems of MSME in India

1) Ease of Doing Business – Regulatory Issues
Most Indian start-ups encounter this issue in their early phases because of an
overabundance of rules and regulations. Even though India has improved its
ranking in the World Bank’s Ease of Doing Business Index, the system still has
major flaws that inhibit businesses from growing and prospering.

Most of the time, difficulties with getting an MSME loan, contract enforcement,
or dealing with building permits deter entrepreneurs from starting a business.
While the time to establish a new enterprise has dropped from 127 days to 30
days, business owners in Mumbai must wait and go through 12 steps of
procedures before they can open their doors, whereas worldwide, the average
is only five.

2) Lack of Funds
Despite the government’s efforts to make business loans more freely accessible
and encourage entrepreneurship, most companies still have difficulty getting
financing or applying for an MSME loan.
Regulatory flaws that cause delays in obtaining permits and insurance can harm
the chances of small and medium enterprises.
A lack of resources hampers most firms when it comes to producing their
products, buying raw materials on time, or even gaining access to innovative
technologies and expertise.

3) Lack of Financial Know-How

Even as entrepreneurs devise new tactics and growth prospects, there are still
those who lack the financial know-how to properly manage their businesses.
Some entrepreneurs may not make key business decisions relating to MSME
loans if they lack prudent financial expertise. Your firm could be in jeopardy
because of a lack of financial expertise unless you seek outside help.
It is also crucial to have a working grasp of money since an MSME loan can help
you get through any financial difficulties that may arise. Before applying for an
MSME loan, make sure you’re familiar with the terms, conditions, and interest
rates associated with each type of loan

4) Technological Advancements
Technological advancements have been plentiful, and most industries have
experienced some sort of transformation to stay competitive. Although, because
of a lack of experience and awareness, many firms are missing out on the latest
technology advancements in their industry.
As a result, MSMEs must be kept informed of technology advancements that
directly impact the success of their companies. It is critical that scientific
research institutions remain engaged with local MSME groups and pay
attention to their technological concerns and issues. technologies concern and
expertise.

5) Lack of Skilled Labor

One of the major MSME problems in India revolves around the scarcity of
proficient manpower. Although this challenge is not exclusive to India and is a
global concern, it poses a pronounced obstacle for MSMEs in the country,
despite the abundant workforce available

6) Trust Concerns
Banks are reluctant to provide MSME loans because the amounts are still tiny
and because they believe MSMEs lack repayment capabilities. They end up
enforcing harsher controls on these start-ups in this situation.
Certain businesses have difficulty getting loans because of a lack of recognition
of a company’s credit score. Adding to their woes is the fact that typical credit
choices require business owners to meet stringent eligibility requirements,
which further dulls their spirits.

7) Collateral for Loans

A rigorous collateral requirement can make it problematic for some businesses

to access an MSME loan. Small businesses may not have the collateral or assets
necessary to receive a loan from a bank.
Thus, business owners can take out unsecured lines of credit from creditors and
not worry about meeting the MSME lending criteria.

8) Absence Of Standardized Policies

In India, just a few policies are in place to support small and medium-sized
businesses. As a result, MSME growth and entrepreneurship development
programs lack coherence.
Even though strides have been made in Delhi over the years, more remains to
be accomplished at the national scale if Indian businesses are to be more
relevant in the world economy for global companies and stakeholders.
9) Impact Of the Problems of MSMEs
Due to MSMEs’ low efficiency, mismanagement, and poor workplace conditions,
growth has been difficult to achieve.
Thus, the sector’s liquidity and profitability have slowed to levels that are
incompatible with economic growth. There will be a considerable increase in
the number of jobs created in India if the MSME sector is robust.

10) Infrastructure
The MSME sector in India heavily relies on robust infrastructure, particularly
within the outsourcing industry. Nevertheless, the insufficiency of
infrastructure hampers their operational efficiency and global competitiveness,
constraining the full realization of their growth prospects. number of jobs
created in India if the MSME sector is robust.
Conclusion
MSMEs and a focus on their growth are critical for the long-term prosperity of
India’s economy. MSMEs play a crucial role in the GDP growth, industrial
production, and job creation in the nation's economy, and the various initiatives
and regulatory reforms fostering them are a step in the right direction to ensure
that untapped talent, resources, and growth opportunities are brought to the
foreground.
Bibliography

• https://udyamregistration.gov.in/Government-India/Ministry-MSME-
registration.htm
• https://www.drishtiias.com/daily-updates/daily-news-editorials/role-
of-msmes-in-indian-economy
• S