Significance Of Micro Businesses In India

Micro Businesses play a very important role in ensuring the processes of economic growth. They are employment-friendly, generating more and more employment especially rural and urban areas and they contribute to greater regional balance in levels of development.

According to Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, an organization will be called Micro Business, if the investment doesn’t exceed more than 25 lakh rupee in Manufacturing sector and 10 lakh rupee in Service sector.

All over India around 13 million Micro and Small Enterprises (MSEs) have been registered with the State/UT Directorates of Industries. These MSEs form in to clusters in order to boost their competitiveness and to withstand the competition from large enterprises. India has over 400 SME clusters and about 2000 artisan clusters. Utter Pradesh is the state having more number (4,02,606) of MSEs and Sikkim and Lakshadweep are the states having less number (349 & 76 respectively) of MSEs.

These MSEs produce more than 6000 products ranging from simple consumer goods to the manufacture of many sophisticated and precision products like electronics control systems, micro wave components, electro medical equipments, etc.

Contributions of MSEs in India
India has a vibrant Micro and Small Enterprise (MSEs) sector with a total size of US$140 billion, are the driving force for the long-term growth of the Indian economy that plays an important role in sustaining the economic growth. According to the World Bank Institution, MSE in India contribute 45% to employment, 40% to GDP and 35% to exports.

Around 95% of the MSEs are industrial units and its present contribution to Industrial production is 39% and is expected to go up to 45%. MSEs share to national exports currently is 33%, which will increase to over 40% in next five years. MSEs providing employment to 322.28 lakh persons in 2007-08 and is projected to provide employment to 391.73 lakh persons in 2011-12.

Financial source for MSEs
The government has identified three important areas for increasing competitiveness in this sector: technology including quality, skills development, and finance. Of the three, technology and quality were to be focused, more than 15,000 MSEs have been assisted in obtaining ISO certification. The government is focusing on various schemes and policies for the smooth flow of the business.

MSEs get the financial support in the form of Incremental credits from Public sector banks, from Pvt./Foreign Banks and SIDBI/SFCs and from Emerging Sources (VC-PE, ECB, Factoring, etc.) Public sector banks are the major source in crediting the MSEs (around 58%). The government is taking measures to provide credit support and fiscal support and the credit flow has more than doubled from Rs.67,000 crore to Rs.1,48,000 crore since 2005.

In spite of the support given by the Government MSEs as a whole has been lagging behind in terms of growth and productivity. According to the results of the Third All India Census of MSEs with reference year 2001-02, the number of sick units during 2004-05 and 2005-06 were 1,38,042 and 1,26,824. The number of sick MSEs  high in the states of Tamil Nadu, Maharashtra, Madhya Pradesh, Assam and Bihar. The main constraints, which the SME still face not only recession but also credit crunch and variety of regulations from Center, states and local governments. The private banks and financial institutions are still neglecting this sector.

Suggested Reading:
Micro – Franchising in India
Formation Of SME Clusters
Growth of MSEs in India
How To Find If A Firm Is Micro Enterprise In India
Development measures for MSEs in India
Government Owned Business in India

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