ENHANCING MSME COMPETITIVENESS: ECONOMY

ENHANCING MSME COMPETITIVENESS: ECONOMY

NEWS: NITI Aayog Releases Report on “Enhancing Competitiveness of MSMEs in India”

WHAT’S IN THE NEWS?

NITI Aayog’s report on MSMEs emphasizes enhancing competitiveness through digitalization, credit access, and cluster development, while highlighting challenges like the missing middle, informalization, and skill gaps. Targeted reforms and technology-driven interventions are vital to unlock the sector’s full potential in driving inclusive growth.

Context: NITI Aayog Report on MSME Competitiveness

  • NITI Aayog, in collaboration with the Institute for Competitiveness (IFC), released the report ‘Enhancing MSMEs Competitiveness in India’.
  • The report provides strategic insights and policy suggestions to boost productivity, credit access, innovation, and market integration of MSMEs in India.

About MSMEs (Micro, Small and Medium Enterprises)

  • Governed by the MSMED Act, 2006, MSMEs are defined based on investment in plant/machinery and turnover.
  • Revised Classification (Budget 2025):
  • Micro Enterprise: Investment ≤ ₹2.5 crore & Turnover ≤ ₹10 crore
  • Small Enterprise: Investment ≤ ₹25 crore & Turnover ≤ ₹100 crore
  • Medium Enterprise: Investment ≤ ₹125 crore & Turnover ≤ ₹500 crore
  • Operational Scale:
  • India has 63 million MSMEs, with 99% classified as micro enterprises.
  • These enterprises form the foundation of India’s decentralized industrial economy.

MSMEs and Sustainable Development Goals (SDGs)

  • SDG 1 (No Poverty): MSMEs generate employment in rural and semi-urban regions, helping uplift communities.
  • SDG 8 (Decent Work & Growth): Promote entrepreneurship, self-employment, and inclusive job creation.
  • SDG 9 (Industry, Innovation & Infrastructure): Drive local manufacturing and improve supply chains.
  • SDG 12 (Responsible Consumption): Encourage environmentally sustainable production and resource use.
  • SDG 13 (Climate Action): Support adoption of clean technologies and reduce carbon footprint in local industries.

Significance of MSMEs in Indian Economy

  • Contribute 30% to GDP, 45% to manufacturing output, and 40% to total exports.
  • Provide employment to 110+ million people, second only to agriculture.
  • In FY23, MSMEs contributed 30.1% to GVA and 45.73% to total exports.
  • Manufacturing output from MSMEs formed 36.2% of total manufacturing output (2021–22).

Employment & Regional Spread

  • 5.93 crore MSMEs are registered, employing over 25 crore individuals.
  • Women-owned MSMEs make up about 20%, aiding gender empowerment.
  • Top MSME States: Uttar Pradesh, West Bengal, Tamil Nadu, Maharashtra
  • Low Penetration Regions: Northeastern and Himalayan states face infrastructure barriers.

Digital Transformation of MSMEs

  • Refers to adoption of automation, cloud computing, AI, and data analytics to streamline business processes.
  • Applications:
  • Product Development: 3D printing, PLM tools, CAD-based design.
  • Demand Forecasting: Use of big data and AI to understand market needs.
  • Improves efficiency, customer experience, and competitiveness.

Challenges Faced by MSMEs

1. Informalisation

  • Only 9% of registered MSMEs were formal from the start.
  • Many MSMEs avoid formalization due to compliance costs, paperwork, and loss of tax exemptions.

2. “Missing Middle” Problem

  • India has 97.92% micro, 1.89% small, and only 0.01% medium enterprises.
  • Indicates lack of enterprise progression, often due to barriers in credit, scaling, and compliance.

3. Limited Access to Formal Credit

  • As of FY21, only 19% of MSME credit demand was met formally.
  • Estimated ₹80 lakh crore credit gap.
  • CGTMSE scheme offers collateral-free credit, but uptake is limited due to documentation and awareness gaps.

4. Skill Gap

  • Most MSME workers lack formal vocational or technical training, affecting quality and productivity.
  • Global Innovation Index (2023) shows a decline in knowledge-intensive hiring (12.96% in 2022).

5. Lack of Investment in R&D

  • MSMEs underinvest in innovation, quality control, and technology upgrades.
  • India ranked 40th in the Global Innovation Index 2023.

6. Product Diversification Issues

  • Many MSMEs lack market knowledge and technical capacity to diversify products or services.
  • High initial costs and absence of design support limit innovation.

7. Tax Compliance

  • World Bank Enterprise Survey (2022): MSMEs cite high tax rates and compliance burden as a top constraint.

8. Infrastructure Bottlenecks

  • Lack of transport, power supply, storage, and logistics severely affects rural MSMEs.
  • Poor marketing and absence of e-commerce platforms reduce outreach.

Cluster-Based Development Strategy

Definition: Clusters are interconnected MSMEs producing related products/services, sharing infrastructure and networks.

  • Policy Evolution: India’s cluster development model started in 1987, promoting collective efficiency and specialization.
  • Examples:
  • Tirupur (TN) – Knitwear
  • Surat (Gujarat) – Diamonds and Textiles
  • Bhiwandi (Maharashtra) – Power looms
  • Moradabad (UP) – Brassware

NITI Aayog’s Cluster Recommendations:

  • Textile: Integrate with design institutes, digitalize supply chains, and focus on value addition in Surat, Tiruppur, Ludhiana.
  • Food Processing: Improve cold storage, branding, and cargo logistics in eastern India.
  • Chemicals: Simplify regulatory processes and invest in skilled labor.
  • Automotives: Enhance R&D funding, foster cooperatives, and focus on hubs like Gurgaon and Pune.

Major Government Initiatives for MSME Growth

1. Udyam Portal

  • Offers simplified registration and provides Udyam Registration Number (URN) and Assist Certificate (UAC).
  • Over 10 million enterprises registered for priority sector lending benefits.

2. Customized Credit Card Scheme

  • Launched to provide ₹5 lakh collateral-free credit to micro enterprises via Udyam Portal.
  • 10 lakh cards to be issued initially.

3. GST SAHAY Platform

  • Leverages GST invoice data for real-time credit scoring and quick digital loans.

4. Udyam Assist Portal (UAP)

  • Aimed at bringing informal micro enterprises into the formal system to access subsidies and priority lending.

5. Zero Defect Zero Effect (ZED) Certification

  • Encourages quality manufacturing with minimal environmental impact.
  • Bronze: 50% subsidy (₹50k)
  • Silver: 60% subsidy (₹3 lakh)
  • Gold: 70% subsidy (₹5 lakh)

Way Forward

1. Strengthen CGTMSE

  • Reform CGTMSE to improve credit delivery, reduce premiums, and strengthen regulatory oversight.

2. Expand NBFC Role

  • Empower NBFCs with higher capital access and better governance to serve more small enterprises.

3. Ease Access to Subsidy Schemes

  • Lower eligibility barriers and simplify paperwork for state-level schemes for micro and small units.

4. Align Training with Industry Needs

  • Design vocational and technical training based on sector-specific skill gaps.
  • Example: Skill Census proposed by Andhra Pradesh for targeted workforce training.

5. Incentivize Digital Tech Adoption

  • Establish co-working spaces, industrial parks, and incubators for MSMEs to access tech without high upfront investment.
  • Example: Digital Saksham Scheme trained 5.6 lakh MSMEs (2022–24).

6. Promote Exports & Quality Standards

  • Support MSMEs with export incentives, certifications (ISO, CE), and market research grants.

7. Focus on Northeast and East India

  • Provide logistics infrastructure, digital marketing support, and direct e-market access to promote equitable regional growth.

Conclusion

India’s MSME sector has the potential to emerge as the engine of inclusive and sustainable growth, provided reforms are targeted, inclusive, and technology-driven. With the right mix of credit access, skill enhancement, cluster development, and digital support, MSMEs can drive employment, exports, innovation, and SDG achievement.

Source: https://www.pib.gov.in/PressReleasePage.aspx?PRID=2126063