A FLASHBACK OF MSME IN INDIA: ROLE IN
EMPLOYMENT GENERATION
Dr. Krishn Awatar Goyal, Associate Professor,
Business Finance & Economics, JNV (State) University, Jodhpur kagoyala@gmail.com
Mr. Prawal Sharma, Research Scholar, Management Dept., JNV
UniUniversity, Jodhpur
ABSTRACT:
Micro,
Small and Medium Enterprises (MSME) sector has developed as an enthusiastic and
energetic division of the Indian economy over the last few decades. MSME is the
second biggest sector after agriculture in terms of employment generation. MSME
plays an important role in the economic development of the country. It is the
spine of the Indian manufacturing segment and are also called as the engine of
economic development. In developing nations, like India, most of the space
isn’t always appropriate for setting up of huge ventures and such type of
lacuna can be minimized by a lesser amount of investment. MSME provides 80% of
jobs in the industry, with only 20% of the investment.
The
significance of proposed research lies in the fact that the Micro, Small and
Medium Enterprises (MSMEs) sector plays a crucial role in India’s economic
development or can say monetary advancement with help of employment creation
and this also contributes in the social development of the country as well.
This
paper gives in-depth analysis of MSME sector in India. It focuses on the role
of MSME in employment generation. It is divided into two parts i.e.(i) A
Flashback of MSME in India, and (ii) Role of MSME in Employment Generation.
Keywords: Enterprise, MSME,
Investment, Economic, Employment Generation.
1.
INTRODUCTION:
Micro, Small and Medium Enterprises (MSMEs)
plays a key role in development of indigenous and global economy and also
proven fact that it strives towards socio economic condition of its people. To
remove regional imbalance and stabilizing growth in all sectors of country, the
MSME is only sector identified for boosting and making it as a key driver of
growth on which Govt. is emphasizing a lot. Like many other countries India is
also taking more steps for stabilising this sector which is need of the
time. On the other hand, where big entities like wall mart, Amazon and
many others are coming in very organised way but at other side our small-scale
entities are getting down and forced to close as they are unorganised and
unskilled. By taking many more aspects the government of India has concentrated
to boost this core sector that has power to create balance in market economy,
employment creation and creativity in process and making friendly
technologically innovative environment.
1.1 OBJECTIVES
OF THE STUDY:
(i)
To have conceptual analysis of MSME.
(ii)
To identify the role of MSME in employment
generation in India.
2.
CONCEPT OF MSME: INDIAN PERSPECTIVE:
According
to the latest amendment in Micro, Small and Medium Enterprises Development
(MSMED) Act, 2006, basis of defining the MSME has been changed from investment
in plant & machinery to annual turnover. The current definition is given in
Table 1:
Table
1
Definition
of MSME in India
(As Per Latest Amendment on 7th
Feb’18 in Micro, Small & Medium Enterprises Development (MSMED) Act,2006)
|
Enterprise – On the Basis of Annual Turnover |
|
|
Description |
Turnover (INR) |
|
Micro
Enterprise |
Up
to Rs. 5 Crore |
|
Small
Enterprise |
Above
Rs, 5 Crore & Up to Rs. 75 Crore |
|
Medium
Enterprise |
Above
Rs. 75 Crore & Up to Rs. 250 Crore |
Source:
https://www.hindustan times.com/India-news/govt-changes-definition-of-
msmes-bases-it-on-annual turnover
Table 1 shows the recent changes done by Union Cabinet in the
definition of MSMED Act, 2006. These changes were made by Union Cabinet under
the supervision of Finance Minister MR. Arun Jaitley to reform the ease of
doing business and to reduce the unnecessary inspections. The main reasons for
amendment in the MSME definition are to encourage the MSMEs growth. It will
also help in expelling the instabilities related on investment in plant and
machinery and equipment. Besides this, the Reserve Bank of India
decides to give more extended time period to small businesses who are unable to
repay their loan on time. RBI gives them more time before declaring their loans
as non-performing assets (NPAs) or bad loans. The central bank raised the
payment period from 90 days to 180 days for MSME loans.
2.1 CONCEPT OF MSME: HISTORICAL VIEW:
After
Independence, the first step was taken by Central Government of India about the
Industries Development was to arrange a conference in Dec’47 which was in favour
of the advancement of small-scale industries. In this conference, the Central
Government divided the SSIs (Small-Scale Industries) into three different
categories
Which
are as below:
a) Those
units which are auxiliary to large-scale industries.
b) Those
units which are engaged in the supply of repair service.
c) Those
units which involved in the manufacturing of finished products.
In
brief, SSIs are playing a crucial role since the beginning for the Indian
economy in terms of developing employment and exports. Mr. K.T. Shah Former
General Secretary of NPC (National Planning Committee) gave the first
definition of SSI, but this was not complete in technical terms. Later on, in
1940, Pt. Jawahar Lal Nehru redefine SSI which was more practical and covered
most of the dimensions. He used two categories i.e. electrification of the
units and employment generating by the units to define SSI. After the
independence, the first official definition of SSI given in 1950, which was
divided into two categories, i.e. capital investment in the units and employed
persons by the units. This definition has been revised over time which is given
in below Table 2:
Table 2
Various Definition of MSME in India in Chronological
Order
|
Year |
Investment
Limit |
Other
Condition |
|
1951 |
Up to Rs. 5 lakhs
in fixed assets |
Appointing < 50
workers if using power and <100 workers if not using power |
|
1960 |
Up to Rs. 5 lakhs
in plant & machinery |
NIL |
|
1966 |
Up to Rs. 7 lakhs
in plant & machinery |
NIL |
|
1977 |
Up to Rs. 10 lakhs
in plant & machinery |
NIL |
|
1980 |
Up to Rs. 20 lakhs
in plant & machinery |
NIL |
|
1985 |
Up to Rs. 35 lakhs
in plant & machinery |
NIL |
|
1991 |
Up to Rs. 60 lakhs
in plant & machinery |
NIL |
|
1997 |
Up to Rs. 3 crores
in plant & machinery |
NIL |
|
1999 |
Up to Rs. 1 crore
in plant & machinery |
NIL |
|
2006 |
Up to Rs. 5 crores
in plant & machinery |
NIL |
|
Since 7th
Feb’18 (As per the Latest
Amendment in MSMED Act,2006) |
No Condition |
Annual Turnover up
to Rs. 250.00 Crore |
Source: https://msme.gov.in/know-about-msme
SSIs
in India was the mixture of Tiny, Cottage, Traditional, Village and Modern
Small Industries, prior to the establishment of Micro, Small and Medium
Enterprises Development (MSMED) Act, 2006. This act is commenced with the aim
of development, promotion, providing new schemes and concessions. Sectors like
handicrafts, khadi, coir, handloom were neglected before the launched of MSMED.
So, in order to remove this barrier and negligence, Government of India
implemented Micro, Small and Medium Enterprises Development Act which was
launched on dated 16th June’06 with effect in operation from dated 2nd
Oct’06.
The
MSME Development Act classifies manufacturing units into medium, small and
micro-enterprise depending upon the investment made in plant and machinery. Any
unit with input up to 1000 lakhs INR in plant and machinery is considered as
medium enterprise while those having investment between 25 lakhs INR to 500
lakhs INR is a small enterprise and those units with the investment with up to
25 lakhs INR is considered as micro enterprise. In the service sector, any unit
with the investment limit up to 10 lakhs INR, between 10-200 lakhs INR and of
up to 500 lakhs INR is called as micro, small and medium enterprises
respectively. But the Union Cabinet did the latest amendment in (MSMED) Act,
2006 on dated 07th Feb’18 for defining MSMEs on annual turnover
criteria which was earlier defined in the terms of investment in plant and
machinery criteria.
The MSME Act,2006,
established and came in effect from dated 02nd Oct’06 for regulation
and development of micro, small and medium enterprises.
This act is made to
encourage, create and expand the competitiveness of micro, small and medium
industries of India. In this act, facilities are as below:
1. Access to finance facility from banks
without collateral requirements.
2. This act explains medium
enterprises to make technology upgradation easier.
3. Grievance redressal cell for disputed
with buyers through arbitration.
4. To file the memorandum is
optional for all the medium enterprises those who renders services.
5. Provides benefits
regarding the taxes and octroi.
6. Subsidy in electricity
bills of micro, small and medium scale industries.
7. It reinforces the lawful
arrangements to check deferred payments to micro and small enterprises.
8. Arrangements for
guaranteeing convenient and smooth stream of credit to MSMEs.
3. MSME: FOREIGN PERSPECTIVE:
In
most of the countries, industries have divided into three sectors, i.e.
a. Large-Scale Industrial
Units,
b. Medium-Scale Industrial
Units,
c. Small-Scale Industrial
Units.
There
is no single definition for MSME which is globally accepted. Different
countries have different criteria for MSME. Some of the criteria are, (i) the
number of workers, (ii) Based on Capital Investment, (iii) the management and
character of Organisation, and (d) Based on of firm’s annual turnover.
In Table
3, Definition of MSME in some selected countries is given.
Table 3
Definitions of SME’s in Selected Countries
|
Country/Region |
Number of Employees |
Other Conditions |
|
Australia |
Small: less than 100 |
---------- |
|
Canada |
Less than 100 |
---------- |
|
Belgium |
Less than 100 |
---------- |
|
Denmark |
More than 5 and less than 500 |
---------- |
|
France |
10 to 499 |
---------- |
|
Germany |
Less than 500 |
---------- |
|
Greece |
Less than 50 |
---------- |
|
Ireland |
Less than 500 |
---------- |
|
Italy |
Small: 11-50 Artigiano: less than 10 |
Capital: less than Lire 3 billion |
|
Netherland |
Less than 10 |
---------- |
|
UK |
Mfg.: less than 200 Construction: less than 25 |
Trade: (Turnover) Retail: less than £50000 Wholesale: less than £200000 Transport: less than 5 vehicles |
|
EU |
Less than 50 |
Annual turnover: less than 10 million EURO. |
|
Malaysia |
Less than 75 |
Shareholder fund: less than RM 2.5 million |
|
Mexico |
15 to 99 |
Income / Sale: US$175000 |
|
Singapore |
Services: less than 100 |
Manufacturing: less than Singapore $12 million in fixed assets |
|
Sweden |
Less than 200 |
---------- |
|
Thailand |
Labour Intensive Sector: less than 200 Capital Intensive Sector: less than 100 |
---------- |
|
Brazil |
Less than 100 |
---------- |
|
Argentina |
Medium: Up to 300 |
Annual Sales: Up to US$18 million Production Assets: Up to US$10 million |
|
Japan |
Medium: Up to 300 |
Capital: Up to ¥100 million |
|
U.S. A |
Up to 500 |
---------- |
|
Indonesia |
Up to 20 |
---------- |
|
Thailand |
Small: Up to 49 |
Capital: less than $1.17 million |
|
Vietnam |
Small: Up to 29 |
Capital: less than $65 thousand |
|
China |
Small: 50-100 |
---------- |
Source: (i)India:
The State Development of Small and Medium Enterprises-2005, Institute of Small
Enterprises and Development (ISED)
(ii)Soundarapandian,M.
(2009), Economic Reforms and Small-Scale Industries, Concept Publishing
Company,New Delhi,pp9-1.
Note: *These
countries were using different definitions for SSIs, but since 6 May 2003, the
European Union is found to be using the common definition for all EU member
countries.
3.
REVIEW OF LITERATURE:
The
reason of the literature review is to urge a few information from the existing
works that have just been done in a particular area regarding the research. A
few studies are discussed below:
Chandraiah & Vani (2014) in their article entitled
“The Prospects & Problems of MSMEs Sector in India- An Analytical Study”,
in their study author, highlight the prospects and problems of the MSME sector.
This study is was based on the Indian history and other different segments
which will help to improve the rural economy’s standard. MSME in India was
bound by the government’s strict policy regarding export/import of goods. Due
to the localisation of their trading location, this is the hurdle of comes
between the growth of MSME in India. Indian Government should modify its trade
policy for MSME.1
Garg
(2014), in his article entitled “Role of MSME in Economic
Development”, the author highlights all the barriers which are facing by Indian
MSME. This study helps to identify the gap between the success of MSME even
after various steps has already taken. Even after interference by the
government for the growth of MSME, still there has a gap in finance, and
operational sector in MSME remain. So, unless this gap will not be covered, these
kinds of barriers will not remove which comes between the success of MSME.2
Bouazza, Ardjouman & Abada (2015), in their article entitled
“Establishing the Factors Affecting the Growth of Small and Medium-Sized
Enterprises in Algeria”, in this study, the author highlights all those factors
which are affecting the growth of MSME. Both outer and inner factors are
included in this study. Outer factors like government policies and procedures,
access to credit etc. and internal factors like training deficiency, unskilled
labours, lack of promotional techniques used by MSME staff become very crucial
which affect the growth of MSME units. This study concludes that for the smooth
functioning of MSME units and its continuous growth, both external, as well as
internal factors get equal weightage.3
Singh and
Kumar (2017), in his article
entitled “Working Capital Requirements of Manufacturing SMEs: Evidence from
Emerging Economy” in this study, author found that financial leverage,
operating cash flow, sales growth, profitability, etc. all such are the main
features of working capital needs for SME’s in India. Through this study, knew
that all these drivers such as cash flow provided from operating activities,
leverage on equity, growth, size and age of the company would directly affect
the working capital need in SME’s in India.4
Upadhyay, Jahanyan and Dan (2011), in their article entitled
“Factors influencing ERP implementation in Indian Manufacturing Organisations:
A Study of Micro, Small and Medium-Scale Enterprises”, this study was conducted
on the investigation of Enterprise Resource Planning (ERP) implementation
achievement factors in reference to India MSMEs (Micro, Small and Medium Scale
Enterprises).According to this study, the author found that four factors are the
most important factors which directly influenced the ERP Implementation process
in MSME of India. These four factors organisational climate, technical
perspective, project execution and product perspective. Proper Controlling over
all these factors in every MSME in India may provide smoothness in functioning
and growth in MSME in India. 5
5. ROLE OF MSME IN EMPLOYMENT
GENERATION:
The MSME in India are playing an
important role in generating and providing huge number of employment
eventuality at a relatively low cost of investment than large enterprises.
In the below Table 4, the No. of MSMEs in India
and Employment generated through MSMEs from the year 1990-91 to 2015-16 is
given. This is clear that the growth percentage of no. of MSME and the Employment
generation wise is increasing every year. It is showing that around 11.10 crore
jobs have been generated by the MSME sector according to the study conducted in
2015-16. Therefore, employment generated till the latest survey which is up to
2015-16 is 1109 lakhs as reported in the annual report of MSME 2018-19 and
according to the projected figures of the year 2010-11 is 965.15 lakhs reported
in the annual report 2008-09. The total difference in employment generated
through MSME sector in both these reports or in these five years is approx.
144.74 lakhs, i.e. 15.00% growth showing in these five years. And number of
MSME in India reported in annual report 2010-11 & in 2018-19 is 428.73
lakhs and 633.88 lakhs (Table 4) respectively. Therefore, total no. of MSME
units increased in last five years is approx. 205.15 lakhs enterprises i.e.
47.85% growth rate showing in last 5 years.
Table
4
MSME’s
Performance: Employment Generation (From 1990-91 to 2015-16)
|
S. No. |
Year |
Total MSMEs (In Lakhs) |
Employment (In Lakhs) |
|
1 |
1990-91 |
67.87 |
158.34 |
|
2 |
1991-92 |
70.63 (+4.07%) |
165.99 (+4.83%) |
|
3 |
1992-93 |
73.51 (+4.07%) |
174.84 (+5.33%) |
|
4 |
1993-94 |
76.49 (+4.07%) |
182.64 (+4.46) |
|
5 |
1994-95 |
79.60 (+4.07) |
191.40 (+4.79%) |
|
6 |
1995-96 |
82.84 (+4.07%) |
197.93 (+3.42%) |
|
7 |
2000-01 |
101.10 (+22.04%) |
238.73 (+20.61%) |
|
8 |
2005-06 |
123.42 (+22.08%) |
294.91 (+23.53%) |
|
9 |
2010-11# |
428.73 (+247.37%) |
965.15 (+227.27%) |
|
10 |
2015-16 |
633.88 (+47.85) |
1109.89 (15.00%) |
*The figures showing in bracket is the growth rate as
compared to previous year compiled from various annual reports from 2008-09 to
2018-19.
#Projected
Source: Annual
Report 2008-09, Ministry of MSME, Government of India, pp 33.
Annual Report 2018-19, Ministry of MSME, Government of India, pp 28-32.
5.1 QUANTUM OF MSME IN INDIA:
As per the NSS (National Sample
Survey) 73rd round, conducted by National Sample Survey Office,
Ministry of Statistics & Programme Implementation during the period of
2015-16, there were 633.88 lakhs unincorporated non-agricultures MSMEs in the
country involved in various economic activities out of which 196.65 lakhs of
enterprises are in Manufacturing Sector, 0.03 lakhs in Non-captive Electricity
Generation and Transmission, 230.35 lakhs is in Trade Sector and 206.85 lakhs
is in Other Services excluding those MSMEs registered under (a) Section 2m (i)
and 2m (ii) of the Factories Act,1948, (b) Companies Act, 1956 and (c)
Construction activities comes under Section F of National Industrial
Classification (NIC) 2008.
MSME sector has generated almost 11.10 crore jobs as per the survey conducted during the year 2015-16 by NSS (National Sample Survey) 73rd round. MSMEs generated approx. 360.41 lakhs jobs in the Manufacturing sector, approx. 387.18 lakhs jobs in Trade, approx. 362.22 lakhs in Other Services and 0.07 lakhs in Non-captive Electricity Generation and Transmission. The latest scenario of Number of MSMEs and Estimated Employment Generation in MSME Sector in India (broad activity category wise) during the year 2015-16 has been discussed in detail in Table 5:
Table 5
Number of MSMEs and Estimated Employment Generation in MSME Sector in India (Broad Activity Category
Wise 2015-16)
|
Category |
Rural |
Urban |
Total |
Share (%) |
||||
|
No. of MSME |
Employment Generation |
No. of MSME |
Employment Generation |
No. of MSME |
Employment Generation |
No. of MSME |
Employment Generation |
|
|
Manufacturing |
114.14 |
186.56 |
82.50 |
173.86 |
196.65 |
360.41 |
31 |
32.00 |
|
Trade |
108.71 |
160.64 |
121.64 |
226.54 |
230.35 |
387.18 |
36 |
35.00 |
|
Other Services |
102.00 |
150.53 |
104.85 |
211.69 |
206.85 |
362.22 |
33 |
33.00 |
|
Electricity |
0.03 |
0.06 |
0.01 |
0.02 |
0.03 |
0.07 |
0 |
0 |
|
Total |
324.88 |
497.78 |
309.00 |
612.10 |
633.88 |
1109.89 |
100 |
100 |
Source:
Annual Report 2018-19, Ministry of MSME, Government of India, pp 28-32.
6. CONCLUSION:
In this paper, the definition of MSMEs across the world have been
discussed. There are many definitions of MSMEs have been seen based on
different criteria country by country, and it has been redefined over the time.
Some countries defined MSME based on capital investment, and some country
defines on the ground of the number of employees working in their firm whereas
some define on the ground of annual turnover of the firm. In India, the
definition of MSME has been changed many times from 1951 to 2006. But in EU
member countries, the definition of MSME is same since 2003. We come to
conclude, the MSME sector plays an important role in employment generation in
India. According to a survey conducting in 2017, MSME contributes around 31% to
the nation’s GDP, 34% shares of the overall manufacturing sector and 45% shares
of the overall export output. It is the backbone of the Indian economy. Looking
to its importance, government must try to facilitate MSME to grow at faster
rate. The efforts so far done to exaggerate is not sufficient.
REFERENCES:
1.
Prof. M. Chandraiah & R. Vani (2014). The Prospects &
Problems of MSMEs Sector in India - an Analytical Study; International Journal
of Business & Management Invention, ISSN No. 2319 – 8028, Vol. 3, Issue 8,
pp 27 – 40.
2.
Bhoomika Garg (2014); Role of MSMEs in Economic Development,
Research journal of Entrepreneurship, Vol. 2, No. 2, February, 2014, pp 1 – 8.
3.
Asma Benzazoua Bouazza, Diabate Ardjouman & Dr. Othman
Abada (2015); Establishing the Factors Affecting the Growth of Small &
Medium-Sized Enterprises in Algeria, American International Journal of Social
Science, ISSN No. 2325 - 4165 Vol. 4, No. 2, pp 101 – 115.
4.
Singh, H. and Kumar, S. (2017). Working
capital requirements of manufacturing SMEs: evidence from an emerging economy. Review
of International Business and Strategy, 27(3), pp.369-385.
5.
Upadhyay, P., Jahanyan, S. and Dan, P. (2011). Factors
influencing ERP implementation in Indian manufacturing
organisations. Journal of Enterprise Information Management, 24(2),
pp.130-145.
6.
India: The State Development of Small and Medium
Enterprises-2005, Institute of Small Enterprises and Development (ISED)
7.
Soundarapandian, M.
(2009), Economic Reforms and Small-Scale Industries, Concept Publishing
Company, New Delhi, p.p. 9-1
8.
Annual Report
2018-19, Ministry of MSME, Government of India, pp 28.
10. https://msme.gov.in/know-about-msme
