What is MSME and its role in Indian economy

Among the biggest employers in India, MSMEs are critical to the country’s growth. Read on to learn more about this sector.
Business Loan
APPLY
2 min read
14 September 2023

If you plan to set up your enterprise in India, you need to know everything about MSME (micro, small, and medium enterprises).

MSMEs are micro, small, and medium enterprises that engage in the service sector or the manufacturing, processing, production, and preservation of goods. MSMEs contribute significantly to India’s total GDP, and the government’s objective is to raise this contribution to 50% in the coming years. That is why MSMEs are considered to be the backbone of the economy. They are also pivotal to the nation’s growth as they employ lakh of unskilled and semi-skilled individuals.

Once you have understood everything about MSMEs and their impact on the economy, you can identify an area of demand in the market and carve a niche for your enterprise.

Here are answers to some frequently asked questions about MSMEs:

What is the MSME sector, and how are units classified as MSMEs?

The MSME sector comprises micro, small, and medium enterprises that are classified according to certain parameters.

Before 2018, MSMEs were categorised based on the amount invested. After a change in regulations, they are classified based on their annual turnover, whether they operate in the manufacturing or service sector. The new conditions are as follows.

  • Micro enterprise: When annual turnover is up to Rs. 5 crore.
  • Small enterprise: When annual turnover is above Rs. 5 crore and less than Rs. 75 crore.
  • Medium enterprise: When annual turnover is above Rs. 75 crore and less than Rs. 250 crore.

Importance of MSME in the Economic Development of India

The importance of MSMEs (Micro, Small, and Medium Enterprises) in India's economic development includes:

  • Employment generation by providing jobs to millions across urban and rural areas.
  • Promoting entrepreneurship by fostering innovation and encouraging self-reliance and business ownership.
  • Contributing significantly to India's GDP, enhancing economic growth.
  • Boosting exports by producing diverse goods and services, improving India's global trade position.
  • Supporting balanced regional development by promoting industrialisation in less developed areas.
  • Encouraging inclusive growth by offering economic opportunities to various socio-economic segments.

How do MSMEs contribute to the Indian economy?

MSMEs make a crucial contribution to India’s GDP. MSMEs contribute more than 29% to the GDP and are responsible for 50% of the country’s total exports. They are also accountable for one-third of India’s manufacturing output. MSMEs employ more than 11-crore people, and the aim is to grow this number to 15 crore in the coming years.

What are the benefits of MSME?

MSMEs have a lower capital-output ratio, meaning that even a small investment offers a good growth rate. They manufacture thousands of products, which means that you have plenty of options as a budding entrepreneur. Another by-product of the vast footprint of the sector is that it creates ample job opportunities in both urban and rural parts of the country.

Additional read: What are the benefits of an MSME loan?

What are the challenges that this sector faces?

A major challenge that this sector faces is insufficient financing, due to which it is unable to access newer technology and infrastructure. MSME sector also lacks organisational development. Managerial incompetence can, in turn, result in other roadblocks and challenges.

What are the government schemes available to MSMEs?

Considering the role of this sector in the Indian economy, the central government, along with the RBI, has launched schemes to help the MSME entrepreneurs. A few notable initiatives are:

With the help of these schemes, you too can grow your business in this sector and contribute to India’s economic development.

If you are looking to access a higher amount of funds, you can consider the Bajaj Finance MSME Loan to boost revenue and streamline operations. Whether you are looking to set up or expand your SME. This collateral-free loan of up to Rs. 80 lakh at a competitive interest rate is the perfect fit for your small or medium-sized entity.

Opportunities in MSME

MSMEs, or micro, small, and medium enterprises, are vital for the economic growth and development of India. They provide employment opportunities, contribute to manufacturing and exports, and support innovation and entrepreneurship. Here are some of the opportunities in MSMEs:

  • Export promotion and potential for Indian products
  • Access funding – finance and subsidies
  • Government’s promotion and support
  • Cater to rising demand in the domestic market.
  • Less capital required
  • Workforce training

To address your cash flow concerns, you can avail the Flexi-loan facility, which allows you to pay interest only on what you withdraw from your total sanction. Further, you can pay interest-only EMIs throughout the tenure and repay the principal only at the end. This method helps reduce your EMIs by up to 45%, allowing for more effective and efficient working capital management.

Check your pre-approved offer and enjoy a hassle-free MSME loan application and approval process to get started today.

Bajaj Finserv app for all your financial needs and goals

Trusted by 50 million+ customers in India, Bajaj Finserv App is a one-stop solution for all your financial needs and goals.

You can use the Bajaj Finserv App to:

  • Apply for loans online, such as Instant Personal Loan, Home Loan, Business Loan, Gold Loan, and more.
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  • Choose from multiple insurance for your health, motor and even pocket insurance, from various insurance providers.
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  • Apply for Insta EMI Card and get a pre-approved limit on the app. Explore over 1 million products on the app that can be purchased from a partner store on Easy EMIs.
  • Shop from over 100+ brand partners that offer a diverse range of products and services.
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  • Check your credit score, download loan statements and even get quick customer support—all on the app.

Download the Bajaj Finserv App today and experience the convenience of managing your finances on one app.

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Frequently asked questions

Who is eligible under MSME?

Any business entity involved in manufacturing, production, processing, or preservation of goods or providing services can qualify as an MSME in India. The eligibility is based on the enterprise’s investment in plant and machinery or equipment and its annual turnover. These criteria determine whether a business falls under micro, small, or medium categories.

What is the function of MSME in India?

MSMEs play a vital role in India's economy by promoting industrialisation in rural and less developed areas, generating employment, fostering innovation, and enhancing the production of goods and services. They also contribute significantly to exports, economic growth, and inclusive development, ensuring a more equitable distribution of wealth and resources across the country.

How much do MSMEs contribute to the GDP of India?

MSMEs contribute around 30% to India's GDP. This sector is crucial for economic growth as it supports various industries and services, creates jobs, and encourages entrepreneurial initiatives. By driving significant export volumes and fostering regional development, MSMEs are a cornerstone of India's economic strategy and inclusive growth.

What is the impact of SMEs in India?

SMEs in India have a significant impact by driving economic growth, fostering innovation, and creating employment. They contribute to exports, regional development, and the diversification of the economy. SMEs also play a crucial role in social development by enabling economic opportunities for various sections of society, particularly in rural and semi-urban areas.

Is GST registration mandatory for MSME?

GST registration is mandatory for MSMEs if their annual turnover exceeds the threshold limit set by the government, which is currently Rs. 40 lakhs for goods and Rs. 20 lakhs for services. However, MSMEs below this threshold can voluntarily register for GST to avail of input tax credits and expand their market reach.

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