MSMEs and their impact on the 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
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.

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 an 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. 75 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.


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