MSME contribution to India’s GDP

MSME contribution to India’s GDP is increasing considerably as the number of startups are rising rapidly and government is introducing several schemes to boost their growth. MSMEs are considered the pillars of the Indian economy owing to their significant contribution to GDP. “Micro, small, and medium enterprises are a huge pillar of India’s growth journey. The MSME sector accounts for almost one-third of India’s economy,” according to Indian Prime Minister Narendra Modi.

“MSMEs play a key role in economic development. The sector accounts for over 80% of businesses and contributes to more than half of the employee share. The share of the formal MSME sector in the GDP is up to 40% in emerging economies,” said the chairman of ASSOCHAM, according to a press report.

Government of India believes that the target of $5 billion economy will require the MSME sector to play a pivotal role. Therefore, the government is hard at work introducing new schemes and setting up committees to help and oversee the development of the MSME sector.

Definition of MSMEs

	Micro enterprise	Small enterprise	Medium enterprise
Investment and annual turnover respectively	< ₹ 1 Crore & < ₹5 Crore	< ₹10 Crore & < ₹50 Crore	< ₹50 Crore & < ₹250 Crore

 

MSME contribution to GDP in India

As per data from the Ministry of Micro, Small & Medium Enterprises, the Udyam Registration portal  for small businesses registered 1,22,01,448 MSMEs as of November 25, 2022. There are many small businesses that are not yet under the ambit of Udyam registration. The government has requested all small business to register under Udyam in a bid to boost the contribution of MSME sector in Indian economy and help them to reap the benefits of various government schemes.

MSME contribution to GDP is very important to all countries around the globe. Contribution of MSMEs to the GDP of developing countries like India is crucial for GDP growth. Here are the five areas where the contribution of MSME sector to Indian economy is considered vital.

1. Employment

MSMEs in India employ around more than 40% of the human capital of the country. They provide large employment opportunities especially to backward and rural areas, at comparatively lower capital cost than large industries. MSME contribution to employment in India is vital for employment generation both at rural and urban level.

2. Exports

Before COVID-19 struck the share of MSME related products in total export from India during 2018-19 was 48.10%. As of August 2022, the share of MSME exports in the country’s total exports is at 42.67%. Carpets, textile floor covering, vegetable products, resins, vegetable textile fibres and sugar confectionery are some of the products exported by MSMEs of the country.

3. Entrepreneurship

Many new-generation MSMEs are owned by young entrepreneurs who found niche business opportunities. Many college graduates are now starting their own small-scale ventures, especially technology businesses. These entrepreneurs have revolutionised dairy farming, poultry, agriculture, etc. India’s core industries with the help of technology and innovative ideas.

The government has introduced schemes such as the ASPIRE scheme  to support entrepreneurship and innovation in the rural sectors, especially in agriculture for creating new job opportunities and skill development.

4. Driving growth in rural areas

Many MSMEs have establishments in rural areas as the cost of land and cost of labour is significantly low in these areas. Industrialisation of rural and backward areas reduces regional imbalances and contributes to the equal distribution of national income and wealth. This also brings more job opportunities to rural areas which leads to social development and improved standard of living.

5. Innovation

Startups and MSMEs are increasingly coming up with innovative business ideas that instantly attract the market. Recently, a Chennai-based firm called Autointelli won the Best Automation Tool 2022 award at British Parliament for its server automation software. This is just a small business founded in 2018 with just 21 employees.

Many small businesses are coming up with disruptive ideas that can helm the sustainable industrialisation efforts of the country. The government has put forward multiple government schemes (e.g., MSME Innovative scheme in 2022 ) that can boost innovation in the MSME sector. They are even reimbursing the costs of patent registration.

MSME share in GDP in figures

Have a look at the percentage share of MSME contribution to the GDP of the country along with the sector’s share in other core areas of the economy:

The share of MSME Gross Value Added (GVA) in all India Gross Domestic Product (GDP):

Year	2018-19	2019-20	2020-21
Share of MSME GVA in All India GDP (%)	30.50	30.50	26.83

 

The share of export of specified MSME related products in all India exports:

Description	2019-20	2020-21	2021-22	2022-23 (up to Aug. 2022)
Share of export of MSME related products in All India Export (in %)	49.77	49.35	45.03	42.67

 

The total number of persons employed in MSMEs which are incorporated:

Year	2019-20	2020-21	2021-22	2022-23 (up to 07.12.2022)
All India	65,64,458	1,12,27,745	1,30,19,919	84,23,452

 

The share of manufacturing MSMEs’ Gross Value Added (GVA) in all India manufacturing Gross Value Added (GVA):

Year	2018-19	2019-20	2020-21
Share of manufacturing MSME GVA in All India manufacturing GVA (%)	40.60	40.67	38.47

Source: PIB

Benefits of becoming an MSME in India

The government of India has been requesting all small businesses to register themselves to be officially recognised as MSMEs. This way they can enjoy the many benefits of Udyam registration that helps in business growth. Here are some of the benefits you can enjoy by becoming registered MSMEs:

• Financial support for technology upgrades
• Collateral free loans
• Marketing and promotion assistance
• Electricity bill concessions
• Access to international markets
• Access to MSME mart
• Tax exemptions
• Protection against delayed payment

Apart from this a registered MSME can apply for government schemes and enjoy various benefits like business loans at discounted interest rates.

Also Know: Business ideas in india with low investment

Some government schemes for MSMEs

Given below are a few popular government schemes for MSMEs:

• CGTMSE

The Credit Guarantee Fund Trust for Medium and Small Enterprises scheme focuses on availability of bank credit without the hassles of collaterals/third party guarantees for MSMEs. This scheme assures MSMEs with the guaranteed repayment of 75% or 85% for defaulted principal loan amount up to ₹50 lakh.

• MSME Samadhaan

MSME Samadhaan is an initiative introduced to settle the delayed payments and disputes arising from it. MSMEs with delayed payment problems can lodge a complaint against the buyer before the Micro and Small Enterprise Facilitation Council (MSEFC) through MSME Samadhaan’s portal.

• Public procurement policy

The government has set an annual target for 25% procurement from MSE sector by every central ministry/department/PSUs. This improves the chances of MSMEs winning government tenders.

Contribution of MSMEs in India is crucial for the development of the economy and to generate more job opportunities for the youth. This can improve the national income and increase India’s standards as a country with innovative and disruptive business ideas.