Why the MSME endustry is critical to creating jobs and growing the Indian Economy


Despite some serious challenges, MSMEs have been powering the Indian economy and creating job opportunities for the middle and lower ends of the socio-economic scale.

Micro, Small and Medium Enterprises (MSME) are integral to employment generation, economic growth, and equitable development in any developed or developing country. India is heavily depending on the MSME sector to evolve into the world’s largest and most progressive economy. There have been policy initiatives to promote MSME, the most prominent of which was the MSME ACT 2006 that brought the service sector into the fold of the MSME sector. Sops were provided and registration process simplified in the later years.

The institution of India Opportunities Venture Fund was yet another shot in the arm for the MSME sector. Per ETV Bharat News live, the INR 50-billion fund was instituted in partnership with SIDBI to ensure equity for the sector. Also, the Public Procurement Policy was enacted that mandates government departments to procure at least 20% of their yearly supplies from MSME and 4% specifically from MSME owned and operated by SC/ST entrepreneurs. The union government gave the MSME sector the exclusive rights to manufacture 20 different items.

Wondering why the MSME industry is creating jobs and growing the Indian economy? Let’s discuss.

Job creation at scale:

The MSME sector is labour intensive. Simply put, the labour intensity in this sector exceeds that of the large scale private and public sector enterprises by a margin. Since technology is yet to fully penetrate the sector, most tasks are done manually and hence, more labour required. Plus, starting a micro, small or medium business requires less capital, creating huge employment avenues for the unemployed people, particularly from the lower and middle-income groups.

In fact, with an investment of just one Lakh rupees in fixed assets, about four people can get employment. Unsurprisingly, with over 60 million employments and still counting, the MSME sector is presently India’s biggest employer, second only to the agriculture sector.

Driving economic growth:

With over 8% contributions towards the GDP, MPSE is powering the engine of the Indian economy. The manufacturing and exports sectors are the prime beneficiaries of the MSME sector, as it contributes 45% and 40% to them respectively. Interestingly, the MSME sector contributes more to the nation’s GDP vis-à-vis the agriculture sector, which is the largest employer in India.

Foreign corporations are increasingly sourcing semi-finished products from the MSMEs, leading to qualitative improvements in the processes and systems that MSMEs operate with. According to ETV Bharat, the trend is also attracting foreign investment, helping the economy to flourish.

Ensuring equitable growth:

The wealth distribution in India is not uniform with over half of the entire wealth owned by just 100 individuals. Here too, MSMEs have a definite role to play. Since getting small businesses up and running is relatively easy and less capital intensive, they can be established in rural and underserved areas. About 45% of MSMEs are operational in these areas.

Though equal wealth distribution is still a farfetched idea, MSMEs are at least bringing down regional disparities, and ensuring inclusive growth and more equitable distribution on income.

Paving way for Make in India:

MSMEs are probably the best bet to realize Prime Minister Narendra Modi’s ambitious ‘Make in India’ initiative. The initiative simplifies the incorporation process to encourage entrepreneurship, primarily at the grass root. The banks are now forced to consider the loan disbursed to micro and small businesses a priority sector lending. The idea is to ensure easy credit for MSMEs.

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