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Role of MSMEs in Social and Economic Development in India

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Studies in Indian Place Names ISSN: 2394-3114

Vol-40-Issue-50-March -2020
(UGC Care Journal)

Role of MSMEs in Social and Economic Development in India

Suhail Ahmad Bhat1 & Shambhavi Singh2

Email:[email protected]

Abstract

MSMEs are considered as the catalyst of economic and social development of developing
countries (Khan & Dalu, 2015). This sector is labor intensive in nature, the need of such sector
is indispensible for the country like India, which is a labor abundant country and is having a
huge economic and social disparities. The MSMEs sector is nursery of entrepreneurship, and
provides huge employment opportunities, decentralization of industrial activity and helps in the
utilization of locally available resources at very low capital cost. Nonetheless, Indian economy is
mainly a rural based economy, where agriculture sector is a dominated sector. However, decline
in the share of agriculture sector in GDP, employment and as well as decline in the landholding
of marginal and small farmers, the role of this sector has increased drastically. This sector helps
in establishing new industries in both rural and urban areas at meager cost. MSME sector has
playing a pivotal role in absorbing a huge chunk of labor force in the country. At present this
sector is having 324.88 lakh units in rural areas, which provides an employment to 497.73 lakh
persons and in urban areas it is having 309 lakh units, which provides an employment to 612.09
lakh persons in the country. This sector is also providing an entrepreneurial spirit among the
socially disadvantaged groups in the country. Therefore, this paper examines the role of MSME
sector in providing economic and social development by through employment and
entrepreneurship development in India

Keywords: MSMEs, Economic and Social Development, Employment and Entrepreneurship

1
Suhail Ahmad Bhat Doctoral Fellow Department of Economics BBA University Lucknow, 226025
2
Shambhavi Singh Research Scholar Department of Economics BBA University Lucknow, 226025

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Introduction

Micro, small and medium enterprises (MSMEs) is known as the engine of economic growth and
development. MSMEs are considered as the catalyst of economic and social development of
developing countries (Khan & Dalu, 2015). The role of MSMEs in-terms of easing the industrial
development, eradicating regional disparities and bringing economic development is widely
recognized in both developing and developed counties of the world (Srinivas, 2013, Manna and
Mistri, 2017). In developed countries such as Germany, Greece, Italy, France and other
countries, Micro, Small and Medium enterprises are contributing significantly in national
income, employment, manufacturing goods and exports of the country, (Bala, 2007). It performs
a key role in the development of effective, efficient, and innovative entrepreneurial spirit. This
sector is the solution for major economic problems of India, such as problems of unemployment,
poverty alleviation, economic disparities and lack of entrepreneurship and skill development of
the country (Rathore, R., & Mathur, A. 2019). Therefore, MSMEs are playing an indispensible
role in the economic development India. Nonetheless, MSME sector in India is highly
heterogeneous in terms of its size and is having diversified products and services. Nonetheless,
the MSME sector is labor intensive in nature and can be established at any place with very low
capital ratio and provides a high employment opportunities, decentralization of industrial
activity, utilization of locally available resources and widening of entrepreneurial base. MSMEs
are supplement to large scale industries and considered as ancillary to them (Muthu, 2015). The
growth rate recorded by this sector has normally been higher than that of the industrial sector as
a whole. MSME support entrepreneurs for development of existing enterprises and encourage
entrepreneurs for new establishment. MSMEs have the opportunity of generation relatively large
amount income with lower amount of investment (Sen & Selim, 2015) Therefore, this paper
examines the role of MSME sector in providing economic and social development by through
employment and entrepreneurship development in India

Methodology

The present study is empirical in nature and is based on the secondary data. The secondary data
has been taken from the annual report 2017-18 of Ministry of Micro, Small and Medium

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Enterprises. The study involves the analysis of MSME for providing social and economic
development by creating huge employment opportunities and entrepreneurship development
among male and female, as well as among the socially disadvantaged groups in India.

Micro Small and Medium Enterprises in India

The distinctions between developed and under-developing countries are made on the basis of
their industrial infrastructure and the proportion of workforce engaged in industrial activities
(Sharma, 2014). In developed countries a large chunk of people are engaged in industrial
activities while, in under developed countries majority of workforce are engaged in traditional
sector. Nonetheless, MSMEs constitute about 80 percent of the total number of industries in
India. Micro, Small and Medium Enterprises offers a heterogeneous and varied nature of fabric
in terms of the size and structure of the units, variety of products and services, scale of
production and application of technology in India (Das, 2016).

Therefore, table 1 shows that in case of rural areas the highest number of units are Micro units,
which comprises 324.09 lakh, i.e. 99.76 percent of units are Micro units, followed by Small
units, which consists 0.78 lakh units and Medium units which consists 0.01 lakh units
respectively. Similarly, in case of urban areas, the total numbers of Micro enterprises are 306.43
lakh units, which comprises 99.17 percent, followed by Small units i.e. 2.53 lakh units, which
comprises 0.82 percent and Medium units 0.04 lakh, which comprises 0.12 percent respectively.
The total number of Micro units ion both rural and urban areas are 630 lakh units, followed by
Small units 3.31 lakh units and Medium units 0.05 lakh units respectively with 51 percent share
in rural area and 49 percent share in urban area.

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Table 1: Distribution of Micro, Small & Medium in Rural and Urban Areas (in Lakhs)
Sector Micro Small Medium Total Share (%)
Rural 324.09 0.78 0.01 324.88 51
(99.76) (0.24) 0.01 (100.00)
Urban 306.43 2.53 0.04 309 49
(99.17) (0.82) (0.12) (100.00)
Total 630.52 3.31 0.05 633.88 100
(99.47) (0.52) (0.01) (100.00)
Source: MSMEs Annual Report 2017-18

Percentage Distribution of Male/ Female Ownership of MSMEs in India

The table 2 shows the distribution of enterprises among Male and female wise in rural and urban
India. Table highlights that in case of rural areas 77.76 percent of enterprises are owned by male
entrepreneurs and 22.24 percent of enterprises are owned by female entrepreneurs, while in case
of urban areas 81.58 percent of enterprises are owned by male entrepreneurs and 18.42 percent
of enterprises are owned by female entrepreneurs, which is 3.82 percent less as compared to rural
female entrepreneurs. Therefore, the overall results show that in both rural and urban areas the
MSME units are dominated by male entrepreneurs in both rural and urban areas in India.

Table 2: Percentage Distribution of Male/ Female Ownership of MSMEs in India

Male Female Total

Rural 77.76 22.24 100
Urban 81.58 18.42 100
Total 79.63 20.37 100
Source: MSME Annual Report 2017-18

Enterprises Wise Percentage Distribution of Ownership of MSMEs in India

The table 3 shows the enterprises wise distribution of ownership in India. The definition of
Micro, Small and Medium enterprises set by government of India is based on the investment in
plant and machinery. Micro enterprises consists all those units in which the investment in plant
and machinery does not exceed more than 25 lakh rupees, while Small units are all those in

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which the investment in plant and machinery are higher than 25 lakh rupees but does not exceed
5 crore rupees. Moreover, the medium units are those in which the investment in plant and
machinery are higher than 5 crore but does not exceed more than 10 crore rupees. The table
highlights that in case of Micro units 79.56 percent of units are owned by male entrepreneurs and
20.44 percent of enterprises are owned by female entrepreneurs. Similarly, in case of Small units
94.74 percent of enterprises are owned by male entrepreneurs and 5.26 of enterprises are owned
by female entrepreneurs. Moreover, in case of Medium units 97.33 percent of enterprises are
owned by male entrepreneurs and 2.67 percent of enterprises are owned by female entrepreneurs.
Therefore, the overall results shows that MSMEs are male dominant, but in case of female
entrepreneurs only Micro enterprises are owned by a significant number of female entrepreneurs,
while the ownership in Small and Medium enterprises are insignificant i.e. the ownership among
female entrepreneurs is very less in Small and Medium as compared to Micro enterprises
ownership in India.

Table 3: Enterprises Wise Percentage Distribution of Ownership of MSMEs in India

Enterprise Type Male Female Total

Micro 79.56 20.44 100
Small 94.74 5.26 100
Medium 97.33 2.67 100
Total 79.63 20.37 100
Source: MSME Annual Report 2017-18
Percentage Wise Distribution Ownership among Social Groups in India

The Table 4 shows that in rural areas the highest ownership among social groups is among OBC
category, which comprises 51.59 percent, followed by Others 25.62 percent, SC category 15.37
percent and ST category which comprises 6.70 percent. Similarly, in urban areas the highest
ownership is also among OBC category, which comprises 4780 percent, followed by Other
category 40.46 percent, SC category 9.45 percent and ST category which comprises a marginal
ownership of 1.43 percent respectively. Therefore, from the table it is clear that in both rural and
urban areas OBC category comprises a significant ownership of enterprises as compared to other

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social category groups in India. The results also show that ST category comprises a minimal
percentage of ownership in urban areas as compared to rural areas.
Table 4: Percentage Wise Distribution Ownership among Social Groups in India

SC ST OBC Others Not known Total

Rural 15.37 6.70 51.59 25.62 0.72 100
Urban 9.45 1.43 47.80 40.46 0.86 100
Total 12.45 4.10 49.72 32.95 0.79 100
Source: MSME Annual Report 2017-18
Percentage Wise Enterprise Ownership among Social Category Groups
The table 5 shows that in case of Micro enterprises the highest percentage of ownership is among
OBC category, which comprises 49.83 percent, followed by Other category 32.00 percent, then
SC category 12.48 and for ST category it is having a lowest percentage share of ownership i.e.
4.11 percent. Nonetheless, in case of Small enterprises, here the highest percentage of ownership
is among other category groups, which comprises 62.82 percent, followed by OBC category
29.64 percent, SC category 5.50 percent and for ST category they comprises only 1.65 percent.
Similarly, in case of Medium enterprises the highest percentage share of ownership is among the
Other category, which comprises 70.80 percent, followed by OBC category 23.85 percent and
for ST category it comprises 1.09 percent of ownership. However, none of the entrepreneur from
SC category is holding ownership in Medium enterprises. Therefore, the overall results show that
majority of MSMEs enterprises are owned by OBC and Other category groups and the
percentage holding of ownership among SC and ST category is pathetic.
Table 5: Percentage Wise Enterprise Ownership among Social Category Groups
Enterprise Type SC ST OBC Others Not known Total
Micro 12.48 4.11 49.83 32.00 0.79 100
Small 5.50 1.65 29.64 62.82 0.39 100
Medium 0.00 1.09 23.85 70.80 4.27 100
Total 12.45 4.10 49.72 32.95 0.79 100
Source: MSME Annual Report 2017-18
Activity wise estimated Employment in Rural and Urban area (in Lakh)
This sector explores the activity wise estimated number of employment in rural and urban areas
in India. The table 6 shows that in case of employment in manufacturing activities in rural areas,
it is providing employment to 186.56 lakh persons, which comprises 51.80 percent of

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manufacturing employment of MSMEs in rural areas and in urban areas it is providing

employment to 173.86 lakh i.e. 48.20 percent of manufacturing employment of MSMEs in urban
areas. Similarly, in case of Trade activities in rural areas it is providing employment to 160.64
lakh persons i.e. 41.5 percent of employment of trade activities in rural areas and in case of urban
areas it is providing employment to 226.54 lakh persons i.e. 58.5 percent of Trade related
activities employment from MSMEs in urban areas. Moreover, in case of Other services of
MSMEs it is providing employment to 150.53 lakh persons in rural areas, which comprises 41.6
percent of employment from Other services and in case of urban areas it is providing
employment to 211.69 lakh persons with 58.40 percent of employment from Other services.
Table: Activity wise estimated Employment in Rural and Urban area (in Lakh)
Rural Urban Total
186.56 173.86 360.42
Manufacturing
(51.80) (48.20) (100.00)
160.64 226.54 387.18
Trade
(41.50) (58.50) (100.00)
Other Services 150.53 211.69 362.22
(41.60) (58.40) (100.00)
497.73 612.09 1109.82
Total
(44.80) (55.20) (100.00)
Source: MSME Annual Report 2017-18

Employment Distribution of MSMEs in Rural and Urban areas in India

The table 6 shows that in case of Micro enterprises of rural areas it is providing employment to
489.30 lakh persons, while Small enterprises are providing employment to 7.88 lakh persons and
Medium enterprises are providing to 0.60 lakh persons. Similarly, in urban area, Micro
enterprises are providing employment to 586.88 lakh persons, while Small enterprises are
providing to 24.06 lakh persons and Medium enterprises are providing to 1.15 lakh persons
respectively. Therefore, the overall result shows that MSMEs are providing highest employment
in urban areas as compared to rural areas. Moreover, results also show that Small enterprises are
providing a significant employment in urban areas as compared to rural areas in India.

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Table 6: Employment Distribution of MSMEs in Rural and Urban areas in India

Micro Small Medium Total
Rural 489.30 7.88 0.60 497.78
Urban 586.88 24.06 1.15 612.10
Total 1076.19 31.95 1.75 1109.89
Source: MSME Annual Report 2017-18
Male/Female Wise Employment Distribution in India
This section explores the male/female wise distribution of employment in India. The table 7
highlights that in case of rural areas, MSMEs are providing employment to 360.15 lakh male
persons, which comprises 72.40 percent of total male employment of MSMEs in rural areas and
for female it is providing employment to 137.50 lakh females, which comprises 27.60 percent of
employment from MSMEs in rural area. Similarly, in case of urban areas, MSMEs are providing
employment to 484.54 lakh male persons i.e. 79.18 percent of male employment and for urban
females it is providing employment to 127.42 lakh females, which comprises 20.82 percent of
employment of MSMEs for females in urban areas.
Table 7: Male/Female Wise Employment Distribution in India
Male Female Total
Rural 360.15 137.50 497.78
(72.40) (27.60) (100.00)
Urban 484.54 127.42 612.10
(79.18) (20.82) (100.00)
Total 844.68 264.92 1109.89
(76.10) (23.90) (100.00)
Source: MSME Annual Report 2017-18

Distribution of Top Ten States in MSMEs Units and Employment

This section explores the distribution of top ten states in-terms of MSME units and employment.
Table 8 shows that the highest number of MSME units are in Uttar Pradesh i.e. 89.99 lakh units,
which is providing employment to 165.26 lakh persons, followed by West Bengal 88.67 lakh
units, with an employment to 135.52 lakh persons, Tamil Nadu which is having 49.48 lakh units
and are providing employment to 96.73 lakh persons. However, from table it has been observed
that West Bengal and Tamil Nadu are the two states where, disparities in terms of employment
among male and female is very low as compared to other top ten states, while in Uttar Pradesh,

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Bihar and Rajasthan they having higher disparities in-terms of employment in MSMEs, the
employment ratio of male workers are much higher than female workers.
Table 8: Distribution of Top Ten States in MSMEs Units and Employment
State Units Employment
In Lakh Female Male Total
Uttar Pradesh 89.99 27.27 137.29 165.26
West Bengal 88.67 43.51 91.95 135.52
Tamil Nadu 49.48 32.27 64.65 96.73
Maharashtra 47.78 17.97 51.11 70.84
Karnataka 38.34 19.73 51.11 70.84
Gujarat 33.16 13.71 47.44 61.16
Andhra Pradesh 33.87 21.01 34.98 55.99
Bihar 34.46 4.79 48.26 53.07
Madhya Pradesh 26.74 10.13 38.61 48.80
Rajasthan 26.87 8.01 38.31 46.33
Total 261.03 35.69 262.81 287.86
Source: MSME Annual Report 2017-18

Conclusion
Undoubtedly, the Micro, Small and Medium Enterprises have become a cornerstone of Indian
economy, because this sector is playing an essential role in providing employment generation,
entrepreneurship development, and poverty alleviation and also helps in bringing socio and
economic development in India. This sector not only provides an entrepreneurial spirit among
women’s, but also to the socially disadvantaged groups in the country. However, though MSME
sector is the backbone of Indian economy, it has yet to achieve a big milestone, because Uttar
Pradesh and West Bengal are the two major states which are showing a significant growth in the
development of MSMEs in India.
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(UGC Care Journal)

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