S. No.
Contents Page Number
1. Title
2. Brief intro on topic
3. Why I chose this topic
4. Characteristics
5. Role of MSME in Indian
economy
6. Objectives of MSME
7. Regn. Of SSI
8. Eligibility criteria for SSI
Regn.
9. Employment in MSME
10. MSMED Act 2006
11. Features of MSME
12. Role of MSME in IED
13. Impact of Covid 19
14. Recent Developments
15. Major Challenges faced
16. Recent initiatives
17. Share of MSME in markets
18. News and stats about
govt. budget
19. Upcoming Developments
20. Post pandemic plans
21. Acknowledgment
22. Bibliography
Brief Intro on MSME’s
Micro, Small and Medium Enterprises [MSME’s]
are classified based on the investment in plant
and machinery and their annual turnover. The
govt. of India has defined criteria for these
industries under MSMED Act, 2006
Enterprise Investment in Annual
P&M Turnover
Micro Less than 1 Less than 5
crore crores
Small Less than 10 Less than 50
crores crores
Medium Less than 50 Less than 250
crores crores
They form the dynamic backbone of most of the
countries of the world. The Indian govt. supports
these industries through various schemes,
recognizing their significant contribution to the
nation’s GDP and manufacture output and
exports. They also promote entrepreneurship and
inclusive development across the country.
Why I chose this topic?
I have chosen this topic due to its vast depth and
the significant contribution of these industries to
the economy. According to me, MSME’s are the
unsung heroes of the Indian economy since they
have contributed heavily to the nation’s Gross
Domestic Product (GDP) by over 30%, the
nation’s manufacturing output by nearly 40%,
employing over 11 crore of the nation’s
population and contributing 45.73% of exports in
the year 2023-24. They often play a huge and
crucial role in promoting social inclusive
development. The topic lends itself to a wide
range of research approaches, including
economic analysis, policy evaluation, case
studies of successful MSMEs, studies on
innovation and technology adoption, and
investigations into the challenges they face like
access to finance, raw materials, infrastructure
etc.
Characteristics of MSME’s
1. MSME’s exhibit a greater flexibility in
adapting to change in market trends,
customer demands due to their small size
and less complexity of management and
often respond to customer needs quickly.
2. They are also driven by individual
entrepreneurs who operate with a small
team with a strong sense of ownership and
commitment.
3. MSME’s are ancillary units to larger
industries by providing essential
components, raw materials, etc. and
therefore strengthening the overall
industrial ecosystem.
4. Starting and operating an MSME requires
lower initial capital investment than large
enterprises thus making it an accessible
avenue for entrepreneurship.
5. MSME’s are more labour-intensive ventures
thus providing high opportunities for semi-
skilled and unskilled labourers.
Role of MSME’s in the Indian economy
The Micro, Small and Medium Enterprises play a
pivotal and multifaceted role in growth and
development of the country in the following
ways:
1. MSME’s contribute significantly to the
nation’s GDP to roughly 29% to 30% of the
overall GDP. This substantial share
underscores their wide economic footprint
across all sectors.
2. MSME’s are the second largest employer of
the country coming just after agriculture
sector. They provide employment to a vast
number of ppl with current numbers
exceeding 110-111 million individuals.
3. MSME’s are significant contributors to
India’s exports accounting for
approximately 40-45% of total exports.
They cater to niche products and specific
demands of the market.
4. MSME’s typically have lower capital-output
ratio i.e., they generate significant growth
and employment with relatively lower
capital investment.
Objectives of MSME’s
The primary objectives of MSME’s are
multifaceted and are aimed to contribute to
overall socio-economic growth of nation.
1. MSME’s are labour intensive and have the
potential to generate significant
employment in rural and semi-urban areas.
They contribute to a more inclusive
economic growth by creating jobs in
diverse regions.
2. MSME’s are a platform for individuals to
start, operate and grow their business thus
fostering a culture of entrepreneurship and
self-reliance. They also enhance skills and
capabilities by providing training to
entrepreneurs and workers.
3. The establishment of MSME’s in less
developed regions help promote
industrialization and reduce economic
disparities.
4. The foremost objective of MSME’s is to
obtain finance for their smooth operation.
Therefore, government are providing
incentives for the smooth operations of
MSME’s.
5. Main objective of MSME’s is supporting
them in adopting better policies, mgt.
techniques, improving quality standards,
etc.
In essence objectives of MSME’s are aligned with
broader national goals. The government
implements various policies schemes and
programs to achieve these objectives and create
a conducive ecosystem.
Registration of Small-Scale Industries (SSI)
The term SSI in MSME’s refer to the Small-Scale
Industries. Before the Indian govt introduced the
MSMED Act, 2006 industries in India were
categorized and registered specifically as Small-
Scale Industries based primarily on investment in
plant and machinery and turnover. They played a
significant role in the Indian economy, focusing
on manufacturing, production and service
provision at a smaller scale. With the introduction
of the MSMED Act, 2006 the term SSI was
broadened to include Micro, Small and Medium
Enterprises and provided a more comprehensive
framework encompassing service-oriented
business and introducing medium-sized
enterprises along with micro and small. While the
term SSI is still used it comes under a broader
umbrella of MSME’s. The current MSME
classification revised and effective from April 1,
2025
Size Investment Turnover
Micro ≤2.5 crore ≤10 crore
Small ≤25 crore ≤100 crore
Medium ≤125 crore ≤500 crore
Eligibility Criteria for Regn. Of SSI
The concept of SSI (Small Scale Industries)
registration is somewhat historical and has
evolved with the implementation of the Micro,
Small and Medium Enterprises Development
(MSMED) Act of 2006. While the term SSI is
still occasionally used, the current registration
framework falls under the broader category of
MSME registration. Therefore, the eligibility
criteria for what was previously known as
SSI registration are now essentially the
eligibility criteria for MSME registration.
Size Investment Turnover
Micro ≤2.5 crore ≤10 crore
Small ≤25 crore ≤100 crore
Medium ≤125 crore ≤500 crore
Entities engaged in manufacturing or production
of goods or providing services are eligible.
Businesses primarily involved in trading are not
eligible for MSME registration. The enterprise
must fall within the defined investment in plant
and machinery and must not cross the turnover
limit specified in MSMED Act, 2006.
Employment in MSME’s
MSME is the most significant employment
generator of our country as it is the second
largest employer after agriculture. Recent data
indicates a total employment of over 20.51
crores as on July, 2024. A report in November
suggested that the total reported jobs reached
23.14 crores A significant portion of MSME
employment is within micro-enterprises which
constitutes to over 99% of all MSME’s. The
manufacturing sector accounts for a substantial
share within MSME’s along with trade and
services. As of July, 2024 approximately 4.54
crores employees in MSME’s were women. The
Prime Minister’s Employment Generation
Programme (PMEGP) is specifically focused on
the creating employment by assisting in the
setting up of new micro-enterprises. Despite their
significant contribution to employment, MSMEs
often face challenges such as access to finance,
technology adoption, and market linkages, which
can impact their growth and employment
potential.
MSMED Act, 2006
The Micro, Small and Medium Enterprises
Development Act, 2006 is a landmark legislation
in India enacted by the parliament for addressing
the escalating needs of the MSME sector.
Features of the MSMED Act, 2006 are:
1. The Act legally defined micro, small, and
medium enterprises, covering both
manufacturing and service sectors, based
on investment in plant and
machinery/equipment
2. The Act also provides for the constitution of
an Advisory Committee to make
recommendations on various aspects
affecting MSMEs, such as employment
levels, investment
3. It specifically addresses the issue of delay
in payments by the customers, b
mandating them to make the payment
within 45 days of the acceptance of the
goods or services. In case of delays, the
buyer is liable to pay compound interest
three times the bank rate notified by the
RBI.
4. It allows the central govt to create funds to
support the MSME’s.
in essence, the MSMED Act, 2006 provides a
comprehensive legal and policy framework to
support and foster the growth of the MSME
sector in India, recognizing its crucial role in
economic development and employment
generation.
Features of MSME
The MSME’s are characterised by the following
key features:
1. They are very flexible in adapting to the
market demands. This is because of their
smaller size and less complex structures.
2. They are often run by individual
entrepreneurs with a strong sense of
ownership and commitment.
3. MSME industries are generally more labour
intensive than large scale industries. As a
result, they generate more employment for
semi-skilled and unskilled workers.
4. They act as subordinate units for larger
industries by providing raw materials,
services etc.
5. They operate on a wide range of sectors
like agriculture, tech, manufacturing,
services.
6. They are considered the backbone of the
Indian economy by their significant
contribution to the GDP, exports and
employment.
Role of MSME’s in the Indian Economic
Development
The MSME form a dynamic base of the Indian economy.
Their significance in the IED is:
1. MSME’s collectively contribute to the nation’s
GDP which is estimated to be around 30%.
2. MSME’s are the second largest employer coming
just after agriculture. They provide employment
to a large number of ppl with current estimates
exceeding 11-12 crores.
3. They also contribute significantly to the
country’s exports accounting for approximately
40-45% of the total exports. Their specialization
in niche products help them to cater the diverse
global market demands. Their exports as on FY
2024-2025 was ₹12.39 lakh crore.
4. They are incubators for entrepreneurship by
acting as a platform for individuals to start and
operate their businesses.
5. They operate across a wide range of sectors like
agriculture, manufacturing, services thus
contributing to the diversification of the Indian
economy and reducing the reliance on some
specific sectors.
6. A significant portion of MSMEs operate in rural
and semi-urban areas (around 51%), playing a
crucial role in decentralizing economic activities
and promoting balanced regional development.
Impact of COVID-19 on MSME’s
The COVID-19 pandemic had a severe impact on the
MSME’s in the following ways:
1. Nationwide restriction led to closure of
workplaces and partial/complete halt of
production and services.
2. Due to reduced economic activities there was a
sharp decline in the goods and services
produced by MSME’s.
3. Many MSME’s faced severe liquidity crisis. This
made it difficult for them to pay wages and
salaries, service debts etc.
4. MSME’s lacked digital infra. After the pandemic,
consumers started shifting towards online
platforms and digital transactions. MSME’s
struggled to adapt to these changes and thus
lost huge share in market.
5. A significant no. of MSME’s, particularly micro
and small businesses with limited reserves faced
the risk of permanent closure due to prolonged
disruptions, huge losses, and uncertainties of
market.
While measures from govt were taken, they were not
sufficient. The pandemic emphasised the need for
greater resilience financial planning, digital adoption
within the MSME sector for future uncertainties.
Post pandemic plans for the MSME Sector
A significant shock was delivered to the MSME sector by
the COVID 19 characterized by lockdowns, supply chain
disruptions, etc. The key post-pandemic plans and
strategies are:
1. Emergency Credit Line Guarantee Scheme which
was the cornerstone of the initial post pandemic
response that provided collateral-free, 100%
guaranteed loans to some of eligible MSME’s,
thus helping them meet operational needs,
working capital requirements, etc.
2. Credit Guarantee Fund Trust for Micro and Small
Enterprise (CGFTMSE) which was strengthened
by the govt by increasing the credit guarantee
for micro and small enterprise. This encouraged
the banks to lend more to MSME’s without the
requirement of a collateral.
3. The pandemic highlighted the weaknesses in the
global supply chain. Therefore, the govt is
promoting domestic manufacturing and
procurement from MSME’s to build a more
resilient and localized supply chains.
4. The govt identifies districts with high export
potential and supports the local
exporters/manufacturers, majorly MSME’s to
integrate them into global value chains.
Essentially the post-pandemic plans for MSME sector in
India is a holistic strategy that recognizes the lessons
learned from the crisis. It emphasizes formalization,
digitalization, enhanced credit access, skill
development, and building resilience to future
shocks, all aimed at positioning MSMEs as robust
engines of economic recovery.
Recent Development in the MSME Sector
The Indian government have establishing new
initiatives to reinforce the MSME sector especially after
the COVID 19 pandemic in the following ways:
1. They have increased the credit guarantee cover
for micro and small enterprise has been
increased from ₹5 crore to ₹10 crore. The
guarantee cover for startups has been increased
from ₹10 crore to ₹20 crore.
2. The Udyam has introduced a new credit card for
micro enterprises which will provide ₹5 lakh in
credit to the micro enterprises registered in the
Udyam portal.
3. They have introduced a new scheme that targets
500,000, first time entrepreneurs specifically
women and those from SC/ST’s which will
provide ₹2 crore over 5 years.
4. The introduction of a Focus Product Scheme will
support design; component manufacturing and
non-leather footwear production having the
potential to create 2.2 million jobs and have
turnover of ₹4 lakh crore.
5. There will be a special recognition which will be
given to the manufacturing of clean tech
products like solar PV cells, EV batteries, etc.
Major Challenges faced by the MSME Sector
Despite its significant contribution they face a lot of
challenges in the following ways:
1. Many MSME’s face the major problem of access
to finance and lack sufficient collateral to obtain
loans. Even though they obtain access to
finance, they are charged high interest rates.
2. Another major problem faced by the MSME’s are
the infra deficiencies like logistics, internet, lack
of quality testing and standardization of
products.
3. MSME’s lack the required financial and human
resources for investing in R&D and adopting
modern technology.
4. MSME’s face tough competition from
international and domestic competitors. They
lack the expertise for branding and marketing,
therefore limiting their reach.
5. They also face a major problem of finding skilled
workforce. Even though they find them, it is
difficult for the MSME’s to retain them due to low
wages, poor working environment, etc.
6. Insufficient exposure to modern management
techniques for the MSME’s especially those
which are run by first time entrepreneurs cause
little to no success for the MSME’s therefore
hindering their growth to a certain level.
Recent Initiatives for the MSME’s by the
Government
The Indian government has been aggressively taking
steps to ensure the flourishment of the MSME sector in
the following ways:
1. A new Mutual Credit Guarantee Scheme has
been approved to strengthen the manufacturing
sector offering a 60% guarantee coverage to
lending institutions for loans.
2. The government has increased the guarantee
cover for startups by doubling it from ₹10 crore
to ₹20 crore, with a reduced fee of 1% for loans.
3. The government has introduced the PM
Vishwakarma Scheme which supports traditional
handicrafts and artisans by providing skill
training, end-to-end support, toolkits, etc.
4. They have also introduced the PMEGP which is a
credit linked subsidy which continues to
support/promote self-employment by helping in
establishment of micro enterprises in the non-
farm sector.
5. The (ZED) scheme encourages MSME’s to adopt
Zero Defect Zero Effect practices to improve
quality and environmental performances. Recent
amendments (ZED 2.0) offer an enhanced
support and financial assistance for testing and
certifications.
Share Of MSME’s in the Indian Market
The MSME sector holds a significant share in the Indian
Market by promoting economic growth, employment
and exports in the following ways:
1. This sector has shown strong resilience after
pandemic era as it caused a slight dip in the
market share. Their Gross Value Added (GVA) in
the nation’s GDP has risen to 30.1% in 2022-23
from 27.3% in 2020-21. They contribute to
approx. 30% of the nation’s GDP.
2. They play a crucial role in the nation’s industrial
sector by accounting for approx. 35-36% of the
nation’s total manufacturing output. They
contribute about 33% of GVA within the
manufacturing sector.
3. They are the second largest employer of the
country by accounting for approx. 40% of the
nation’s workforce. Approx. 51% of MSME’s are
situated in the rural areas highlighting a critical
role in providing livelihoods to a vast number of
ppl.
4. Our country boasts a massive network of nearly
63 million (6.3 crore) MSME’s spread all over the
nation thus indicating their widespread presence
and their deep penetration in the Indian
economy.
Key economic indicators Share of MSME’s in
these indicators
Gross Domestic Product ~30%
(GDP)
Manufacturing Output ~35-36%
Exports ~45-49%
Employment Over 11-12 crore or
~40%
News and stats about the government
Budget for MSME’s
The government’s budget allocations for the MSME
sector indicates strong commitment to the sector’s
growth and formalization.
1. Overall Budget allocation for Ministry of MSME:
Particulars Amount in ₹
Budget Estimate for 2025- ₹23,168.15 crore
26
Revised Estimate for 2024- ₹17,306.70 crore
25
Budget Estimate for 2024- ₹22,137.95 crore
25
Budget Estimate for 2023- ₹22,137.95 crore
24
Budget Estimate for 2022- ₹ 21,422.00 crore
23
While the Budget Estimate for 2025-26 shows an
increase, it's important to note the reduction in the
Revised Estimate for 2024-25 compared to its initial
Budget Estimate. This suggests that actual spending
might have been lower than initially projected in the
previous fiscal year. The budget and ongoing initiatives
demonstrate the government's strategic focus on
addressing key challenges faced by MSMEs, particularly
related to credit access, formalization, technological
upgradation, and market linkages.
Upcoming Developments in the MSME
Sector
The government is continuously bringing new and
upgrading the existing initiatives focusing on enhancing
credit access, fostering innovation. The key upcoming
developments are:
1. The refinement of MSME classification will ensure
that a large number of enterprises retain the MSME
benefits and incentivize scale up, adopt new tech,
etc. The govt. will monitor the impact of this
refinement and is ready to make further
adjustments.
2. There will be emphasis on ensuring wider adoption
and utilization on the enhanced guarantees
provided by the financial institutions.
3. MSME credit cards aims to address the working
capital needs of the micro enterprises by providing
a quick and collateral-free credit.
4. The new Fund of Funds for startups will inject more
equity capital into more promising ventures,
fostering innovation and job creation.
5. The Integrated Digital Credit Ecosystem will enable
risk-based lending models, facilitate faster loan
disbursement, etc.
6. Through new technology adoptions, we can expect
more cluster-based initiatives and partnerships with
research institution to drive the grassroot
innovation.
Acknowledgement
I would like to express my gratitude to all those
who supported me during the course of the
completion of this project which has enlightened
on the significance of the MSME sector in the
Indian Economy. First and foremost, I extend my
thanks to my teachers, whose invaluable
guidance, insightful feedback. Their expertise in
economics and business provided the basic
fundamentals required for the understanding of
MSME’s. Their profound knowledge of the
subject, coupled with their consistent
encouragement, was instrumental in shaping my
understanding of this vital sector of the Indian
economy. Their constructive feedback and
readiness to clarify complex concepts
significantly enhanced the quality and depth of
this research. Also, I am deeply thankful to my
parents for their invaluable support and guidance
during the completion of this project on Micro,
Small, and Medium Enterprises (MSMEs). Their
real-world insights and truly enriched my
understanding of this vital sector.
Bibliography
The following sources and books helped me
enlighten my understanding on the topic “Micro
Small Medium Enterprises (MSME)”:
1.Gupta, S. P. (2020). Indian economy: Its
development experience.
2.Kapoor. R (2018). Entrepreneurship and Small
Business management
3.Kumar, A. & Singh, J. Challenges and
opportunities for MSMEs in the post-COVID-19
era in India. Journal of Business Management
& Economic Research,
4.Sharma, P., & Gupta, M. (2020). Impact of
government policies on the growth of MSME
sector in India. International Journal of
Management, Technology and Engineering,
5.Business Standard. (2024, February 2).
Budget 2024: MSME sector allocation
increased by 19%.
6.The Economic Times. (2024, October 10).
MSMEs lead job creation in post-pandemic
recovery.
7.India, Ministry of Micro, Small and Medium
Enterprises. The Micro, Small and Medium
Enterprises Development Act, 2006.
8.Reserve Bank of India. Report on Trend and
Progress of Banking in India 2023-24. 2024.
9.Udyam Registration Portal. Official Statistics.
Ministry of MSME,
10. The Economic Times. (2024, October 10).
MSMEs lead job creation in post-pandemic
recovery.
