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- Mains – GS 2 (Governance) and GS 3 (Economy)
Context: Recently, the Union Ministry of Commerce and Industry, Consumer Affairs, Food and Public Distribution and Textiles held the fourth Plenary Session of B20 India Inception Meeting on Building Resilient Global Value Chains in Gandhinagar, Gujrat.
- MSMEs or Micro, Small, and Medium Enterprises are businesses that are defined by their investment and turnover levels. They are considered an important sector of the economy as they create jobs, generate income, and promote entrepreneurship.
Classification of MSMEs:
- Based on their Investment and turnover levels:
- Based on the nature of activities and sectors
- Manufacturing Enterprise: Manufacturing of goods pertaining to any industry specified in the first schedule of the industries (Development and Regulation) Act, 1951
- Service Enterprise: Providing or rendering of services and covered under ‘Services’ sector as defined in the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.
Advantages of MSMEs: MSMEs play a crucial role in the global value chain and their support and integration is vital for a resilient global supply chain.
- MSMEs flourish around a larger unit or anchor, an example given is that when a large company such as Apple sets up a manufacturing plant, thousands of MSME units flourish in the ecosystem as mini value chain suppliers to Apple.
- Diversification: MSMEs can help diversify an economy by creating new industries and markets.
- Regional development: These are often based in specific regions, which can promote development in those areas.
- Flexibility: MSMEs have more flexibility than larger companies in terms of decision-making and the ability to pivot their business models.
- Economic development: They play a crucial role in the economic development of a country by providing goods and services, generating income, and creating opportunities for people to improve their standard of living.
- Innovation: These are often more adaptable and innovative than larger companies, which can lead to new products, processes, and business models.
- Reduced risk: MSMEs typically have lower startup costs and are less risky investments than larger companies.
- Lower regulatory burden: MSMEs typically have to navigate fewer regulations than larger companies, making it easier for them to start and operate their business.
- Easier access to credit: They have easier access to credit than larger companies.
Issues associated with the MSMEs:
- Lack of skilled labour: MSMEs often struggle to find skilled workers, which can make it difficult for them to grow and expand their businesses.
- Bureaucratic red tape: MSMEs have to navigate a complex web of regulations and bureaucratic procedures, which can be time-consuming and costly.
- Competition from larger companies: MSMEs in India often have to compete with larger, more established companies, which can make it difficult for them to succeed in the market.
- Access to finance: MSMEs often struggles to access capital due to a lack of collateral or credit history or access to formal financial institutions.
- Lack of infrastructure: MSMEs often lack access to basic infrastructure, such as electricity and transportation, which can make it difficult for them to operate their businesses.
- Lack of technological know-how: MSMEs often lack the technical knowledge and expertise to modernize their operations and stay competitive in the market.
- Issues with supply chain and logistics: MSMEs face issues with supply chain and logistics, which can make it difficult for them to get their products to market in a timely and cost-effective manner.
- Lack of formalization: Many MSMEs in India are unregistered or operate informally, which can make it difficult for them to access government support and benefits.
- Lack of marketing and networking opportunities: MSMEs in India often lack the resources and networks to effectively market their products and services, which can make it difficult for them to reach new customers and grow their businesses.
Government of India Initiatives for strengthening MSMEs:
- Comprehensive Economic Partnership Agreement (CEPA): It will help MSMEs of both India and UAE to leverage benefits of the District as export hub initiative of the government.
- Harmonizing value chain: Government to focus on integrating India’s value chains with the rest of the world and creating logistics that are easier and faster is crucial to make it easier for international companies to include India in their value chains.
- Quality assurance: Government to focus on creating Quality as the most important factor in the success story of India through steps including- setting global benchmarks, harmonizing Indian standards with global standards, and consumers becoming more demanding of quality.
- Under this initiative, every district for their unique products and identify the specialty of districts by knowing which district exports which products.
- This initiative is expected to help in promoting local products and in turn, boost the local economy.
- Pradhan Mantri MUDRA Yojana (PMMY)
- Prime Minister’s Employment Generation Programme (PMEGP)
- Stand Up India: The scheme provides financial assistance to scheduled caste (SC), scheduled tribe (ST) and women entrepreneurs for setting up new enterprises.
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): This scheme provides collateral-free credit to micro and small enterprises through a credit guarantee mechanism.
- Infrastructure development: Improving infrastructure in areas where MSMEs are concentrated, such as by building roads, providing electricity and water supply, and improving transportation.
- Access to finance: The government can work to improve access to finance for MSMEs by providing credit guarantees, offering tax incentives for lending to MSMEs, and encouraging banks and other financial institutions to lend to MSMEs.
- Simplifying regulations: The government can simplify regulations and procedures for MSMEs, such as by streamlining registration and compliance processes and reducing the bureaucratic burden on MSMEs.
- Skilled labor: Taking steps to improve the availability of skilled labor by investing in vocational education and training programs, and encouraging workers to acquire new skills.
- Support for innovation: The government can help MSMEs to innovate by providing funding, mentorship, and other forms of support to help them develop new products and services.
The government can support the adoption of new technologies by MSMEs by providing subsidies, tax incentives, and other forms of financial assistance to help them modernize their operations. To become a trusted and resilient partner in global value chains, the government is focusing on creating an ecosystem that is simpler, faster, and promotes ease of doing business for MSMEs.