Advantages & challenges of MSME in India

Advantages & challenges of MSME in India

The introduction of MSMEs can be attributed to the enactment of the MSMED (Micro, Small, and Medium Enterprises Development) Act in 2006. MSMEs, which stand for Micro, Small, and Medium Enterprises, are a vital component of this legislation.

(MSME) sector in India is considered to be the backbone of the economy as it contributes significantly to job creation, export promotion, and overall economic growth.

Reasons to register your business as MSMEs in India

The role of Micro, Small, and Medium Enterprises (MSMEs) in the Indian economy is noteworthy as it contributes significantly to socio-economic development.

As a result, the Indian government is actively promoting the growth and development of MSMEs.

  1. Avail collateral-free loans from banks through the Credit Guarantee Fund Scheme (CGS) for MSMEs.
  2. Reduced interest rates and easier access to credit from banks.
  3. Income Tax exemption and relief from audit procedures.
  4. Eligibility for Industrial Promotion Subsidy as prescribed by the government.
  5. Avail 50% subsidy on patent registration.
  6. The benefit of a 1% exemption on the interest rate on overdraft (dependent on the bank).
  7. Protection against delayed payments, with the right to interest on delayed payments.
  8. Reimbursement of ISO certification charges.
  9. Concession in electricity bills by filling out the appropriate form.
  10. Export promotion and support through subsidies, tax exemption, and technical assistance.
  11. Technology support for cost-effectiveness and clean energy use, with reimbursement of project costs.

Having an MSME registration brings several advantages, including access to loans without the need for collateral, reduced interest rates, and priority lending. It also provides income tax exemptions, protection against delayed payments, and reimbursement of ISO certification expenses. Additionally, registered MSMEs can avail of concessions on electricity bills and benefit from government support for export promotion and technological upgradation. These benefits aim to boost the growth and development of MSMEs, fostering a conducive environment for their success.

Steps to register in MSMEs

To register as an MSME (Micro, Small, and Medium Enterprise), you will need the following documents:

  • Aadhar number
  • PAN number
  • Address of the business
  • Bank account number
  • Details of the basic business activity
  • NIC 2-digit code
  • Investment details (Plant/equipment details)
  • Turnover details
  • Partnership deed
  • Sales and purchase bill copies
  • Copies of licenses and
  • Copies of bills of purchased machinery

Here's how you can apply for MSME registration on the Udyam Registration portal:

  1. Visit the Udyam registration portal.
  2. Fill out the registration form.
  3. Click on the first link on the page if you are registering as an MSME for the first time.
  4. Click on ‘Validate & Generate OTP’ after entering your Aadhaar Number and Name.
  5. Verify your details and proceed to fill in the PAN details. If you don’t have a PAN card yet, you can select the “No” option.
  6. Fill in the form fields numbered 5-24.
  7. After completing the form, you will receive an OTP request on your phone. Enter the verification code to submit the form.
  8. Once submitted, a “Thank You” message will appear with a Registration Number. Keep this number for future reference.
  9. The approval and registration process may take 2-3 days.
  10. If your application is approved, the MSME certificate will be delivered to you via email.

Challenges faced by MSMEs

  • Lack of access to finance: MSMEs face difficulty in obtaining finance from banks and other financial institutions due to their high-risk profile and lack of collateral.
  • Limited technology adoption: A significant number of MSMEs continue to rely on conventional production methods, which restrict their capacity to compete effectively against larger competitors in the market.
  • Inefficient supply chain management: MSMEs in India often struggle with supply chain management due to a lack of resources and technology.
  • Limited marketing and distribution channels: MSMEs face challenges in penetrating new markets and adopting effective distribution channels due to limited resources and lack of knowledge.
  • Regulatory compliance: MSMEs are overwhelmed by the plethora of regulations, compliances, and registrations required to operate in India, adding to their cost and time burden.
  • Lack of skilled labour: MSMEs in India face difficulty in attracting and retaining skilled labor due to lower wages and limited job opportunities.
  • Infrastructure challenges: Poor infrastructure, including power supply, transport, and connectivity, also hampers the growth and competitiveness of MSMEs.

How to overcome these challenges

Addressing these challenges will require a coordinated effort from the government, financial institutions, and industry associations to create an enabling environment for the MSMEs to thrive and contribute significantly to India’s economy.

  • It is recommended for MSME proprietors familiarize themselves with the current policies and schemes of the government.
  • Additionally, numerous private and public sector banks have stepped up to provide financial assistance to MSMEs.
  • The majority are offering business loans to small, medium, and micro-entrepreneurs, coupled with low-interest rates, flexible repayment plans, and simple processing procedures.
  • It is worthwhile for MSME owners to explore these opportunities to support their businesses.

Growth and expansion of MSMEs

The MSME sector in India has been steadily growing over the years and has become a critical pillar of the Indian economy. The growth and expansion of MSMEs can be traced back to the pre-independence era when small businesses were established around the country.

However, it was only after independence that the government recognized the importance of the sector and initiated several policies to support its growth.

In the 1950s, the Indian government implemented the Industrial Policy Resolution, which encouraged the establishment of small-scale industries in rural and backward areas. The policy aimed to promote self-employment, reduce regional imbalances, and create job opportunities.

The government provided financial assistance, infrastructure, and other incentives to help small businesses set up and grow.

In the 1980s, the government introduced a new policy to support the growth of the MSME sector, which included the creation of the Small Industries Development Organization (SIDO) and the establishment of State Small Industries Development Corporations (SSIDCs) in each state. These organizations provided technical and financial support to MSMEs, including market research, product design, testing, training, counseling, and financing.

In 2006, the government enacted the Micro, Small, and Medium Enterprises Development (MSMED) Act, which defined MSMEs based on their investment in plant and machinery. The act provided various schemes and incentives to support the growth of the sector, including priority sector lending, credit guarantee schemes, and tax benefits.

Today, the MSME sector in India is a critical contributor to the economy, accounting for nearly a third of India’s GDP and employing over 110 million people. The government and other stakeholders continue to support the growth and expansion of the sector with various schemes, policies, and incentives to help the sector overcome challenges and realize its potential.

Bottom line

Despite the numerous benefits associated with MSMEs in India, there are still areas where the industry is currently falling behind. To address this, there is a pressing need for the Indian government to refine its policies aimed at fostering MSME development.

Likewise, aspiring entrepreneurs should prioritize honing their technological and production skills while also seeking to gain knowledge of the latest marketing techniques.

By doing so, they can position themselves for success in the market and contribute to the growth of the industry.

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