By Prashant Jha
Need for MSME growth in India
Srinivas K T, (2013) has studied the performance of micro, small and medium enterprises, and their contribution in India’s economic growth and concluded that MSMEs play a significant role in inclusive growth of Indian economy. Supporting Micro, Small, and Medium Enterprises (MSMEs) is not just a matter of economic strategy but a fundamental cornerstone for fostering sustainable and inclusive development. With job creation being a critical factor in reducing unemployment and ensuring economic stability, the role of MSMEs becomes indispensable in securing livelihoods and promoting financial security for various groups, especially the marginalized. By generating income and fostering local industries, MSMEs contribute significantly to the holistic economic development of a nation, thereby paving the way for overall prosperity and growth. Christopher J. Green, Colin H. Kirkpatrick, and Victor Murinde, (2006) in their paper have examined the ways in which financial sector development policy might contribute to poverty reduction, particularly by supporting the growth of micro and small enterprises (MSEs). This paper highlights on the changing role of MSEs in the development process and the access of MSEs to informal and formal finance, including the role of microfinance.Furthermore, the penchant for innovation within the MSME sector not only fuels progress across diverse sectors but also catalyzes a culture of creativity and entrepreneurship, encouraging a spirit of self-reliance and initiative among aspiring young business owners. The impact on rural communities cannot be overstated, as MSMEs act as catalysts for local economies, providing employment opportunities and improving the standard of living, thus effectively bridging the gap between urban and rural development.In essence, the robust contributions of MSMEs to inclusive development, as reflected in their commitment to job creation, promotion of local sourcing, and reduction of income disparities, solidify their position as engines of social and economic equity. It is imperative for policymakers, stakeholders, and communities to recognize the pivotal role of MSMEs and extend substantial support and resources to ensure their sustained growth and impact on the fabric of inclusive and resilient societies.
MSMEs form the backbone of the Indian economy
The Micro, Small, and Medium Enterprises (MSMEs) sector in India constitutes a significant portion of the country's economic fabric, playing a pivotal role in driving growth and contributing to the nation's GDP. With a staggering 99% of all estimated MSMEs falling under the micro sector, amounting to approximately 630.52 lakh enterprises, it becomes evident that these small businesses form the backbone of the Indian economy. Although the small and medium sectors make up a smaller percentage, their contribution remains crucial to overall economic stability.The dispersion of MSMEs between rural and urban areas, with 51.25% located in rural regions and 48.75% in urban areas, showcases the widespread impact of these enterprises, fostering economic development across diverse landscapes. Furthermore, The MSMEs produce more than 7,500 products and also contribute to about 35% of the India’s exports. MSMEs contribute 8% of the country’s GDP, 45% of the manufactured output and 40% of exports (Prime Minister’s Task Force on MSME, 2010).According to the Government's annual report for 2018-19, there are approximately 6,08,41,245 MSMEs operating in India. Notably, the concentration of these enterprises is relatively high in the top ten states, collectively accounting for 74.05% of all MSMEs in the country. Collectively, these statistics underline the profound significance of the MSME sector, depicting its crucial role in fostering economic resilience and driving sustainable growth in the Indian economy.
Maharashtra MSME sector, a giant in the Indian MSME landscape
The state of Maharashtra holds a significant position in India's Micro, Small, and Medium Enterprises (MSMEs) landscape, with a substantial contribution to both employment generation and overall output. With an estimated 47.78 lakh MSMEs operating in the state, it stands as the hub of entrepreneurial activity, hosting a vast majority of micro firms, totaling 47.60 lakh, and a significant number of small enterprises, reaching 0.17 lakh.Notably, the state's MSME sector employs 24% of the total workforce in Maharashtra, underlining its crucial role in driving employment opportunities and fostering economic stability. Its contribution of approximately 13% to the total MSME output in India underscores its pivotal position in the national economy.Moreover, Maharashtra's leadership in Udyam registrations for MSMEs, with nearly 3.8 lakh registrations, reflects the state's commitment to promoting a conducive environment for small businesses and entrepreneurs. The dominance of the service sector in Udyam Registrations, compared to the manufacturing sector, highlights the evolving nature of the state's economy and the growing significance of the service industry in Maharashtra's business landscape. Together, these factors solidify Maharashtra's status as a crucial driver of MSME growth and economic development in India.
PMMY a crucial step for entrepreneurship and self-reliance in India
By offering financial support through its diverse loan categories and simplifying the application process, Pradhan Mantri Mudra Yojana serves as a vital catalyst for empowering individuals, particularly those in the unorganized sector, to realize their dreams of starting or expanding small businesses.
The collateral-free nature of the scheme widens its reach, enabling a more inclusive participation of aspiring entrepreneurs, including young individuals and 12th-grade students. Encouraging individuals to take charge of their own destinies not only instills a sense of autonomy but also fuels economic growth and innovation. By nurturing a conducive environment for small businesses, PMMY plays a significant role in job creation, economic development, and the fostering of novel solutions to societal challenges. Its multi-tiered approach, accommodating various business requirements, ensures that a diverse spectrum of entrepreneurs can benefit from the scheme, thus contributing to a more resilient and dynamic entrepreneurial ecosystem in the country.
While the Pradhan Mantri Mudra Yojana (PMMY) has made significant strides in facilitating access to finance for micro and small businesses in India, there are certain challenges that need to be addressed for its continued effectiveness. One of the main concerns is the relatively modest average loan amount of Rs 46,530, which falls short in providing adequate financial support for aspiring entrepreneurs to establish businesses that could potentially generate employment opportunities.
Moreover, the average disbursed amount of Rs 45,034 under the scheme is considerably lower than the average per capita income of Indians, standing at Rs 1.11 lakh for 2017-18. This disparity between the loan amount and the average income raises questions about the scheme's effectiveness in enabling aspiring entrepreneurs to build sustainable businesses that can significantly contribute to job creation and economic growth.To ensure the continued success of PMMY, it is crucial for policymakers to address these disparities and consider revising the loan amount to align with the financial requirements of aspiring entrepreneurs. This would enable them to launch sustainable businesses, thereby fostering job creation and contributing to the overall economic development of the country. By addressing these concerns, the PMMY can better serve its purpose in facilitating the growth of the micro and small business sector in India.
The problem in pursuit
The lack of awareness surrounding the Pradhan Mantri Mudra Yojana (PMMY) can be attributed to a range of factors, including limited promotion, restricted access to information in rural and peri-urban areas, language barriers, and insufficient financial literacy. The scheme's relatively low visibility and inadequate marketing efforts might have hindered its reach, resulting in a limited understanding of its potential benefits among the intended beneficiaries, especially in less economically developed regions.
Small businesses in Bhosari lack the information
Moreover, the hesitancy among individuals to take loans can be linked to various apprehensions, such as concerns about repayment capabilities, complexities associated with loan application processes, and the requirement for collateral, which may seem daunting for those with limited financial literacy. The preference for borrowing from informal sources, despite higher interest rates, can be attributed to the perceived convenience and flexibility compared to formal banking channels.To address these challenges, there is a critical need for comprehensive awareness campaigns, tailored educational initiatives, and simplified application procedures to ensure that the benefits of PMMY are accessible and comprehensible to all sections of society. By promoting financial literacy, simplifying procedures, and fostering trust in formal banking systems, policymakers can encourage greater participation in the scheme, thereby facilitating broader economic inclusion and empowerment. Such efforts are vital to ensure that the benefits of financial assistance reach the intended beneficiaries and contribute to the overall socio-economic development of the country.
The reality we see
I took the survey in my area. The survey included 20 individuals from diverse backgrounds, including medical shopkeepers, vegetable sellers, and roadside vendors.The primary objective was to know their awareness of the Pradhan Mantri MUDRA Yojana (PMMY) and whether they had availed themselves of any loans under this scheme. Some participants, comprising medical shopkeepers, vegetable sellers, and roadside vendors, responded negatively, indicating that they had not utilized the PMMY loans.The survey suggests that the group may be financially stable, reluctant to borrow, or may not see a need for PMMY loans. However, the findings might not represent their complete financial activities or involvement with other financial options. Some participants revealed that while they expressed a willingness to utilize the PMMY loan, their lack of understanding about the application process hindered their ability to access it. This indicates a potential gap in the dissemination of information and highlights the need for improved accessibility and awareness about the application procedures to ensure broader participation in the scheme.
Sources
Christopher J. Green Colin H. Kirkpatrick, and Victor Murinde, (2006) Finance for Small Enterprise Growth and Poverty Reduction in Developing Countries Journal of International Development J. Int. Dev. 181017–1030 (2006) Published online in Wiley Inter Science. (www.interscience.wiley.com)
K. Vasanth Majumdar M.K. Krishna (2012) Innovative Marketing Strategies for Micro, Small & Medium Enterprises Inter disciplinary Journal of Contemporary Research in Business.
Srinivas K T (2013): International Journal of Engineering and Management Research.3 (4) August 2013 ISSN No.: 2250-0758.
International Finance Corporation (IFC) World Bank Group. Micro, Small and Medium Enterprise Finance in India.
MSME Annual Report 2014-15 (and various issues) Government of India.
MSME Annual Report 2015-16 Government of India.
4th All India Census of MSME Sector Government of India (http://msme.gov.in)
Prashant is an alumni of Astytva. Currently pursuing BA in Economics from DY Patil College, Pune, he is passionate about the Indian economy and financial markets.
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