On the 22nd of August, 2019, Nitin Gadkari, the Minister of Road and Transport and MSME announced the plan to launch Bharat Craft for Micro, Small and Medium Enterprises (MSME). Gadkari envisions this portal to compete with global giants, such as Amazon and Alibaba. He made this announcement at an NSE Event, where 200th SME Company, Wonder Fibromats was to be listed on NSE Emerge, the SME Platform powered by NSE.

Amidst, the news of the slowing economy and job cuts in Parle, it is the SME and MSME Sector that is a glimmer of hope for the Indian economy. Currently, the SME sector contributes a whopping 29% of the Indian economy. India is all set to become a $ 5 Trillion Economy by 2025, and SME shall have a sizeable role to play in India’s future.

Let us now understand what SMEs and MSMEs mean. According to the MSMED act of 2006, the classifications are done based on their size and scale, which is to say their investment in plant and machinery, if from the manufacturing sector, and on the equipment required by the outfit for provision of their services. There are ceilings which break down them into three parts – Micro, SME, and MSME.

In 2018, a bill was introduced by the then Minister of MSME, Giriraj Singh, who proposed changes to the definition of MSMEs in the existing MSMED Act 2006. The new classification approached the changes in MSME classification from a structural point of view. Instead of an investment-based approach, they changed it to a turnover based approach. Moreover, the demarcation between manufacturing and service MSME was also dissolved. According to the new definition, the following classification system will be followed:

  • Micro enterprise: Enterprises having an annual turnover less than or equal to Rs. 5 crores.
  • Small enterprise: Enterprises having annual turnover between Rs. 5 and Rs. 75 crores.
  • Medium enterprise: Enterprises having annual turnover between Rs. 75 and Rs. 250 crores.

Let us breakdown this meteoric rise of MSME sector in India. But before that, let us understand the challenges faced by the SME sector in India. While SME contributes a total of 45% of total manufacturing and output of over 40% to the nation, the sector is still clogged by several factors, such as the lack of ease of MSME Loans, not getting enough support from governments, banks, not too many uncomplicated MSME loan schemes, and competition from a more sophisticated outfits. Other latent challenges are – the sector is often a one-man-show, the products are qualitatively average, and mired with limited understanding and limit to scale.

 

In a way, the economic liberalization of the 90s proved to be a major boon in India for the SME Sector. With the foreign companies arriving in India, the economy got a boost, and at the same time, the technical know-how also increased.  With a fair amount of experience by working in the modern industries, the entrepreneurs also emerged with a will to create their outfits and thus, the SME sector, slowly and steadily took off.

The Government seeing the boom in the sector has created several policies to enable the SME sector’s growth in India. Like the “Make in India” campaign which helps SMEs and MSMEs to conduct their business. The 2006 MSME Development act, also fostered the growth of the sector in India. There are various MSME loan options, offline and online, and various SME loan schemes have been created across platforms where an entrepreneur can get all sorts of loans.

ZipLoan, keeping in mind the needs of the fast-paced sector, gives loans within three days. These loans are collateral-free and given hassle-free with minimal documentation. Because of the SME and MSME loans, there is a sizeable boom in the lending sector as well. Accounting for the various MSME loans and MSME loan schemes, 16% of the lending sector has been occupied by the SMEs and MSMEs.

It is interesting to note, multiple corporates have also enabled the boom in the SME sector. Tata Teleservices has launched Smart Office Solutions in Mumbai, for all Information and Communication technology-related needs of the SME. The Ministry of MSME has launched a specialised portal- MSME Samadhaan, to account and record the instances of delayed payment and bring to notice the cases where payments have not been made. This online portal allows MSMEs and SMEs to keep a record of defaulters and if need be, also file complaints against industries, whatever size they may be.

Airtel and Cisco have partnered up to bring digital connectivity solutions for the sector. This partnership will implement Managed Software-Defined Wide Area Network (SD-WAN). There are states such as Himachal Pradesh and Haryana backing their economies on the backs of SME and MSME sector in the country. Haryana has aligned the policies in line with Digital India, Skill India, and Make in India campaign, specifically in the Pharmaceutical sector. They are offering lands at a lower price, and a gamut of incentives including but not limited to reimbursement of 25 percent of plant fees, and equipment incentives up to 50 lakhs. With Kashmir opening up, there would be multiple opportunities for entrepreneurs in that state, and also from all over the country for business opportunities.

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The Budget of 2019 also provides a plethora of incentives for SMEs in India to bolster their growth. 80 new livelihood and 20 technology incubators were launched. There are tax exemptions which increase the ease of doing business. Section 54 GB of the Income Tax Act, 1961 offers an exemption of tax on capital gains made by selling a residential property or a piece of land and investing the sum in equity shares of a start-up company. The exemption earlier was only until the 31st of March 2019, and now it has been extended to the 31st of March, 2021. The new tax provisions also include the absence of scrutiny for the funds raised by a start-up. It was done to resolve the “angel tax” issue. Moreover, Start-ups funded by Category-II Alternative Investment Fund (AIF) are exempted from the Angel Tax.

So, looking at the push provided by the government, corporates, and zealous entrepreneurs, it is safe to say that SMEs are quickly transforming the Indian economy. And this is the Indian economy we dreamt of, and fulfilling this dream of a growing Indian economy is none other than the MSME sector.