Why are MSMEs so integral to the Indian economy?

While the sector has existed in India since independence, the term Micro, Small, and Medium Enterprises was formally introduced by the Government of India in 2006. This was done via the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. The sector has since been managed and overseen by the Ministry of MSME (MoMSME) and consists of entities engaged in the production, manufacturing, processing or preservation of goods and commodities. The MSME sector has become recognised as a significant contributor to the Indian economy and GDP. Continue reading to learn more about MSME and its role in the economic development of India.

How are MSMEs classified?

MSMEs used to be classified based on whether they were a manufacturing or service-based enterprise. However, recent amendments have altered the classification process, bringing both categories under one head. The new classification based on investment amount and annual turnover is as follows:

  • Micro: Investment less than  ₹1 crore and turnover less than  ₹5 crore.

  • Small: Investment less than  ₹10 crore and turnover less than  ₹50 crore.

  • Medium: Investment less than  ₹50 crore and turnover less than  ₹250 crore.

This classification is crucial because it enables your company to be considered an MSME and access government subsidies and schemes.

What Is the role Of MSME in the economic development of India?

In 1961, the Ministry of Small Scale industries merged with the Ministry of Agro and Rural Industries. This merger led to the formation of the Ministry of Micro, Small, and Medium Enterprises (M/o MSME).

The ministry undertook to oversee the MSME sector, which was responsible for producing and manufacturing a wide variety of products. The sector catered to domestic as well as international markets. MSMEs have greatly promoted the growth and development of Khadi, Village, and Coir industries. Furthermore, MSMEs have received support from ministries, state governments, and stakeholders that have helped them flourish.

As the years have gone by, over 63 million MSMEs have spread across the country. Statistics across the years show how the MSME sector has been responsible for the lion's share of the country's GDP. As recently as FY20, MSMEs contributed 30 % to India's GDP. The MSME sector has also generated ample employment opportunities for individuals nationwide. According to a study by the Ministry of Statistics and PI, between July 2015 and June 2016, the MSME sector employed 111 million workers.

MSMEs have also played a key role in the industrialisation of the country's rural areas in very cost-effective ways. And as far as international trade is concerned, MSMEs have accounted for nearly 40% of India's total exports.

Even during the economic crisis caused due to the COVID-19 pandemic, the sector was credited with having played a pivotal role in India's economic recovery. Government measures like subordinate debt relief, equity infusion, Emergency Credit Line Guarantee Scheme, etc., have helped the sector strengthen.

Now that you know more about the importance of MSME in the economic development of the nation, you can begin your own entrepreneurial journey.

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To learn more about the various products and services at HDFC Bank that can benefit your enterprise, you can check out the MyBusiness page here.

Read more on how to register your MSME online by clicking here.

​​​​​​​*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank recognises the challenges entrepreneurs face while acquiring capital. Thus, HDFC Bank has created MyBusiness, a one-stop solution that gives you easy access to loans, digital solutions and provides you with the essential knowledge you need to run your business. With HDFC Bank MyBusiness, you can scale up, expand your operations, and nurture your business.