The term MSME (Micro, Small, and Medium Enterprise) was introduced by the Government of India in agreement with the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. The MSME sector is considered the backbone of the Indian economy and contributes nearly 27% of the country’s GDP. It primarily works for the development of people from backward and rural areas. As per the official data as of 31st April 2022, there are presently more than 6.33 crore MSMEs that employ approx. 11.10 people across the nation.
The Micro, Small and Medium Enterprises sector has a crucial role to play in making India a five trillion dollar economy by 2024. There is a huge pressure of inflation looming across the Indian business horizon.
While the margins of large domestic and multinational corporations have come under pressure, they still have to maintain the balance sheet to absorb raw material price shocks and the elbow room to pass on the cost to consumers. At the same time, medium small and micro enterprises, especially mom and pop stores, across India are not in the same boat as the large companies, and are far more vulnerable to the onslaught of raw material cost hikes and inflationary commodity cycles.
The sector is a prime driver of growth with their contribution to output and employment in all economies. This sector is a critical component of India's growth story, making significant contributions to GDP, employment and exports. The sector contributes in a significant way to the growth of the Indian economy — with a vast network of about 6.3 crore units producing more than 8,000 products and a share of around 30% in nominal GDP.
India’s MSME sector continues to languish despite the pivotal role it plays in the Indian economy. With around 95 percent of all industrial units forming a part of this sector, they constitute a cornerstone for economic prosperity in our society. MSME is the second most important sector where the maximum number of people are involved.
Indian MSMEs are going through a rough patch the likes of which they have never seen before. First, due to the recurrent waves of pandemic and now the Russia-Ukraine war. Raw material price escalation has increased input costs for a wide swathe of MSMEs. To address the issue of the rising prices of raw materials, there is a need to ensure enough liquidity in the hands of MSMEs.
Smooth functioning of public sector units without disruption due to payment problems is of paramount importance in these dynamic times. The Government should provide adequate funds to the PSUs, so that they may be able to release the payments of the MSMEs and other vendors urgently to provide them with liquidity and facilitate them to run their businesses.
The cost competitiveness of MSMEs exporters should be improved and a level playing field should be created. Reduced costs of doing business and a level playing field in the country will not only increase the competitiveness of our exporters but also reduce imports of the items where India has domestic capabilities.
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