MSME UPSC: Factors, Limitations, Importance, Classification

By Ritesh|Updated : August 1st, 2022

MSME stands for Micro, Small, and Medium Enterprises. This sector has emerged vibrantly in the Indian Economy. MSMEs can be seen as complementary to the large-scale industries and contribute to a great percentage of the Indian economy, and socio-economic development of the country.

The MSME sector produces a wide range of products, from simple consumer goods to high-precision, sophisticated finished products. The MSME sector contributes 29% to the nation's GDP.

Table of Content

What is MSME?

Micro Small and Medium Enterprises (MSMEs) were introduced by the government through the Micro Small Medium Enterprises Development (MSMED) Act, 2006.

Micro Small Medium Enterprises are engaged in the production, manufacturing, processing, or preservation of goods and commodities subject to limits of investment. The government has revised the definition of Micro Small and Medium Enterprises in 2020 to boost its growth.

MSME New Definition eliminates the distinction between manufacturing and services enterprises and also increases the investment and annual turnover criteria for such enterprises. The new definition of MSME was announced in the Atmnirbhar Bharat package and expanded the investment and turnovers limit.

Download Short Notes on MSME UPSC

MSME Classification

The classification of Micro, Small Medium Enterprises based on investment in plant and machinery equipment are as follows:

  • Micro- the investment in plant and machinery equipment will not be more than 1 crore and annual turnovers will not be more than 5 crores.
  • Small- the investment in plant and machinery equipment will not be more than 10 crores and annual turnovers will not be more than 50 crores.
  • Medium- the investment in plant and machinery equipment is not more than 50 crore and the annual turnover is not more than 250 crore.

Importance of MSME in the Indian Economy

Micro, Small, and Medium Enterprises play a vital role in the nation's economic development.

  • Micro, Small, and Medium Enterprises contribute to 29% of Indian GDP, 45% of manufacturing output, and about 40% of overall export and it employs over 11 crore people out of which 55% of employment happens in urban MSMEs which make MSMEs the second largest employer after agriculture.
  • The Ministry of Micro, Small, and Medium Enterprises has the aim to increase MSME's contribution to Indian GDP from 29% to 50% by 2025 to become a 5 trillion dollar economy.
  • MSMEs are also helping India by making it a manufacturing hub.
  • Micro, Small, and Medium Enterprises also help in the upliftment of backward people and in tackling poverty by generating employment in rural areas through industrial development.
  • Khadi and Village Industries with low capital investment employs a large number of women in rural India and helps in the upliftment of the rural and other backward areas.

Limitations of MSME

  • Delay in payment even though the MSME Samadhan portal was set up to help enable faster payments to India's micro small and medium enterprises.
  • Due to the lack of assets among micro small and medium enterprises such as land and building etc., there is a huge credit gap. In 2018 approx 40% of micro small and medium enterprises lending is done through the informal sector means finding access to formal credit is still a challenge for MSMEs.
  • Although in just a decade the number of women-led MSMEs in India has jumped from 2.15 lakh to 1.23 crore. They largely rely on informal sources and face a finance gap of 158 billion dollars.
  • Delay in getting access to water and power connection in the remote area.
  • Most of the micro small and medium enterprise owners are not well educated and are from poverty-hit regions.
  • Lack of skilled manpower and labour law compliances restrict the growth of the sector resulting in a slower production process and compromise with product quality.
  • Poor infrastructure for capacity building and poor marketing strategy.
  • Lack of modern technology, and modernization.
  • A study conducted by Khadi and Village Industries Commission (KVIC) revealed that due to the COVID 19 pandemic more than 50% of MSMEs were shut down and there is also a drop in production and revenue.
  • COVID 19 pandemic further increased the problems like delay in payments, scarcity of raw material availability, high informality, etc.

Factors Leading to the Growth of MSME

  • To support micro, small and medium enterprises during COVID 19 pandemic, the Parliamentary Standing Committee on Industry has recommended providing soft loans to the micro, small and medium enterprises at lower interest rates of 3-4%.
  • Changing the mindset of the youth of India to become an entrepreneur and generate jobs for others.
  • By integration with Global Value Chains (GVC) now micro, small, and medium enterprises can produce quality goods and services which will increase their acceptability in the global market.
  • The productivity of micro, small and medium enterprise players increases with the help of campaigns like- Skill India, Digital India, Startup India, etc.

Government Schemes to Promote MSME

Udyam Portal- It is the portal that simplifies the process of registration of any enterprises under the micro, small and medium enterprises (MSMEs) category. Recently, the new guidelines of the government will make wholesale and retail enterprises eligible for registration in Udyam Portal.

MSME Samadhan- An portal that empowers micro and small entrepreneurs to directly register issues related to the delayed payments by the Central Ministries/ Department/ CPSEs/ State Government.

Credit Linked Capital Subsidy and Technology Upgradation Scheme (CLCS-TUS)- A scheme for up-gradation of Technology for micro, small and medium enterprises.

Interest Subvention Scheme- For the incremental credit to micro, small and medium enterprises.

Micro and Small Enterprises Cluster Development Programme (MSE-CDP)- An credit guarantee scheme.

A Scheme for Promoting Innovation, Ruler Industry and Entrepreneurship (ASPIRE)- Helping in reducing unemployment and promoting a culture of excellence in entrepreneurship.

Scheme of Fund for Regeneration of Traditional Industries (SFURTI)- With the help of the latest modern technology regenerates the traditional industry in a systematic way to make them competitive by enhancing their productivity and product quality.

Other Initiatives for MSME

Recently Central Sector assisted by the World Bank scheme Raising and Accelerating Micro, Small and Medium Enterprises Performance (RAMP) has been launched under the Ministry of Micro, Small and Medium Enterprises (MSME) for supporting various COVID 19 Resilience and Recovery Intervention with the recommendation in the line made by UK Sinha committee, KV Kamath committee, and Prime Minister Economic Advisory Council.

  • Online portal 'Champion' - It is a grievance redressal mechanism in micro, small and medium enterprises.
  • ZED Certification Scheme- It is a Zero Defect and Zero Effect practice to improve the product quality of micro, small and medium enterprises (MSMEs) by indirectly supporting the Make in India initiative.

MSME UPSC

MSMEs Micro, Small, and Medium Enterprises is an important topic of the Economy which is recently seen frequently in the news so it becomes important for both UPSC Prelims as well UPSC Mains point of view. Here we provide comprehensive notes of the MSME UPSCTopic.

To prepare this or other relevant topic related to the economy or current affairs. You can also download the NCERT Books for UPSC or Indian Economy UPSC Books from here.

The Aspirants who are going to appear at UPSC-CSE can also get UPSC Syllabus and UPSC Economy Notes. Here aspirants are also facilitated with UPSC Previous Year Question Paper and other UPSC Study Materials.

Download Short Notes on MSME PDF

MSME UPSC Prelims Sample Question

Question - Which of the following is/are correct regarding Micro, Small, and Medium Enterprises(MSMEs)?

  1. Micro, Small, Medium Enterprises introduced by MSMED Act, 2006.
  2. For Small Enterprises the investments should not be more than Rs 10 crores.
  3. This sector generates the highest number of employees.

Choose the correct Option:

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. All of the above.

Answer - A

Question - Which of the following is correct regarding MSMEs?

  1. Udyam Portal provides single-page registration of MSMEs.
  2. MSMEs contribute around 30% to the Indian GDP.
  3. MSMEs Samadhan Portal was set up to help enable faster payments to India's MSMEs.

Choose the correct Option:

  1. 1 and 2 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. All of the above.

Answer - D

Other Important UPSC Notes
Temple Architecture in IndiaGulf Cooperation Council (GCC)
Ashgabat AgreementRock Edicts of Ashoka
Indian Ocean Dipole (IOD)Contempt of Court in India
Project TigerIndex of Industrial Production (IIP)
16 MahajanapadasNational Education Policy
Armed Forces Special Powers ActChamparan Satyagraha
Government SchemesProduction Linked Incentives Scheme

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FAQs for Micro, Small & Medium Enterprise [MSME]

  • The proprietors, partnership firms, self-help groups, trusts, societies, private limited companies and public limited companies, limited liabilities partnerships, or any undivided Hindu family are eligible for the MSME Registration. All these members receive various benefits from the government like, credit facilities, subsidies, and many other facilities from the banks.

  • Candidates preparing for the upcoming IAS Exam can download the MSME Notes PDF from here. The notes include all details about MSME such as new definition, categorization, criteria, government initiatives, and more.

  • The investments and turnover limit for the companies/institutions registered under the MSME have been revised by the prime minister. The current investments limit in the Micro, Small, and Medium, Enterprises are 1 Cr, 10 Cr, and 50Cr respectively, and turnover limits for Micro, Small, and Medium, Enterprises are 5 Cr, 50 Cr, and 250 Cr respectively.

  • The enterprises which are devoted to the manufacture or production of goods or employing plant and machinery equipment are the criteria for the manufacturing sector while the criteria for the service sector is to provide service to other organizations by the enterprises.

  • Maharashtra is the state having the highest number-96, 805 MSMEs, that are run by the scheduled caste communities. There are 2 categories of MSME, the manufacturing and service sector which provides a total of 48 businesses categorized under the MSME list.

  • The MSMEs are classified into two sections, the Manufacturing sector, for example, Olimax System Pvt. ltd., Minimac  System Pvt. ltd., and the service sector like leather products, moulding, xerox, etc.

  • According to the latest criteria for the MSME categorization Micro industries or enterprises will be provided with the investment of 1 crore and expected to create a turnover of 5 crores, and Small enterprises will be provided with the investment of 10 crores and expected to create a turnover of 50 crores, and Medium enterprises will be provided with the investment of 50 crores and expected to create a turnover of 250 crores. 

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