Micro and Small Enterprises MSE: Progress, Problems and Prospects


Mr. J.R. Raiyani
Faculty of Commerce
Geetanjali College of Computer Science & Commerce


Industrialization plays a crucial role in directing the development process of the country for growth and progress. For developing economies, especially India, which is a labor abundant country, small-scale sector is consider as the major source of employment generation and foreign exchange earning. Small-Scale Industries (SSI) require small investment, so the entrepreneurs can afford to take risk. Over the past 50 years, the small-scale sector has contributed significantly towards building a stable and sound national economy. This sector has contributed around 39% to the country's manufacturing output, 34 % to its exports and provided employment to around 31.2 million people.

On August 6, 1991, for the first time in Indian history, the government announced a seprate policy for the small-scale sector, with the objective of promoting this sector. Small-Scale Industry today constitutes a very important segment of the Indian economy. The development of this sector came about primarily due to the vision of Late Prime Minister Jawaharlal Nehru. Who sought to develop core industry and to have a supporting sector in the form of small sector enterprises. Small-scale sector has emerged as a dynamic and vibrant sector of the economy. Thus the role played by the SSI sector in the country's development is too vital to escape notice. This paper present the performance of SSI sector in India and Problems and prospects for SSI sector.

Key Words :  MSE, employment, Exports, Micro Development,

1. Introduction

In the development of Indian economics and industrial sector, small industry sectors have a major role to play. Prior to 2006 these sectors were known as SMALL AND VILLAGE INDUSTRIES. But after the act of THE MICRO, SMALL AND MEDIUM ENTERPRISE DEVELOPMENT ACT (MSMED) they are known as MICRO AND SMALL ENTERPRISES (MSE). Hence forth in the paper, they will be known as MSE.

MSE has a major role to play in the economic and social development. Once upon  a time, India was a well developed and a rich country. At that time, our country was industry oriented. Artistic works created in the small villages and households of India were sold in the foreign market and in return gold, silver and various ornaments were brought into India.. This has been developed since the origin of the Vedas.

Today in the 21st century also, MSE have a major role to play. Because of the total industrial output, 40 % comes from this sector. If we take medium scale enterprises into consideration, then of all the industrial units, 95 % industries come under this category. Of the total exports, 34 % exports are done by the MSE. More than 6000 products are produced. Handloom, saree, carpet, soap, parts of big machines, pickle, papad are the various products produced under this umbrella. During 2003-04 of the total national income, this sector contributed about 6.71 %. Those units who have a stable capital of 10 lakhs, have contributed 46.2 lakhs worth of articles. During the last decade, this sector has shown the maximum growth rate compared to other sectors. In the last year of the 10 th plan, this sector clocked a growth of 12 %. This shows the importance of this sectors social view point.

2. Definition  of Micro, Small and Medium Enterprises.

The Micro,Small and Medium Enterprises Development (MSMED) Act 2006 has defined micro, small and medium enterprises. In this act, instead of "industry" concept, the word "venture" has been used. This industry has been divided into the following two division as per this act.

(1) Those units which produce or develop any item under the first notification of the 1951 act.
(2) Micro, small and medium ventures.

In the 2006 MSME law, ventures have been defined and notified that investment done in plant and machinery (including land, house and excluding those items notified by the micro ministerial ). Such a venture means a venture.

Where not more than 25 lakhs have been invested is known as MICRO ENTERPRISE. More than 25 lakhs and less than 5 CRORE is known as a SMALL ENTERPRISE and more than 5 crore but less than 10 crore is known as a MEDIUM enterprise by the MSMED act 2006.

Those units working under the service category have been defined by another set. According to that in service sector, those units having investment less than 10 lakh are known as MICRO ENTERPRISE and more than 10 lakh and less than 2 crore is known as SMALL ENTERPRISE and more than 2 crore  but less than 5 crore is known as a MEDIUM ENTERPRISE

3. Importance of  MSE of Global Scale

Among the developed, medium developed and having small income countries, in terms of employment the imporitance of MSE is equvivalent. In Soth Africa 39 % MSE contributes 24 % of GDP. In Bangladesh, around 90 % of the units are of this sector. In Japan MSE provides a contribution of a staggering 70 % of employment. In Thailand, of the total GDP 38.1 % and of the total employment, 60.7 % are provided by this sector.

In china of the total exports, 68 % are from MSE sector. In china those units which provide employment to around 2000 workers are known as MSE. Less than 300 employed people is known as MICRO institutions.

4. Importance of MSE in India

MSE's contribute total 40 % in production and 34 % in exports. Not only do they provide national income and are important financially, they are important socially also. This is because Muslims, aborigines and people who are socially and economically backward are provided employment.  This sector is truly a heritage and creative enduring sector.

* Chances of immense employment

As the nation develops, the contribution of the  total national income by the agriculture has been on the decreasing side. According to the Australian economist CHRIS HALL, sme sectors provide totally 70 % of employment world wide. Whereas big family business are eating up employment.

India has made a fast progress in this field. In 1960 there were only 12376 MSE units which provided employment to 10 lakh people. This sectors yearly production value stands at 875 crores. At the beginning of the 10th plan, 249 lakh rural and 105.21 lakh urban people were to be employed in MSE's, in big industries, a person to get employment one has to spend 5.56 lakhs whereas in MSE only an investment of 0.72 lakhs can give employment to an individual.

By providing employment in the rural, a curb has been put on the migration from villages to cities. This is also a contribution of this sector. In the total employment created by this sector, edible products provide 13.7 % contribution, so does non metal minerals contribution is 10.9 %a, metal products contribute 10.2 %. Above these, chemicals, electrical machinery parts, wooden products, metal products, paper products, printing, hosiery, ready made garments, repairing services rubber, plastic products contribute around 5-9%.

* Development with Exports

This sector is imperative for attaining a high growth rate. 11 plan views growth at 10 %. For this to happen, this sector should grow at a rate of 12 %. In the exports done by the micro industries, more than 95 % contribution comes from non conventional products. Ready make garments, leather products, jewels, and ornaments etc. have contributed significantly.

Significant increase can also be made in the procedural handicraft business. Orders for Ready made garments, items of daily house hold use, etc. can be obtained on a small basis and exported.

* Tremendous Progress

In the year 2000-2001  1,51,527 crores were invested in micro industries. During this duration, the value of this sector at the present rate became 5,85,112 from 2,07,307 exports also registered an increase from 86013 to 150242 in the exports by this sector, countries like America, Europe, Canada, north asia, north Africa, UAE, Italy, Indonesia, france, hongkong, Belgium, Bangladesh come to the fore front.

* Development of the Deprived

MSE are important for those people who have not developed socially and who are belonging to scheduled castes and aborigines, minorities, poor etc. in the North West india, needle work is the main profession of the most of the women. In a state like TRIPURA 50 % rural men and 35 % rural women are engaged in MSE. In NAGALAND and MIZORAM more than 68 % urban people are engaged in this sector.

5. Challenges before this sector

Though the MSE sector is of great significance, it has deep unresolved problems.  In this age of globalisation, micro industries sector has a giant question of maintaining productivity and competitiveness.

(1) The units of this sector are dispersed and scattered at various places.  There production of simple equipments to the production of latest high tech devices is done. Handloom, power loom, handicraft, khadi, and cottage industries are together. As this sector is unorganized, it does not the benefit of Govt. schemes. The poor people in this sector are exploited by the middle man in this sector.

(2) This sector has to face the dire question of markets also. So, though the product is of the best quality, it fails to garner a market for the product. In Rajasthan, raj samand district at tantel village, people have been working for 60 years in the silver ornament market, yet there has been no increase in the remuneration of these people since the last 60 years. Hence, they have to sell their products at a very low price. A decrease in the wages of this sector has been noticed. When shawls, dupattas, etc are sold at around 300 a piece, then does one get a return of 5 -10 RS. In UP's barabanki workers can not sell their own products due to competition from machine made products and products from china.

(3) The units of this organization face many challenges like packaging, durability of the products, etc.  hence, they don't get enough market for their products. Those women who work for big organizations, they do not get wages until, the final product is finished. Even the govt. organizations and, merchants, pay after the product is sold

(4) Colors, chemicals, dyes, inflammatory products, leatger, etrc, pollute the environment. So these organizations have to take a non pollution certification from their respective state governments.

(5) The organizations functioning under this category find it difficult to obtain starting capital. Bank loans available for the sector has decreased significantly from 15.1 % in 1991 to 8 % in 2008. Of the total finances available to this sector, 60 % are forwarded to micro based units.

(6) These units don't get a proper supply of electricity, raw materials, etc.  Also, there is a shortage of appropriate packaging facilities for these units.

(7) As there is lack of funds, these organizations can not go for research and development or designing. So appropriate changes as per the demand at a global scale cannot be made.  They cannot spend a large amount on packaging and advertisements like large units.

(8) As per the census of the 3rd micro industries 2001-02, there is a grave problem with micro units as to they not obtaining funds for venture capital, deficiency of raw material, shortage of electricity, etc.

(9) Globalisation and the introduction of new fiscal policies have had an adverse effect on the micro units. Street hawkers, small scale sales men, workers, etc. are in a poor condition because of globalization. Of these many have been closed.

6. Road map for the development of Micro Development Unit in the 11th Plan

The limit set for investment in the micro units is a major hindrance in this era of Globalization and competitiveness.The limit has been increased to 5 crores. Steps for development of MSE in the eleventh plan are as follows.

(1) It has been targeted to raise the production of MSE units to 13,98,803 crores for the year 2011-12. employment has been planned to be increased from 322.28-391.73 lakhs

(2) In the MSE scheme in the eleventh plan, previously the manifesto was good for all which has been turned to development.  Regarding this, the document (VOL III p. 203) it has been informed that "The eleventh plan approach to the MSE sector marks shift from welfare approach to that of empowerment. The plan looks at the sector as an engine for sustained and inclusive economic growth and employment.  The eleventh plan emphasizes on the improvement of living standard of workers  and believes that only if a worker is physically and mentally sound, then will he be able to produce a good output.

(3) In the eleventh plan, as the MSE sector is unorganized, the plan aims at organizing it so that MSE sector gets maximum benefit of all the govt. schemes and plans.

(4) In the eleventh plan, MSE groups have been taken as a cluster and workers have been made into a group (SHGS) so that their bargaining power is increased

(5) The MSE sector gets a loan of 5 lakh for 8 % interest without any bailee will be encouraged a vehement drive will be undertaken, to develop this sector.

(6) Centre and the state govt. will give prime importance to the MSE sector. Women working in this sector, get their due rights, for that efforts will be made.

(7) Technical information will be provided to Small Industries Development Organization now known as Micro, Small and Medium Enterprises Development Organization which has around 3000 technicians who work in testing centres, tool rooms, etc.

(8) Ministry of MSME has been formed for the development of Micro, Small and Medium Industries. In the eleventh plan, it has been decided to establish Technology mission, which will help develop dissemination of technology.

(9) In the year 2006, the govt. started the National Manufacturing Competitiveness Programme. Under it in 5 years, at the cost of 850 crores, design clinics, steps to increase the competitiveness of groups, and decrease the wastage will be undertaken.

(10) This sector faces basic problems like that of electricity. In the eleventh plan it has been suggested, that these small and micro units establish their own power plants.

(11) Owing to the industrial laws and disputes act, the worries of this sector have increased. According to the planning commission, it has been advised to form a third party which will investigate into the matter.

7. Conclusion

There is an unprecedented importance of Micro and Small Enterprises in the country. This is because the number of units is maximum in the country. This sector, contributes a major amount in the development and employment. This sector does the work of providing employment to minorities, backward class people and also to women.

This sector is rife with problems like shortage of electricity and development of basic infrastructure along with the problems related to market. In order to solve these problems and develop the MSE sector, major efforts have been done in the eleventh plan. However these efforts are not enough. The concept of PPP should be implemented. Development of KVIC along with broad spectrum growth should be achieved. For the development of rural and farm group, different departments should be formed. Similarly, in the development of industrial ministry for urban Micro and Small and Medium Industries specific efforts should be done.


1. www.grugh-udyog.com
2. www.ssi in india
3. The Economic Times News Paper
4. Annual Report (2006-07), Ministry of SSI, www.ssi.gov.in
5. Ahluwalia I J (1991), Productivity and Growth in Indian Manufacturing, Oxford University Press,
New Delhi.
6. The Icfai University Journal of Financial Economics, Vol. VII, 2009

Mr. J.R. Raiyani
Faculty of Commerce
Geetanjali College of Computer Science & Commerce

Source: E-mail December 31, 2009


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