India, a land of diverse cultures, has witnessed a remarkable journey since gaining Independence 78 years ago. While the nation’s progress is often attributed to large corporations, big producers, and multinational giants, the bedrock of its economic growth also lies in the hands of its unsung heroes—the Micro, Small, and Medium Enterprises (MSMEs) heroes who have helped India reduce its reliance on imports, increase exports, and foster domestic innovation.

As of 2024, more than five crore small-scale industries continue to support the country’s economic progression. MSMEs produce about 45% of India’s industrial output and contribute around 45.73% to total exports. But when it all started, they were simply family traditions and decades old craftsmanship that stood the test of time. Slowly, they started being the support system for India’s economic freedom.  

How Have MSMEs Evolved Over The Years?

MSMEs in India have roots going back to the pre-independence era when cottage industries, handicrafts, and small-scale enterprises flourished. Traditional skills and craftsmanship were passed down through generations, creating a diverse range of local industries. These small businesses were vital to the rural economy, helping local communities become self-sufficient. 

The Swadeshi Movement (1905)

With the Swadeshi Movement in 1905, locally produced goods like khadi were promoted. This encouraged the use of Indian-made products and boycotted British goods, boosting the growth of MSMEs. It led to a significant increase in demand for indigenous items, especially clothes, and spurred the growth of small businesses. 

Stiff Competition from Large Corporations (Post 1947)

After the Independence, MSMEs were expected to play a crucial role in development, especially by providing jobs and ensuring fair income distribution. However, they faced stiff competition from large companies in terms of procuring the raw materials, access to proper credit channels, infrastructure, and securing broader distribution networks.  

Liberalization, Privatization, and Globalization (1990s)

Later, the 1991 Liberalization, Privatization, and Globalization (LPG) policy marked a turning point for MSMEs. It opened the Indian economy to foreign investment, after which various government policies were formed to protect MSMEs, including priority sector lending, a 25% procurement share by the government, and support under the insolvency law. Result?  

MSMEs responded with their share of contribution to the development. After the 1991 policy change, there were about 67.87 lakh MSME units, employing 153.34 lakh people and contributing Rs.9,664 crore to the economy through exports. Despite the global financial crisis in 2009-2010, the number of MSMEs rose to 881.14 lakh units, providing jobs to 393.7 lakh people. Since 1991, MSMEs have shown an average annual growth rate of 1.02%.  

MSME Contributing to the Economic Growth (2000s)

Despite its significant contributions in terms of units, employment, and exports, the MSME sector’s growth slowed due to increased competition from the sector giants. The shift from a protective environment to a competitive one posed challenges that needed a structured solution.  

Recognizing the need for a framework, the Micro, Small, and Medium Enterprises Development (MSMED) Act was introduced and became effective on 2nd October 2006. On 9th May 2007, the Ministry of Micro, Small, and Medium Enterprises (M/o MSME) was formed by merging the then existing ministries.  

The MSME Status Today

The M/o MSME ministry now shapes policies, promotes programs, and oversees projects, driving the sector’s growth over the past two decades with initiatives for credit support, new enterprise development, formalization, technological assistance, infrastructural development, skill training, and market assistance.  

The performance of MSMEs has improved with the support of schemes like

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which offers collateral-free loans up to Rs.5 crore,  

• Prime Minister Employment Generation Programme (PMEGP), which supports micro-enterprises with loans and subsidies, and 

• The Raising and Accelerating MSME Performance (RAMP) scheme, which aims to enhance MSMEs’ access to global markets and credit, 

As a result, MSMEs’ contributions were as follows- 

Category	2019-20	2020-21	2021-22
Share of MSME Gross Value Added in GDP (%)	30.48	27.24	29.15
Share of MSME Manufacturing Output (%)	40.67	40.3	40.83
Share of MSME Products in Exports (%)	49.77	49.35	45.03

As of September 2024, MSME’s contribution to total exports bounced back to 45.56% after dipping to 43.59% in 2022-23. At the same time, the Udhyam portal showed that 15.50 crore new jobs had been created since its inception. Moreover, the role of MSMEs was not limited to the numbers; it also began changing the landscape of entrepreneurship in both rural and urban areas.  

The Udhyam portal very well captured the change once it was launched and used by MSME players. But was the Udhyam Registration made compulsory? If not, what attracted MSMEs to this portal? 

Udhyam Registration for MSMEs:

The Udyam Registration Portal, launched on July 1, 2020, by the Union Ministry of MSME, is an online system to register micro, small, and medium enterprises (MSMEs). Udyam Registration, or MSME Registration, provides a government-recognized certificate and a unique identification number. This certifies that your small or medium business is legal and operational. Usually, it takes about 1 to 2 weeks to receive the Udyam Certificate after getting your Udyam Registration Number.  

For MSMEs in India, though getting the Udhyam registration is mandatory, it comes with numerous advantages– 

• The registration process is free of cost, paperless, and digital. 

• The portal promotes ‘Ease of Doing Business’ by reducing the transaction time and cost for entrepreneurs. 

• All the data is linked with Income Tax and GST networks in the backend, thus making it reliable and genuine. 

• Renewal is not required. It is a permanent one-time registration. 

• With Udyam Registration, you can benefit from the Ministry of MSME’s schemes. These include the Credit Guarantee Scheme, Public Procurement Policy, an edge in government tenders, and protection against delayed payments. 

• With this registration, your enterprise becomes eligible for priority sector lending from banks.  

The Udhyam portal has been a medium to track India’s MSME picture, whether it is about employment creation with over 3.6 crore opportunities or increased participation from both urban and rural areas. The portal’s data also show how MSME has carved its place in India’s $5 trillion economy vision with a projected growth of $1 trillion by 2028.  

Not just manufacturing and services, these industries offer investment opportunities beyond the metro cities. Citing this, the government relaxed the FDI (Foreign Direct Investments) policy, allowing 100% FDI flow into the sector through the automatic route. But the question here is, will it reach the projected mark? What’s next for such enterprises? 

Road Ahead for MSMEs 

The road ahead for MSMEs is both challenging and promising. These enterprises have long been the backbone of India’s economic fabric, driving growth quietly yet powerfully. As global manufacturing shifts toward India, MSMEs are poised to play a crucial role in integrating into international supply chains.  

Despite their vital contributions, they often operate in the shadows, facing hurdles like limited access to credit and infrastructure. However, the road ahead for MSMEs in India is rich with opportunities, shaped by the convergence of global shifts, government support, and crucial interventions from NBFCs. MSMEs are positioned to integrate into international supply chains. Government policies, alongside Public-Private Partnerships (PPPs), are laying the groundwork by enhancing infrastructure and promoting digital platforms like GeM and ONDC, which are essential for MSME growth. 

In this evolving landscape, NBFCs play a transformative role too, offering customized financial solutions that enable MSMEs to scale operations, expand into export markets, and generate employment. These collaborations not only strengthen individual enterprises but also contribute to the broader economic fabric, positioning MSMEs as key drivers of growth. 

Conclusion:

The MSME sector holds immense potential to become a cornerstone of the envisioned $5 trillion Indian economy. With strong support from both professionals and government initiatives, these enterprises will be able to harness their full potential and propel the economy forward.