The Micro, Small, and Medium Enterprises (MSME) sector is a cornerstone of India’s economy, playing a pivotal role in employment generation, export contribution, and entrepreneurial growth. Recent data reveals both significant progress and concerning challenges facing MSMEs. Here, we delve into the latest trends shaping the sector and their implications for India’s economic landscape.
Business Closures and Job Loss
The closure of MSMEs has been a pressing issue, with 61,469 registered units shutting down as of November 15, 2024, since the launch of the Udyam portal on July 1, 2020. Alarmingly, over 12,000 MSMEs closed in the past four months alone, with the count rising from 49,342 as of July 25, 2024. The fiscal year 2023 saw 13,290 closures.
These closures have resulted in significant job losses. As of July 2024, over 3,17,641 jobs were lost due to MSME closures. This highlights the sector’s vulnerability to economic shocks and underlines the need for policy interventions to ensure stability.
Surge in MSME Registrations
Despite closures, the MSME sector witnessed remarkable growth in registrations. By December 31, 2024, over 5.77 crore enterprises had registered on the Udyam portal, up from around 3.20 crore at the end of 2023. This reflects the growing formalization of the MSME sector, which is crucial for accessing formal credit, government schemes, and global markets.
Record-Breaking Export Contribution
MSMEs continue to drive India’s export growth. Between April and November 2024, MSME exports reached ₹12.39 lakh crore, surpassing the total exports of ₹8.55 lakh crore in the entire FY23. The number of exporting MSMEs also grew significantly, with 1.73 lakh enterprises exporting goods during this period, compared to 1.53 lakh in FY24 and 1.21 lakh in FY23.
This remarkable export performance underscores MSMEs’ potential to strengthen India’s global trade footprint, particularly in sectors like manufacturing, textiles, and technology.
Job Creation in MSMEs
The MSME sector has been a vital source of employment, creating approximately 9 crore additional jobs in 2024. The total employment in the sector surged from 15 crore last year to 24.3 crore this year. This growth reaffirms MSMEs’ critical role in addressing India’s unemployment challenges.
According to the National Sample Survey (2015-16), MSMEs comprising 6.33 crore unincorporated non-agricultural units generated 11.10 crore jobs across various sectors, including:
- Manufacturing: 360.41 lakh jobs
- Non-captive electricity generation and transmission: 0.07 lakh jobs
- Trade: 387.18 lakh jobs
- Other services: 362.82 lakh jobs
Improved Credit Access for MSMEs
Access to formal credit has shown a positive trend. Sectoral deployment of bank credit to micro and small enterprises (MSEs) under priority sector lending increased by 13.9% in October 2024, reaching ₹26.34 lakh crore, up from ₹23.11 lakh crore in October 2023.
Further, the credit flow by scheduled commercial banks to the MSME sector grew by 20.6% in FY24, reaching ₹27.25 lakh crore, compared to ₹22.60 lakh crore in FY23. This growth signifies enhanced access to formal credit for MSMEs, enabling them to scale operations and invest in innovation.
Growth of MSMEs
The MSME sector has witnessed significant scaling up of enterprises. Between July 1, 2020, and July 24, 2024:
- 714 micro enterprises transitioned to medium enterprises.
- 3,701 small enterprises upgraded to medium enterprises during FY20-21 to FY21-22.
This upward trend continued, with 2,372 micro enterprises and 17,745 small enterprises scaling up to medium enterprises in FY23-24 and FY24-25. This transformation highlights the potential of MSMEs to grow into larger entities, contributing more significantly to the economy.
Challenges and Opportunities
While MSMEs have shown resilience and growth, challenges persist:
- Business Closures: High closures underscore the need for better support systems, such as easier access to credit and market linkages.
- Job Loss: Addressing the employment gap caused by closures requires targeted policies.
- Global Competitiveness: Enhancing the quality and competitiveness of MSME products is crucial for sustained export growth.
- Formalization: The rise in registrations indicates progress, but ensuring that these enterprises thrive in the formal economy remains a challenge.
Opportunities for the MSME sector include:
- Leveraging government schemes like Atmanirbhar Bharat to boost self-reliance.
- Exploring global markets for increased exports.
- Adopting digital tools for greater efficiency and market reach.
Conclusion
The MSME sector continues to be a backbone of India’s economy, driving employment, exports, and entrepreneurship. However, it faces critical challenges that require immediate attention. Policymakers, financial institutions, and industry stakeholders must work collaboratively to address these issues and unlock the sector’s full potential.
As India aspires to become a $5 trillion economy, empowering MSMEs will be pivotal in achieving inclusive and sustainable economic growth.
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