MSME & Business Entrepreneurship

The Micro, Small and Medium Enterprises Development (MSMED) Act was passed in the year 2006.

A micro enterprise is an enterprise where the investment in plant and machinery or equipment does not exceed ₹1 crore and the annual turnover does not exceed ₹5 crore.

A cottage industry is one which is organized by individuals with private resources, normally using family labour and locally available talent. Equipment used is simple, capital investment is small, and production is simple.

Village industries are those located in rural areas which produce goods or render services with or without the use of power and in which fixed capital investment per head of artisan or worker is specified by the central government. Khadi industries specifically refer to hand-spun and hand-woven cloth.

Two characteristics of entrepreneurship development are:

• Systematic Activity: It is not a mysterious gift or charm but a systematic, step-by-step purposeful activity.
• Risk Taking: It involves assuming the uncertainty of the future and potential failure.

MSME stands for Micro, Small and Medium Enterprises. These enterprises are the pillars of economic growth in many developing countries. In India, they are defined based on their investment in plant/machinery and annual turnover under the MSMED Act, 2006.

Entrepreneurship is the process of setting up one’s own business as distinct from pursuing any other economic activity, be it employment or practicing some profession. It involves identifying opportunities, mobilizing resources, and creating value while bearing the associated risks.

Yes, I agree that MSME and Entrepreneurship are deeply connected.
Reasons:

• Platform for Innovation: MSMEs provide the ideal platform for budding entrepreneurs to convert their innovative ideas into reality with limited capital.
• Risk-Taking Vehicle: Setting up an MSME is the practical manifestation of the entrepreneurial spirit of risk-taking and self-reliance.

MSMEs play a crucial role in development by:

• Employment Generation: They are the second largest employers after agriculture.
• Balanced Regional Development: Setting up industries in rural/backward areas reduces regional disparities.
• Contribution to Exports: A significant portion of India’s exports comes from MSME products.

Traditionally, parameters like number of persons employed, capital invested, volume of output, and power consumed were used.
Currently, as per the revised definition (2020), the size of MSMEs is measured based on two composite criteria:

• Investment in Plant and Machinery or Equipment.
• Annual Turnover.

Village Industries: Any industry located in a rural area which produces any goods or renders any service with or without the use of power and in which the fixed capital investment per head of an artisan or a worker does not exceed ₹50,000.
Khadi Industries: Refers to the sector producing cloth woven on handlooms in India from cotton, silk, or woollen yarn hand-spun in India.

Three major problems are:

• Finance: Difficulty in accessing timely and adequate credit from banks due to lack of collateral.
• Raw Materials: Scarcity and high cost of quality raw materials.
• Marketing: Inability to compete with large companies in advertising and distribution networks.

Small Scale Industries (SSIs) are vital for socio-economic development because:

• Employment Generation: Being labor-intensive, they generate massive employment with low capital investment, helping solve the unemployment problem.
• Contribution to GDP: They account for a significant share (approx 30%) of the country’s GDP and manufacturing output.
• Export Promotion: SSIs contribute nearly 45% to India’s total exports, earning valuable foreign exchange.
• Regional Balance: By locating in rural areas, they prevent migration to cities and ensure industrialization reaches all corners of the country.
• Entrepreneurial Development: They act as a nursery for entrepreneurship, tapping into latent talents.

In rural India, where agriculture is the main occupation, small businesses play a transformative role:

• Employment Opportunity: They provide alternative employment to artisans and agricultural laborers, reducing disguised unemployment in farming.
• Improved Economic Condition: They generate income for rural households, helping alleviate poverty and improve the standard of living.
• Promotion of Art: They help preserve traditional arts, crafts, and heritage skills that are rural-centric.
• Utilization of Local Resources: They mobilize local savings and utilize local raw materials which might otherwise remain idle.
• Stopping Migration: By creating jobs locally, they reduce the mass exodus of rural population to urban slums.

Small industries face several hurdles:

• Finance: Banks are hesitant to lend due to perceived high risk and lack of collateral security.
• Raw Materials: They lack bargaining power to buy raw materials in bulk at low prices, often settling for inferior quality at high rates.
• Managerial Skills: They are mostly one-man shows. A single owner cannot be an expert in production, finance, and marketing simultaneously.
• Marketing: They lack funds for advertising and branding, finding it hard to sell their products against large competitors.
• Technology: Due to lack of funds, they often use obsolete technology, leading to low productivity and high costs.
• Sickness: Many units fall sick due to delayed payments, poor planning, and tough competition.

Financial Measures:

• Credit Guarantee Fund Trust (CGTMSE): Provides collateral-free loans up to a certain limit.
• SIDBI: A dedicated bank (Small Industries Development Bank of India) to provide refinance and direct finance to MSMEs.
• Priority Sector Lending: Banks are mandated to lend a fixed percentage of their credit to the MSME sector.

Marketing Measures:

• Public Procurement Policy: Govt mandates 25% of annual procurement by Central Ministries/PSUs from MSEs.
• GeM Portal: Government e-Marketplace allows MSMEs to sell goods directly to govt departments online.
• Trade Fairs: NSIC (National Small Industries Corporation) organizes exhibitions to showcase MSME products domestically and internationally.

Yes, innovation is the lifeblood of MSMEs.

• Survival Strategy: With limited resources, MSMEs cannot compete on volume or price alone. Innovation allows them to offer unique products or services to survive.
• Niche Markets: Innovation helps MSMEs identify and serve niche markets that large corporations ignore.
• Agility: MSMEs are smaller and less bureaucratic, allowing them to experiment and adopt new ideas faster than large firms.
• Cost Efficiency: Innovative processes (like ‘Jugaad’ or frugal innovation) help them reduce costs significantly.

This statement is justified because:

• Competitive Edge: In a crowded market, creativity distinguishes an MSME’s product. For example, a handmade soap business thrives on creative packaging and unique scents, not mass production.
• Problem Solving: MSMEs often start to solve a specific local problem. This requires creative thinking (e.g., Dipak Bharali’s ‘Chaneki’ loom in the previous case study).
• Resource Optimization: Innovation enables MSMEs to do “more with less,” utilizing scarce capital and raw materials efficiently.
• Adaptability: Creative MSMEs can quickly pivot their business models in response to market changes (e.g., shifting to mask manufacturing during a pandemic).

(Example for a student in Uttar Pradesh):
GI Tag Product: Banaras Brocades and Sarees.
Regional Development Impact:

• Legal Protection: Prevents unauthorized use, ensuring only weavers from the Banaras region can sell under this name.
• Premium Pricing: The tag assures authenticity, allowing weavers to command better prices in international markets.
• Tourism: Attracts tourists interested in authentic crafts, boosting local hospitality and transport sectors.