Page 37 - Banking Finance December 2023

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According to the National Sample Survey (NSS) 73rd round, Contribution to GDP: MSMEs contribute to around 30% of
carried out by the National Sample Survey Office, Ministry India's GDP. They play a crucial role in the growth of the
of Statistics & Program Implementation, there were 633.88 manufacturing sector, as well as in the service sector. It
lakh unincorporated non-agricultural MSMEs in the country, contributes around 6.11% of the manufacturing GDP and
Out of which: 24.63% of the GDP from service activities. MSME ministry
196.65 lakhs are in manufacturing has set a target to up its contribution to GDP to 50% by

0.03 lakh in non-captive electricity generation and 2025 as India becomes a $5 trillion economy.
transmission Innovation: MSMEs are often more innovative than larger
230.35 lakh in trade companies. They are more nimble and can adapt to changes
in the market more quickly. This has resulted in the
206.85 lakh in other services
development of many new products and services in India.
324.88 lakh (51.25%) are in rural areas, while 309 lakh MSME provides opportunity for budding entrepreneurs to
(48.75%) are in urban areas build creative products boosting business competition and

Approx 1.5 crore MSMEs are under GST fuels growth.
Regional Development: MSMEs are spread across the
Why MSMEs are focus area of lending: country, including in rural areas. They help in the
development of these regions by providing employment and
MSME sector in India is one of the largest in the world. The
contributing to the local economy.
sector is diverse, ranging from small-scale industries to high-
Export: MSMEs account for a significant share of India's
tech start-ups, and encompasses a wide range of industries
exports. They play an important role in promoting India's
such as textiles, agro-processing, and electronics. Following
are the reason, MSMEs are focus area of lending: brand image globally. As per an estimate, MSMEs contribute
Diversification of Risk: MSMEs loans are smaller in ticket around 45% of the overall exports from India.
size compared to corporate loan. This helps the banks to Strong Linkage between MSMEs and MNCs: At present,
diversify their concentration risk. MSMEs create more than 8,000 intermediary and value-

Higher Margin: Corporate bargain hard with Banks for lower added goods. Multinational companies, in turn, get these
rate of Interest, whereas MSMEs comply the condition put auxiliary goods for producing final products. As a result, a
robust supply chain has been established over the years
by Banks. Hence Banks have higher margin on MSMEs loan.
fuelling reliable supply of goods to various sectors. Building
Employment Generation: MSMEs are the largest employer and leveraging upon these linkages can help India to truly
in India, providing employment to over 11.10 crores people. become a self-sufficient nation.
They are also a source of livelihood for many people in rural
areas. This makes the MSME sector the second largest job Commendable Outcomes: The MSME sector has time and
provider after the agriculture sector. again proved its ability to bring efficient outcomes. At
present, India has around 6 crore MSMEs employing a
gigantic 40% workforce. By furnishing jobs in rural and urban
areas; the sector promotes literacy, regional development,
better living conditions, and eliminates income inequality.
Labour Intensive Industries: Due to the higher capital-
output ratio, growth scope in small scale industries is usually
high even with a small investment. This results in the
flourishing of small scale businesses in remote and rural parts,
driving fair growth opportunities.

Import Substitution and Bridge Trade Deficit: As the
Government focuses on Atamnirbhar Bharat and Make in
India, MSMEs are the ground players to achieve self-
dependency. Under such programmes, MSMEs' production
capacities have increased greatly. Not only do they provide

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