Micro, Medium and Small Enterprises Sector in India- An Analysis


Challenges and Opportunities

  • After independence, centralized institutions were set up, even in areas where decisions affecting the local economy were to be taken. Therefore, there is a coexistence of Departments that cater to modern small-scale industries on the one hand, and others catering to village enterprises. This demands the need for a fresh look into the relevance of various public programmes.
  • The aspirations of the people at the local level is a mix of co-operation and conflict.

E.g. People usually cooperate for creation for local infrastructure, however, conflicts arise over the question of the kind of goods and services to be produced.

  • The situation demands a new approach to defining and practicing development. There cannot be a uniform ‘one-stich-for-all’ approach as far as local development and welfare is concerned.
  • Concrete steps on the following lines are needed:
  • Placing man at the centre stage of ‘development’.
  • Defining ‘welfare’ in relation to some bottom line criteria
  • And human welfare has three ingredients:

  • A Local Economic Development Policy should translate the three into economic activity in a participative manner. To ensure that the development is sustainable, there must be synergy between the three rather than conflict.
  • The development strategists and governments must give up the approach of dividing the human ecosystems into arbitrary components, such as rural-urban, women-men, young-old etc.

Need of the hour

Considering the emerging complexities of the economy, there is need for an Integrated Development Approach for MSMEs.

The new approach shall address the following dimensions:

Political and administrative powers:

  • India has a bottom heavy industrial structure, with large number of small industries often located in small towns and villages.
  • After the 56th amendment of the constitution, Village and Small-Scale Industries is a subject of the Local Government.
  • Therefore, breeding of entrepreneurship is a local phenomenon.
  • However, the local governments are either ignorant or reluctant to exercise their powers; or these powers are usurped by higher tiers of the government.


  • Are the local governments even capable of exercising such powers?
  • In the case of enterprise development programs, the current state of capabilities needs to be examined.
  • The component missing at various stages of planning and execution of entrepreneurial activity is ‘advisory services’.
  • Such services should be top on the priority list while addressing the capability issue.
  • The focus should be on:
  1. Identification of project ideas and business opportunities.
  2. Provision of general information and guidance
  3. Onward support services
  4. Documentation, networking and creating ground for synergies
  • The government will have to play a catalytic role in helping SMEs to tap the emerging benefits of the ‘new economy’.
  • It must strengthen business development services and create social capital base.
  • The access to knowledge and technology is crucial.


  • Under the existing formula of resource sharing between the State government and Local governments, the necessary resource for coordinating several base level enterprising activities are available with the local governments.
  • While some of the promotional activities performed by the District industries can be transferred to the local governments, the corresponding funds should flow along with that.
  • This will help to equip the local governments with the necessary financial resources.

Development Synergies

  • Synergies are required to be ensured between the Centre and the State, on one hand and the District Administration on the other.
  • There is a need for understanding enterprise as a specialized subject. This necessitates an Enterprise Resource Policy.
  • The existence of clarity and strengthening of the constituency, would imply that, every tier of the government is clear about their relative roles and functions, and are able to function responsible. The gulf between schemes and people’s needs will be narrowed down.

Recent initiatives

The Government of India, since 2014, has taken several steps to deal with related aspects of skills, entrepreneurship development, and promotion of manufacturing.

This integrated approach is reflected in two forms:

  1. Policy framework
  2. Specially structured programmes that deal with these related aspects
  • For transforming India in to manufacturing hub, ‘Make in India’ was announced as a flagship programme.
  • ‘Skill India’ was announced in order to mitigate the critical problem of skill gap.
  • In order to have a proper integration of the skilling agenda with that of entrepreneurship promotion, a separate programme called ‘Start-up’ India was announced.
  • In order to address the problem of social exclusion, ‘Stand-up India’ was announced
  • The introduction of MUDRA as a specialised window, meant for targeting micro enterprises, is a major intervention for broad basing finance.

Implications of policy initiatives

  • Informalism is a major characteristic of the MSME sector. In this context, there is a critical policy question regarding the further course of action. Should the sector remain informal, as in the past, or should we move towards formalisation.
  • Through the initiatives mentioned above, it is clear that, the government has chosen the path of formalisation.
  • Major policy initiatives like demonetisation and GST are also a step in this direction. These had certain short-term shocks. It is hoped that long term benefits offset the short-term shocks. However, there is a need of a Special package for MSMEs to supplement the formalization attempts that are in progress.

Way forward

The importance of MSMEs in local economic development, as also the need for local economic are indisputable today. However, the policy perception and the details of a strategic approach needs much more clarity. The approach by no means can be a partial one. It is important to focus on the macroeconomic policy in general, as also an understanding of the context in which regional diversity of the country is treated as a potential setting for enterprise development.

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