31 January 2025 : Daily Answer Writing

Q1) While the MSMEs play a pivotal role in the Indian economic landscape, they suffer from a variety of obstacles that have prevented the sector from realizing its true potential. Elucidate. (150 Words/10 Marks)

Answer:

MSMEs (Micro, Small, and Medium Enterprises), are a significant segment of India’s economic fabric, contributing to industrial employment, value addition, and regional dispersal of industries

MSMEs are regulated under the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. and managed under the Ministry of MSME.

Pivotal role of MSMEs in the Indian economic landscape:

1. Contribution to GDP – (a) MSMEs accounted for nearly 26.8% of Gross Value Added (b) The contribution of MSMEs in exports stood at around 42.6%

2. Rural development – (a) About 51% of MSMEs are located in rural areas (b) unlike large MNCs industrialization of rural areas at a low capital cost.

3. Employment generation – (a) employ 11.1 crore people. (b) 45% of all employed workers

4. Promotes innovation – (a) local resource mobilization (b) capacity building (c) gives birth to new entrepreneurs who develop innovative products

5. Social inclusion – (a) 74% of MSMEs owned by socially backward groups (b) leads to balanced regional development – dubbed as growth engine of the nation.

Obstacles that hinder MSMEs from realizing their potential:

1. Financial constraints – (a) only 16% have time access to timely finance (b) mandatory collateral for credit.

2. Delayed payments from large clients and government agencies can severely impact the cash flow of MSMEs.

3. Lack of Formalization – (a) 86% of the country’s manufacturing MSME’s are unregistered – only 6.3 crore MSMEs are registered with GST. (b) lower number of income tax filers (c) less availability and access to data about MSMEs

4. Inadequate access to modern technology leads to lack of productivity and un-competitiveness, increasing the input cost and compromising output.

5. Competition – (a) find it difficult to sell their products in domestic and international markets (b) large enterprises and MNCs have greater resources and economies of scale

6. Other challenges: (a) Shortage of Skilled Labor due to a mismatch between industry requirements and workforce skills; (b) complex web of regulatory requirements [e.g., labor laws, tax compliances, and environmental regulations etc.]; (c) inadequate infrastructure and logistical challenges.

Way Forward:

1. Digitization of MSMEs – (a) enhances efficiency and reliability (b) leads to cost cutting

2. National Logistics Policy should focus on MSMEs too. Will encourage more MSMEs to use logistics services powered by technology

3. Use e-commerce platforms and Indian railways to expand their market

For more such UPSC related Mains Answer Writing, Check Out –30 January 2025 : Daily Answer Writing