Role played by MSME in the development of Indian Economy

14th September 2022 0 By indiafreenotes

MSMEs contribute nearly 8% of the country’s GDP, around 45% of the manufacturing output, and approximately 40% of the country’s exports. It won’t be wrong to refer them as the ‘Backbone of the country.’

The Government of India has introduced MSME or Micro, Small, and Medium Enterprises in agreement with Micro, Small and Medium Enterprises Development (MSMED) Act of 2006. These enterprises primarily engaged in the production, manufacturing, processing, or preservation of goods and commodities.

MSMEs are an important sector for the Indian economy and have contributed immensely to the country’s socio-economic development. It not only generates employment opportunities but also works hand-in-hand towards the development of the nation’s backward and rural areas. According to the annual report by the Government (2018-19), there are around 6,08,41,245 MSMEs in India.

A proposal was made to redefine MSMEs by the Micro, Small and Medium Enterprises Development (Amendment) Bill, 2018, to classify them as manufacturing or service-providing enterprises, based on their annual turnover.

Since its formation, the MSME segment has proven to be a highly dynamic Indian economy sector. MSMEs produce and manufacture a variety of products for both domestic as well as international markets. They have helped promote the growth and development of khadi, village, and coir industries. They have collaborated and worked with the concerned ministries, state governments, and stakeholders towards the upbringing of rural areas.

MSMEs have played an essential role in providing employment opportunities in rural areas. They have helped in the industrialization of these areas with a low capital cost compared to the large industries. Acting as a complementary unit to large sectors, the MSME sector has enormously contributed to its socio-economic development.

MSMEs also contribute and play an essential role in the country’s development in different areas like the requirement of low investment, flexibility in operations, mobility through the locations, low rate of imports, and a high contribution to domestic production.

With the capability and capacity to develop appropriate local technology, provide fierce competition in domestic and international markets, technology-savvy industries, a contribution towards creating defense materials, and generating new entrepreneurs by providing knowledge, training, and skill up-gradation through specialized training centers.

Year MSME- Addition of Gross Value Growth (%) Total Addition of Gross Value Share of MSME in GVA (%) Total GDP Share of


GDP (in %)

2011-12 2622574 8106946 32.35 8736329 30
2012-13 3020528 15.17 9202692 32.82 9944013 30.40
2013-14 3389922 12.23 10363153 32.71 11233522 30.20
2014-15 3704956 9.29 11504279 32.21 12467959 29.70
2015-16 4025595 8.65 12566646 32.03 13764037 29.20
2016-17 4405753 9.44 13841591 31.83 15253714 28.90

Importance of MSMEs to Indian Economy

  • MSMEs employ about 12 crore people, making them the second-largest source of jobs after agriculture.
  • It contributes about 6.11% of GDP from manufacturing and 24.63% of GDP from service activities, with about 45 lakh units across the country.
  • As India strives to become a $5 trillion economy, the MSME ministry aims to raise its contribution to GDP by up to 50% by 2025.
  • They account for approximately 45% of India’s total exports.
  • MSMEs promote inclusive growth by creating job opportunities, especially for people from lower socioeconomic backgrounds in rural areas.
  • MSMEs in tier-2 and tier-3 cities contribute to the creation of opportunities for people to use banking services and goods, which can result in the final accounting of MSMEs’ contribution to the economy.
  • MSMEs encourage creativity by assisting aspiring entrepreneurs in developing innovative goods, thereby increasing market competitiveness and fueling growth.