The spirit of entrepreneurship is not restricted to ultra-high net worth individuals in India, with an increasing number of ordinary working class citizens in India venturing into businesses on their own. The number of micro, small and medium enterprises (MSME) in India has nearly tripled from around 105.21 lakh in 2001-02 to 311.52 lakh in 2010-11, as per the latest data from the MSME Ministry in charge of steering the fortunes of these intrepid investors. The 45 per cent contribution of the sector to the country’s total industrial output and 40 per cent to the Gross Domestic Product (GDP) is a testament to these MSMEs’ vital importance and place in the Indian economy.

Sharp growth in numbers

In tandem with the rising number of MSME units, the number of people employed by these units has also shot up by 293 per cent within the space of 10 years. But the growth in the number of MSMEs was muted until 2006-07, expanding by just 4.07 per cent in each of the previous three years. They shot up by a whopping 111.57 per cent in 2006-07 to 261.12 lakh units and employment generated by these units also jumped by 101.98 per cent to 595.66 lakh, which was a little under 5 per cent of India’s population. The sharp growth in the numbers was due to the redefinition of MSMEs in the Micro, Small and Medium Enterprises Development Act of 2006 to widen the ambit of benefits given to these units.

Setting up these units has come at a significant personal investment by the individuals and groups. From a cumulative fixed investment of Rs 1.54 lakh crore in 2001-02, the total rose to Rs 5 lakh crore in 2006-07 following the reclassification of micro, small and medium enterprises. In 2010-11, the cumulative fixed investment stood at Rs 7.73 lakh crore.

Production from these MSMEs garnered revenue of Rs 2.82 lakh crore in 2001-02. In 2006-07, this stood at Rs 7.09 lakh crore. These units registered consistent growth of over 11 per cent in the years hence, and stood at Rs 10.95 lakh crore in 2010-11. They contribute 40 per cent of India’s exports directly and a significant portion indirectly through large trading houses or third parties.

Banks’ contribution

Banks have recognised the prospects of micro and small enterprises as an employment creator and revenue generator in India, increasing their allocations to the sector nearly six-fold between 2005 and 2011 to Rs 4.85 lakh crore. Of this amount, public sector banks are the largest contributor, accounting for 77 per cent of total loans. This has been primarily motivated by the government’s emphasis on lending to these units on a priority basis. Private sector banks accounted for another 18.1 per cent of total disbursals, while foreign banks made up the remainder.

arvind.jayaram@thehindu.co.in

(This article was published on July 28, 2012)
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