Share of MSME in GDP may reach 15 pc by 2020: Study

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Saurabh Gupta | 28 Oct, 2014
The share of Micro, Small & Medium Enterprise (MSME) contribution to GDP will significantly increase from the current 8 percent to 15 percent by 2020, said a new study conducted by KPMG-CII.

"The contribution of the MSME sector to India's GDP currently stands at around 8 percent for 2011-12, and is growing at a rate higher than the projected GDP growth rate. The contribution of MSME segment to the GDP in some of the global economies is in the 25 percent to 60 percent. MSME in India has the potential to increase the share of contribution to GDP from its MSME sector from current 8 percent to about 15 percent by the year 2020," it said.

According to study, the MSME opportunity is to develop entrepreneurship and support growth led by innovation over the next decade by generating employment levels to the extent of 50 percent of the overall employment representing 300 million jobs across agricultural, manufacturing and services sectors2; and increase the share of MSME contribution across key public and private industry sectors fulfilling increasing domestic demand, growth in exports, indigenization and import substitution.

The GDP growth rate is likely to achieve 8.5 percent level and India is expected to be an approximately USD 5 trillion economy by the year 2025. The MSME segment has the potential to emerge as a backbone for this economy and act as an engine for growth, given the right set of support and enabling framework, it said.

There are approximately 46 million Micro, Small and Medium Enterprise sector enterprises across various industries, employing 106 million people. Overall, the MSME sector accounts for 45 percent of Indian industrial output and 40 percent of exports. While most of the sector is un-organized (approximately 94 percent), informal and un-registered, initiatives to have more enterprises registered are well underway.

India is to emerge as one of the leading economies in world over the next decade in the light of a positive political and economic scenario. The MSME segment will play a significant role in the emergence of the Indian economy. The development of this segment is extremely critical to meet the national imperatives of financial inclusion and generation of significant levels of employment across urban, rurban and rural areas across the country.

Further, it can nurture and support development of new age entrepreneurs who have the potential to create globally competitive businesses from India. MSME can be the backbone for the existing and future high growth businesses with both domestic and foreign companies investing in the 'Make in India' initiative and make significant impact in the area of indigenization. Make in India with zero defect and zero effect, is a significant opportunity, study said.

The new wave MSME should be able to develop a business eco system that enables and continuously support business that are gearing to deliver the right product, the right quality, the right solution and the right service at a competitive price both in domestic and international markets. The Digital India revolution also provides a great opportunity to promote MSME participation in the Information, Communication and Telecommunication (ICT) sector, in line with the government vision.

It is equally important that the MSME segment develops in all areas of agriculture, manufacturing and services sectors as each of these sectors will continue to be very relevant to the overall GDP growth as well as employment generation. The MSME sector will act as a catalyst to bring about this socio-economic transformation.

Globally MSME segment development has shown mixed results depending on various policies and initiatives undertaken by developing and developed economies during their critical economic lifecycle. Many developed and developing economies have demonstrated that the MSME segment constitutes the backbone for maintaining growth rates as well employment generation rate and provides stability during economic downturns.

It is therefore very crucial that as India embarks on a new wave economy, it adopts an MSME opportunity framework that will provide the necessary impetus to seize the opportunities created by:

Emergence of domestic demand led by significant increases in spending and consumerism;
Increase in spending in infrastructure and defense sectors;
Increase in foreign direct investments in existing and emerging businesses in India;
Foreign companies investing in India for their global market requirements (Make in India); and
The double digit growth expected in numerous business sectors in the Indian economy.

In order to be globally competitive it will be essential for India's entrepreneurial skills to be global in their outlook and adopt innovation, develop world class technologies and to skill the nation's favorable age profile of human resources.

India will have to develop stronger support and enabling business environment. The business environment should enable greater number of companies to be able to sustain from startups and from small business establishments across sectors and to develop these businesses into billion dollar plus enterprises over the next decade which are globally competitive.

This can made be made possible with a new wave opportunity framework for the new wave India MSME. Any new framework will have to consider domestic imperatives, evolution in key business sectors of the economy and evaluate global MSME policies across developing and developed economies.

Further the framework will have to shift from regulatory compliance approach for stakeholders, to a performance incentive based approach. This will channelize and reward growth and performance in relevant areas, support innovation and enhance higher productivity, added KPMG-CII report.