There was a big push for the MSMEs in this year’s budget. The Finance Minister emphatically stated that “Medium, Small and Micro Enterprises (MSMEs) are a major engine of growth and employment in the country,” and went on to allocate Rs 3794 crores (quite a small number) to the MSME Sector for giving credit support, capital and interest subsidy and innovations. This was lauded by many as a policy push in the right direction.
The wide-ranging consensus on the importance of MSMEs in India is impressive. There is near universality in declaring MSMEs to be the engine of economic growth in India and the driver of job creation. Just for clarity on terminology, a micro enterprise employs less than 10 people, a small enterprise less than 50 people and a medium enterprise less than 300 people. This definition is according to the World Bank, though countries often classify them according to the initial investment (India), turnover, and other criteria.
There are numerous reports, even by reputed consulting firms, that speak about the benefits of MSMEs. The reasoning for this is often fallacious. “MSMEs will generate employment in the future, because they provide employment now” is the general reasoning. Imagine if the same thinking persisted in the 1800s when horse carts were the main form of transportation and a major source of employment – chances are that there would be no investment in the railways at all.