MSMEs not static, but growing in size, asserts Finance Ministry

There is evidence of upward inter-category mobility among manufacturing and service units, says Ministry. File
| Photo Credit: K. Pichumani

The Finance Ministry has sought to dismiss the “narrative” that India’s micro, small and medium enterprises (MSMEs) are stagnating, citing data that it asserts shows smaller firms evolving into larger units in recent years. However, industry representatives are not sure the numbers have been correctly interpreted by the Ministry. 

In its recent monthly economic review for February, the ministry had said the number of micro units graduating to small units had increased to 65,140 in 2022-23, from 28,881 in 2021-22, “belying the narrative that MSME units suffer from the inertia of rest and are reluctant to be upwardly mobile”. 

“Among the major States, Bihar, Assam, Chhattisgarh, Uttar Pradesh, Jharkhand, Madhya Pradesh, Odisha etc., have displayed encouraging results, scoring way above the country average. The number of ‘small’ units elevating themselves to the ‘medium’ category has also increased significantly, by 75%, from 3,699 in FY22 to 6,474 in FY23. These upwardly mobile units are from Maharashtra, Gujarat, Delhi, Tamil Nadu, Uttar Pradesh and Karnataka,” the Ministry noted. 

Acknowledging that the MSME sector played a vital role in the Indian economy, with a share of 26.8% in the overall Gross-Value Added (GVA) and 38.5% of manufacturing GVA, as of 2020-21, the Ministry said the sector’s contribution was not just quantitatively significant but also qualitatively in terms of cultivating an entrepreneurial culture. 

“There is evidence of upward inter-category mobility among manufacturing, service and trading units. The significant chunk comes from the manufacturing sector, which is reassuring, given the higher employment-generating potential of this sector,” the Ministry said. 

It noted that 53% of the units graduating from “micro” to ‘small’ were manufacturing units in 2021-22, before dropping slightly to 45% in 2022-23. “This trend has been evident in the case of ‘small’ to ‘medium’ and ‘micro’ to ‘medium’ movements as well, though to a lesser degree,” the Ministry concluded.   

K.E. Raghunathan, national chairman, Association of Indian Entrepreneurs, who was associated with a recent survey of MSMEs that revealed that 72% of MSMEs had stagnated over the last five years, was skeptical of the Ministry’s findings. Specifically, he said the Udyam portal was not exhaustive, with only about 20%, or 1.5 crore, of the total MSME units in the country, registered on it.  

The Ministry of MSME had introduced the Udyam Portal in July 2020, enabling MSME firms to register themselves. The Finance Ministry has said the Udyam portal fetches data from the portals of the Income Tax Department and Goods and Services Tax Network and then classifies the registered MSMEs based on data on investment and turnover.   

“The Udyam data is wrongly interpreted,” Mr. Raghunathan told The Hindu.. “The classification of an applicant into micro or small or medium is by self-declaration and is not taken from the IT and GST portals as claimed. The registration has been so poor, which is evident from the fact that the number of MSMEs was 6.15 crore, even as per the old classification,” he added. 

The government had in 2020 tweaked the investment and turnover norms for MSME classification. A micro unit is one with an annual turnover of up to ₹5 crore and investments in plant and machinery of up to ₹1 crore. The turnover threshold is ₹50 crore and ₹250 crore for small and medium enterprises, respectively, while the investment threshold is pegged at ₹10 crore and ₹50 crore, respectively.