in MSME

TL;DR In this post we will be looking at various trends in the MSME distribution in India such as the distribution of MSMEs state-wise, the employment generated by these MSMEs and their contribution to the GDP of the state. In the process we shall make some analysis on how the MSME dynamics affect a lot of other elements primarily the employment rate , productivity and migration of workforce.

More popularly referred to as the small businesses or the small enterprises, these segments of the workforce are the backbone of the Indian industry. The term MSME comprise of small businesses from both the organized and the unorganized sector. While there is no hard bound way to say who can be counted as a small enterprise and who is a medium one, the report by the ministry of micro, small and medium enterprises has made an effort to classify these enterprises.

Micro, small and medium enterprises as per MSMED Act, 2006 are defined based on their investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises providing or rendering services.

ClassificationManufacturing EnterprisesService Enterprises
Micro₹25 lakh₹10 lakhs
Small₹5 crores₹2 crores
Medium₹10 crores₹5 crores

But why are these small businesses extremely crucial to the Indian economy? This is because they contribute to over 8% if the national GDP, account for 45% of the manufacturing output, 40% of the export from the country and create more job opportunities than all the large and multination corporations in India put together. Their role cannot be underestimated and as such, it helps to have a grasp on the MSME demographics in India.

In recent times, the small businesses have been receiving a lot of attention from the government and media as well as they try to scale up to the demands. 10 of the leading industries in the small businesses in terms of number of enterprises are

  • Retail trade
  • Manufacture of wearing apparel
  • Manufacture of food products and beverages
  • General services activities
  • General businesses activities
  • Hotels and restaurants
  • Motor vehicles and motorcycles and related activities
  • Furniture
  • Fabricated metal products
  • Textiles

In terms of employment the top 10 small business industries that employ the most number of people are

IndustryEmployment (in lakhs)
Retail Trade245.48
Food products and beverages Manufacture62.99
Wearing apparel manufacture60.06
Other services activities37.65
Textiles35.91
Hotels and restaurants33.92
Motor vehicles and motorcycles30.03
Furniture28.19
Other business activities27.67
Education27.26

Now although the small businesses employment over 805 lakh people as per the last MSME census report, the employment is not spread evenly across the country. Ideally the most populous states ought to have a proportionally higher number of MSMEs. This is required to ensure that the density of small enterprises to the population is favourable which also leads to employment opportunities. However this is most often not the case. Sometimes more populous states have a lesser density of small enterprises per 100 people than a state with lower population. Let’s try to analyze this with the help of a thermal map depicting the density of MSMEs across states.

MSME Density per 100 population

In what is perhaps the most amazing fact about the population of different states in India, the MSME density is not proportional to the population of the states. We calculate MSME density as the number of small business for every 100 people. For example Uttar Pradesh which has a population of 19,95,81,477 the highest in India is relatively low when it comes to MSMSE density. UP has just 2 MSMEs for every 100 people, while Kerala which has a population of just 3,33,87,677 has an MSME density of 7 per 100 people.

The MSME density is crucial for a lot of reasons but primarily because in states with large population, not all the job requirements can be met by large corporations. This means that there should be a healthy MSME density to provide employment opportunities for everyone. When a state lacks employment opportunities from within, the residents tend to migrate to other states in search of employment opportunities. In the case of Bihar for example, it has one of the lowest SME density among Indian states. With a population of 10,38,04,637, the SMEs in the state provide employment to only 28,26,000 people.

The census of India (Migration Report) 2001, shows the state of Bihar to have a negative net migrant number. When the number of people who migrate out of the state is higher than the people who migrate into the state the state is said to have a negative migration. The people who migrated out of the state stood at a whooping 28,57,573 leaving the state with a net migrant figure of –(18,33,994). It seems almost like the entire population of Manipur migrated out of the state in search of jobs.

MSME-density-per-100-population

MSME Distribution in Each State

This brings us to analyse another aspect of the MSMEs in India- the number of small enterprises in each state. Just like the density of small businesses as a ratio of the population ensures job opportunities, a higher number of small enterprises in a state imply that a greater contribution is made by these businesses to the GDP of the state.

According to Ministry of Statistics and Programme Implementation’s -2015 report, Maharashtra has the highest GDP (₹15,10,132 crore) among the Indian states; contributing 14.42% of the national GDP. Uttar Pradesh comes next with 44,03,000 small enterprises in the state, it contributes to 9% of the national GDP although it has a low MSME density. UP is followed by Tamil Nadu which contributes 8% to the national GDP. What is common among all these three states is that they have the highest number of small enterprises and fall in the top 5 when it comes to sheer number of enterprise. So there is a direct relation between the number of MSMEs in a state and the GDP of the state.

msme-statewise-density

Map represents the number of MSMEs in each state.

indian-states-SME-GDP

Data taken from Ministry of Statistics and Programme Implementation’s report on GDP of Indian states- Aug 2015

When a state has more number of MSMEs, it naturally results into more employment generation in that state; as a result the states that have the highest employment in these MSMEs are the very states that have the highest number of MSMEs in India.

So we have seen how MSMEs play a vital role in the economy and how they contribute significantly to the GDP of the state. This post was intended to familiarize you with the intricacies of the MSME sector in India. In the coming posts we shall analyze more in detail about this sector.

Summary
The Demographics around Indian MSMEs
Article Name
The Demographics around Indian MSMEs
Description
Let's look at various trends in the MSME distribution in India such as the distribution state-wise, employment generated and their contribution to GDP.
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