Context:
Micro, Small, and Medium Enterprises (MSMEs) are crucial to India’s economy, driving employment and local growth, but face challenges like limited access to credit and formalization. Despite efforts to boost their contribution to GDP, the sector has struggled, especially due to the impact of COVID-19.
- Role of MSMEs in India’s Economy:
- MSMEs are vital to India’s growth but face challenges in contributing economically through credit access, formalization, and employment generation.
- The Ministry of MSME aims to increase their contribution to GDP to 50% by 2025.
- Declining GDP Share of MSMEs:
- The share of MSMEs in India’s GDP has decreased over time:
- FY15: 32.2%
- FY20: 30.5%
- FY21: 27.3%
- FY23: 30.1%
- The share of MSMEs in India’s GDP has decreased over time:
- Impact of COVID-19:
- The pandemic has hindered MSME contributions, and the economic impact is expected to deter growth towards the 50% GDP target by 2025.
- Profitability Trends:
- The profit-to-GDP ratio for listed companies stood at 5.2% in FY24, the highest since FY2011.
- The Compound Annual Growth Rate (CAGR) of Profit After Tax (PAT) for Nifty 500 companies from FY21 to FY24 is 34.5%.
- Agriculture’s Role:
- Agriculture and allied activities have become more significant sources of GDP during the pandemic but remain below pre-COVID levels (16.8% in FY20).
- Credit Trends for MSMEs:
- The percentage of outstanding credit to MSMEs from scheduled commercial banks is declining but increasing in absolute terms.
- Udyam Portal:
- Launched in July 2020, the Udyam portal aims to register MSMEs, with an estimated 39.3 lakh new MSMEs expected to be inducted in the fiscal year.
