Thread by @TFinMedia

#Thread

What are MSMEs? And why did the #Government set aside ₹3.7Lcr ($49bn) for #MSME support?

As the name suggests, #MSMEs (Micro, Small & Medium Enterprises) are small businesses. Their definition varies by country.

In India, the definition was changed last week.

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Previously, MSMEs were defined according to investment in plant/machinery (if they were in #Manufacturing) or investment in equipment (if they were in #Services).

It went like this:

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Last Wednesday, @nsitharaman announced a new definition for #MSMEs. Manufacturing & Services were clubbed and a new parameter - annual turnover - was added.

Now it goes like this:

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How important are MSMEs?

According to an @RBI report, MSMEs contribute 45% to India’s manufacturing output, more than 40% of exports and they employ more than 111m people – so, over 23% of the labour force.

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The #MSME sector is also vast. There are more than 63m MSMEs in India – the second-largest number in the world after #China.

Most of the enterprises (over 99% of them, in fact) are micro set-ups.

Backbone of the economy, indeed!

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The #MSME sector also faces many challenges:
- lack of formalisation
- cash-dependency
- technological handicap
- data deficiency
- bad loans
- informal channels of credit

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The credit problem is especially important.

If MSMEs are to get back on their feet after #Covid_19india, banks will have to lend.

But fearing a rise in #NPAs, banks are reluctant to lend now and would rather use the #RBI's reverse repo window: bit.ly/3eJql0I

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If you're wondering why the MSME definition was changed + want to read more about the role of MSMEs in the economy and the many challenges they face, read our article on MSMEs here: transfin.in/what-are-msmes…

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