Banking Article, Banking Finance 2021, Banking Finance December 2021

Incentive schemes for growth & development of MSME sector and their effectiveness

Micro, Small and Medium Enterprises form a vital component of the Indian Economy. The Government and Reserve Bank of India have taken a number of measures from time to time to support this sector. A number of committees appointed by the Government/RBI have identified issues and made recommendations in the past. Many of these recommendations have guided different policy initiatives. However, MSMEs continue to face challenges of formalization, access to knowledge services, access to timely and adequate finance, improving competitiveness, availability of skilled man-power, access to latest technology and marketing. The MSME sector is yet to benefit from the advances in digitization, which can substantially reduce the cost and time for this sector. SHGs and rural entrepreneurship have made very good progress in the last few years, but creating the environment for the next stage of their growth is a task yet to be accomplished.

The success of Indian economy lies in the success of MSMEs and how effectively we are providing handhold support in an environment where resources are lacking. The research ended up in revealing certain facts that will definitely help in mitigating the factors that are acting as a hindrance in successful implementation of the schemes.

Ever since the onset of the financial crisis, the global economy has been struggling to revive itself and achieve a healthy growth rate. The global growth rate for last year and this year are projected at 3.20% in 2019 and 3.50% in 2020.

But compared to this, India’s GDP continues to grow at a fast pace, outstripping major world economies. According to IMF, India is projected to grow at 5.80% for the fiscal year 2020.

Without any dispute, MSMEs are one of the key drivers behind this growth story. This sector, comprising of manufacturing, infrastructure, service industry, food processing, packaging, chemicals, and IT, has emerged as the most vibrant and dynamic engine of growth of  Indian economy over the past few decades. MSMEs not only provide huge employment opportunities but also ensure regional balance development by taking industrialization to rural and backward areas. As per CII about 20% of MSMEs operate out of rural & backward areas.

The importance of MSME can be highlighted as under:

  • Number of MSMEs in India: The number is estimated to be at 39million, registered & unregistered together.  A staggering 95% of the total industrial units in the country.
  • MSME & Employment opportunity: Employs about 110.90 million, 40% of India’s workforce. Next only to the agricultural sector.
  • Products: produces more than 6000
  • GDP Contribution: Currently around 6.11% of the manufacturing GDP and 63% of Service sector GDP.
  • MSME Output: 45% of the total Indian manufacturing output.
  • MSME Exports: 40% of the total exports.
  • Bank Lending: Accounts for 16% of bank lending.
  • Fixed Assets: Current fixed assets at INR 1,471, 94crore.
  • MSME Growth Rate: Has maintained an average growth rate of over 10%.

But challenges before MSME are also enormous. MSEs are lacking technological advancement along with scarcity of resources. Formal Institutional lenders are yet to reach the remote corners to handhold MSMEs in their difficult times.

Micro, Small and Medium Enterprise (MSME) sector has emerged as a very important sector of the Indian economy, contributing significantly to employment generation, innovation, exports, and inclusive growth of the economy. The MSMED Act, 2006, was enacted to provide enabling policy environment for promotion and development of the sector by way of defining MSMEs, putting in place a framework for developing and enhancing competitiveness of the MSME enterprises, ensuring flow of credit to the sector and paving the way for preference in Government procurement to products and services of the MSEs, address the issue of delayed payments, etc. However, in the changed circumstances, it is imperative that the thrust of this important legislation should be focused more on market facilitation and promoting ease of doing business for MSMEs.

As per the MSMED Act, Government has notified procurement policy wherein PSUs/ Government Departments have to make 25% of their procurement from MSEs. To further strengthen the procurement mechanism, the Government has also launched the GeM portal.

MSMEs provide employment opportunities at comparatively lower capital cost and act as ancillary units for large enterprises to support the system in growth.  Below Chart depicts the growth rate of MSME sector in comparison with the overall industrial sector during last sixteen years. The MSME sector has in many years registered a higher growth rate than the overall growth of industrial sector.

Source: Ministry of MSME

The contribution of the MSME sector to India’s GDP remained stagnant around 30% in recent years. GVA of MSMEs decelerated marginally during the same period.



Considering the above various incentive schemes have been formulated by Govt of India/SIDBI/ State Govt to hand hold MSME and for their growth. Few of these are enumerated below.

No Schemes
1 Prime Minister Employment Generation Programme(PMEGP)
2 Performance and Credit Rating Scheme
3 Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
4 Interest Subsidy Eligibility Certificate (ISEC)
5 Science and Technology Scheme
6 Market Promotion & Development Scheme (MPDA)
7 Revamped Scheme Of Fund for Regeneration Of Traditional Industries (SFURTI)
8 Coir Udyami Yojana (CUY)
9 Coir Vikas Yojana (CVY)
10 Skill Upgradation & Mahila Coir Yojana (MCY)
11 Development Of Production Infrastructure (DPI)
12 Domestic Market Promotion Scheme
13 Export Market Promotion
14 Trade and Industry Related Functional Support Services (TIRFSS)
15 Financial Support to MSMEs in ZED Certification Scheme
16 A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
17 Credit Linked Capital Subsidy for Technology Upgradation
18 ISO 9000/ISO 14001 Certification Reimbursement
19 Marketing Support/Assistance to MSMEs (Bar Code)
20 Lean Manufacturing Competitiveness for MSMEs
21 Design Clinic for Design Expertise to MSMEs
22 Technology and Quality Upgradation Support to MSMEs
23 Entrepreneurial and Managerial Development of SMEs through Incubators
24 Enabling Manufacturing Sector to be Competitive through QMS&QTT
25 Building Awareness on Intellectual Property Rights (IPR)
26 International Cooperation
27 Marketing Assistance Scheme
28 Marketing Assistance & Technology Upgradation (MATU)
29 MSME Market Development Assistance (MDA)
30 Assistance to Training Institutions (ATI)
31 Micro & Small Enterprises Cluster Development (MSE-CDP)
32 EDP/MDP schemes
33 NER Schemes
34 TCSP Schemes

The experience on the ground and available indicators have led to creation of  seven pillars that contribute towards an enabling ecosystem for an enterprise to be born, germinate, blossom and sustain.

The illustration depicts the seven components of the ecosystem in a pattern where MSME competitiveness and sustainability is having most importance. As a first step, all existing MSME Schemes have been aligned to the seven pillars of the ecosystem as mentioned above. The Table below illustrates that even after the realignment; there are gaps that remain to be addressed. The intensity of these gaps varies across different regions of the country. The situation does not change much when a similar mapping is done for the schemes of other Ministries.

Mapping Elements of MSME Ecosystem to various schemes
Schemes Human Capital Knowledge Finance Technology Infra Markets Policy
Interest Subvention
Coir Vikas Yojna
Solar Charkha
Coir Udyami Yojna
National SC/ST Hub

Source: Ministry of MSME

As there is a mapping gap among various MSME schemes, it is recommended that the Ministry of MSME should be the Nodal Ministry for all interventions pertaining to the MSME Sector, rather than multiple schemes being run by different Ministries for promotion of MSMEs in their respective domain.

Other Initiatives

Credit Guarantee Schemes

Credit Guarantees in India for MSMEs were introduced through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in the early 2000s. Over time, other Credit Guarantee Schemes have been introduced such as Credit Guarantee Fund Trust for Low Income Units by NHB, Credit Guarantee Fund for Micro Units (CGFMU), Credit Guarantees for Skilling Loans, Education Loans, loans extended under Standup India, factoring, loans extended to Scheduled Castes, etc.  In addition, there are some Credit Guarantee Schemes being operated by the Private Sector on a smaller scale.

Government of India has set up the National Credit Guarantee Trustee Company (NCGTC) as a single entity to house and administer different Credit Guarantee Funds.  Currently, NCGTC, administer Credit Guarantees for Micro Units, Standup India loans, Factoring, Skilling Loans, Education Loans and a proposed scheme to guarantee Venture Debt to Startup.

A plethora of Credit Guarantee Schemes are therefore currently in operation.  Many of these directly concern MSMEs.  Most of these schemes offer individual guarantee where a contract is signed with the borrower. However, the CGFMU offers a portfolio guarantee which involves a contract signed with the lender and covers loans up to ₹10 lakh for which collateral is otherwise not required.  CGTMSE, on the other hand also offers partial credit guarantee coverage i.e. a loan could be partially secured by collateral and the un-collateralized portion could be covered under an individual credit guarantee.  An analysis of various Credit Guarantee Schemes suggests considerable deployment of public funds with overlapping guarantees and gross underutilization/over-leverage of the corpus in some funds.

While both CGTMSE and NCGTC offer the credit guarantee product, the guarantee structure and features are different. Structurally, the primary difference is that the CGTMSE is a loan level guarantee scheme while CGFMU for MUDRA loans, run by NCGTC, is a portfolio level guarantee scheme. This means that pay-outs happen under CGTMSE when individual loans, covered under the scheme, start to default. In contrast, pay-outs happen in CGFMU only when the threshold NPA level of the portfolio is breached. As on March 31, 2018 the corpus of CGTMSE was ₹6200 crore and that of CGFMU was ₹3200 crore.



MSME Delayed Payment Portal –SME Samadhaan ( has been launched empowering   micro   and small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments. Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 contains provisions to deal with cases of delayed payment to Micro and Small Enterprises (MSEs). As per the provisions, the buyer is liable to pay compound interest with monthly rests to the supplier on the amount at three times of the bank rate notified by Reserve Bank in case he does not make payment to the supplier for the supplies of goods or services within 45 days of the day of acceptance of the goods/service or the deemed day of acceptance.

Revised Udyam Registration:

A one-page simple registration form for online filing of Udyam Registration has been introduced which replaces the filing of Entrepreneur’s Memorandum Part I&II. The filing of UAM can be done on –

 The salient features of Udyam Registration are:

  • Registration is online and user-friendly.
  • It can be filed on self-declaration basis.
  • No documentation required.
  • No Fee for filing.

Framework for Revival and Rehabilitation of MSMEs

In order to provide a simpler and faster mechanism to address the stress in the accounts of MSMEs and to facilitate the promotion and development of MSMEs, the Ministry of Micro, Small and Medium Enterprises ,Government of India, vide its Gazette Notification dated May 29, 2015 notified a ‘Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises’. Further Reserve Bank of India has also issued guidelines to the Banks on 17.3.2016. Under these guidelines Banks have created mechanism for finalizing corrective action plan for revival & rehabilitation of MSMEs.

MSME DataBank

For facilitating the promotion and development and enhancing the competitiveness of MSMEs, the Ministry of MSME vide Gazette Notification No. 750(E) dated 29.07.2016 had notified the MSME Development (Furnishing of information) Rules, 2016 under which all MSMEs are to furnish information relating to their enterprises online to the Central Government in the data bank maintained by it at This data bank will enable Ministry of MSME to streamline and monitor the schemes and pass on the benefits directly to MSMEs. It will also provide the real-time information about the status of MSMEs under various parameters. Data Bank is helpful to MSME units, who can now update their enterprise information as and when required without visiting any government office and also 7 Annual Report 2019-20 update information about their products / services, which can be accessed by government departments to do procurement under Public Procurement Policy of Government of India. More than 1.61 lakh units have been registered (31.01.2020) under MSME Data Bank since issuance of its notification.

MyMSME : To facilitate the enterprises to take benefits of various schemes, the Office of Development Commissioner (MSME) has launched a web-based application module, namely, MyMSME. This can also accessed through a mobile app. Entrepreneurs can make their applications and track it as well on the mobile itself.

Direct Benefit Transfer in the M/oMSME

All welfare and subsidy schemes of Governments of India have been brought under Direct Benefit Transfer (DBT) with the aim of improving delivery system by re-engineering the existing process for welfare and subsidy schemes, for simpler and faster flow of funds and to ensure accurate targeting of the beneficiaries, de-duplication and reduction of fraud. A nodal point for the implementation of the DBT programmes, DBT cell have been constituted in the Ministry. The schemes have been categorized based on the benefit type to the beneficiary’s i.e., Cash, Kind or Composite (i.e. Cash and Kind).

MSME-SAMBANDH: The Ministry of Micro, Small and Medium Enterprises notified the Public Procurement Policy for Micro and Small Enterprises (MSEs) which mandated 20% of annual procurement from MSEs including 4% from enterprises owned by SC/ST entrepreneurs by the Central Ministries /Departments and Central Public Sector Enterprises (CPSEs).  The policy has been recently amended vide Gazette notification dated 9th November, 2018. Amended policy now mandates 25% annual procurement from MSEs by Central Ministries/Departments/Public Sector Enterprises (CPSEs) which include 4% from MSEs owned by SC/ST and 3% from MSEs owned by Women entrepreneurs. For effective implementation and monitoring of the policy, the Ministry launched the Public Procurement Portal titled “MSME-SAMBANDH” on 08.12.2017. The portal would help in monitoring the procurement by Central Government Ministries, Departments and Central Public Sector Enterprises (CPSEs) and would enable them to share the list of required products/services from MSEs.

MSME SAMPARK: A job portal called “MSME SAMPARK” has been launched by the Hon’ble President of India on 27.06.2018. This portal is a digital platform wherein jobseekers (i.e. passed out trainees / students of MSME Technology Centres) and recruiters can register themselves for mutually beneficial interaction. As on 31.12.2019, a total of 53,295 passed out trainees (job seekers) and 5,397 recruiters (job provider) have registered on the SAMPARK portal against vacancies posted by recruiters; 15,935 resumes have been shared with recruiters and 2,538 jobs have been offered.

Skill Training Eco-system of Ministry of MSME

Ministry of Micro, Small & Medium Enterprises (MSME) in its endeavor to provide the right stimulus for the growth of the industry in the country – particularly with the objective of helping micro, small and medium enterprises, has developed a robust skilling eco-system to meet the demands of skilled workforce in the various emerging and traditional sectors in different segments of enterprises. The Ministry has been organizing a number of skill development programmes/ courses for the existing & potential entrepreneurs, in order to build their capacity. These training courses are as per demands of industry, a pathway to fill up the gap of requirement of skilled workforce in the MSME sector in consonance with the changing landscape of the MSME Ecosystem and its present challenges in India. Skill training programmes are conducted by a network of institutions under the Ministry i.e. Khadi & Village Industry Commission (KVIC), Coir Board, National Small Industries Corporation Ltd. (NSIC), National Institutes for MSME (NI-MSME) and MSME – Technology Centres (TCs). The intake eligibility for the training programmes ranges from school drop out to M.Tech. level. Various levels of courses, viz. certificates, diploma, advance diploma, post diploma, post graduate diploma and post graduate courses are offered by these institutions. Furthermore, training for skill up-gradation in traditional sector of Khadi & Village Industry and Coir sector are also provided to strengthen these sectors. The Ministry has taken initiatives to align its training courses with National Skill Qualification Framework (NSQF), Ministry of Skill Development & Entrepreneurship (MSDE). Skill trainings of the Ministry are reported to Ministry of Skill Development & Entrepreneurship (MSDE) under Skill India Mission convergence.

Other state Government Initiatives:

Madhya Pradesh MSME Protsahan Yojana-

In a bid to boost Micro Small and Medium Enterprises (MSMEs), the  Madhya Pradesh government has launched a scheme called ‘Madhya Pradesh MSME Protsahan Yojana’ which would focus on attracting investment and encouraging job creation among MSMEs in the state.

Under the scheme, the government would provide 40 per cent grant for setting up businesses in the state along with a provision of acquiring cheap land by providing 70 per cent of employment to locals and representation of STs, SCs, and OBCs.

However, the scheme has already been implemented since October 1, 2019, and would provide the grant in four installments while women and SC-ST entrepreneurs would get an additional grant of 2-2.5 per cent.

UYEGP Tamilnadu- (Unemployed Youth Employment Generation Programme)

The Micro, Small and Medium Enterprises Department of Government of Tamil Nadu has introduced the scheme Unemployed Youth Employment Generation Programme (UYEGP). The key objective of this UYEGP scheme is to diminish the unemployment problems of socially and economically weaker section of the society, particularly among the educated and unemployed to become self-employed by setting up  Service, Manufacturing, Business enterprises by availing loan with subsidy assistance from the State Government. Quantum of Maximum Government subsidy under the Unemployed Youth Employment Generation Programme (UYEGP), Government provides 25% subsidy on project cost with a maximum limit of Rs.125000.Amount of the Bank Loan will be 90-95% loan of the project cost. (Including Government Subsidy of 25%). The bank should release 90-95% of the project cost as a loan and then claim the subsidy. 

NEEDS Tamilnadu– (New Entrepreneur cum Enterprise Development Scheme)-

The NEEDS Scheme is promoted by the Directorate of Industries and Commerce, Government of Tamil Nadu for providing opportunities for a young or new educated entrepreneur with subsidy and support for starting a new venture. The scheme mainly targets educated youth with any Degree, Diploma, ITI or Vocational Training from recognized Institutions.

Financial assistance- A subsidy to the tune of 25% of the project cost not exceeding Rs.25.00 lakhs is provided under the NEEDS Scheme. For projects costing more than Rs. 1.00 Crore, the subsidy component restricts to Rs. 25.00 lakhs. The project cost includes capital expenditure and margin money for working capital. Cost of rented or leased building, technical know-how, preliminary or pre-operative expenses and working capital margin will not be subsidized. Of the total project cost, promoter contribution must be more than 10% of the Project Cost for general category entrepreneurs and 5% of the project cost in case of special category entrepreneurs (BC, MBC, DNC, SC, ST, Women, Minorities, Ex-Servicemen, Transgenders or Differently abled Entrepreneurs).

In addition to the above 25% subsidy, an interest subsidy to the tune of 3% is also provided under the NEEDS Scheme. For enterprises financed by Tamil Nadu Industrial Investment Corporation (TIIC), the loan extends with a 3% rebate and the interest rebate of 3% reimburses to TIIC on a quarterly basis. For loans extended by commercial banks, the 3% interest subsidy provides a back-ended interest subsidy on a quarterly basis during the entire repayment period.

One District One Product Scheme- Uttar Pradesh

The Government of Uttar Pradesh has introduced the scheme, “One District One Product” to encourage and revive aboriginals’ arts and craft products. The scheme would help Micro, Small and Medium Enterprises (MSME) to produce and promote products that are unique in Uttar Pradesh. One District One Product (ODOP) scheme was initiated in 2018 with a budget of Rs.25,000 crores, by the Government of Uttar Pradesh to revive the indigenous art form by providing financial and marketing support. ODOP support the art producers by expanding the industrial world to recreate the lost productive manufacturing and creative process.

ODOP has four schemes to provide access to acquire financial assistance from recognized banks, fair pricing and provide training to improve technological skills to compete with marketers globally. The mission and vision of the scheme is to create MSME hubs that produce traditional products related to ODOP scheme across all 75 districts in Uttar Pradesh.

The mission and vision of the scheme is to create MSME hubs that produce traditional products related to ODOP scheme across all 75 districts in Uttar Pradesh.

ODOP Scheme has four components. They are:

  1. Common facility Scheme
  2. Marketing Development Assistance Scheme.
  3. Finance Assistance Scheme
  4. Skill Development Scheme.


Challenges and Way forward:

Micro, Small & Medium Sector has a potential to strengthen the socio-economic growth of the nation by providing solution to the unemployment problem of the country at local. This will further lessen the inequalities between the geographical areas in terms of economic imbalances. Further, the inclusive pattern of sustainable growth of MSME sector will provide employment opportunities at the local level which will lessen the population load at megacities. However, meeting the diverse skill requirements of MSMEs spread across various sectors horizontally and vertically is a challenge. As a way forward the following recommendations may be beneficial for a strong growth and development of MSMEs.

  • Along with incentivizing MSMEs, special incentives are also to be designed for entities procuring for 90% & more from MSMEs in India. Government should make it mandatory for PSUs/ Government Department to procure from MSEs up to the mandated target of 25% through the GeM portal only.
  • There is a need to increase the number of Facilitation Councils particularly in larger States.
  • Presently, MSMEs must do multiple registrations with various entities such as Udyog Aadhaar portal, GSTN, NSIC, etc. This leads to cumbersome registration process and duplication of efforts. It is, therefore, recommended that the Government should make PAN as a Unique Enterprise Identifier (UEI) and the same should be used for various purposes like procurement, availing government sponsored benefits, etc
  • Knowledge centers are to be established at various DIC level so as to popularize government incentive schemes.
  • Presently, MSME clusters are inadequately equipped in areas such as tool rooms, innovation centres, testing facility, etc. It is recommended that ways and means to enhance private sector contribution must be found, viz., through debt instruments like bonds, CDs, etc., with tax incentives through SIDBI, so that larger number of clusters can be supported.
  • The Government should deploy the PSL shortfall to SIDBI on the lines of RIDF fund of NABARD, for lending to State Governments as soft loans for infrastructural and cluster development.
  • Government should take active efforts to provide insurance coverage to MSME employees on the lines of PMSBY and PMJJBY schemes. Workers at urban and rural formalized MSEs need to be specifically covered under Ayushman Bharat – PMJAY.
  • The PSBLoansIn59Minutes portal should be popularized and specific incentives should be provided through a common platform.
  • As there is a mapping gap among various MSME schemes, it is recommended that the Ministry of MSME should be the Nodal Ministry for all interventions pertaining to the MSME Sector, rather than multiple schemes being run by different Ministries for promotion of MSMEs in their respective domain.
  • All new Credit Guarantee Funds set up by the Government should be run by NCGTC, where expertise on risk management, fund management and compliance can be built up. It is necessary that the top management of both CGTMSE & NCGTC are professionalized and sourced from a wider pool
  • The level of collateral free lending must be increased from present level of Rs 10 lacs.
  • Schemes like CGTMSE, CGSSI are overlapping. Hence efforts should be made to put all these schemes under a blanket scheme.

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