Services MSMEs are unique, they are asset light, have little collateral to offer and hardly any access to credit. Payment cycles are long and complaince burden makes them feel unwanted.

23 March, 2020 News, MSME
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Services sector contributes nearly 55 per cent to GDP and 32 per cent to total employment in India. Services have been the driver of India’s growth. This is evident from its gradual rise in share to the country’s GDP. During 1950s the contribution of the services sector in India’s GDP was around 33 per cent, now it has almost doubled. It contributes far more to the GDP than agriculture and industry put together.

Major part of the services are driven by the MSMEs, which contributes nearly 25 per cent of the GDP from service activities. Out of the total 63.38 million MSMEs 69 per cent or 43.73 million are in services category, according to the annual report of the Ministry of MSME. Of the 43.73 million MSME in service sector 23.03 million are in trade and 20.68 million in other services.

MSMEs category wise

Sr. No MSME category Number in Million %
1 Trade 23.03 36
2 Other Services 20.68 33
3 Manufacturing 19.67 31
4 Total 63.38 100

Source: National Sample Survey 73rd Round

More than two-thirds of the MSMEs are engaged in services. They form the backbone of the economy. Out of the total 111 million jobs created in the MSMEs more than 60 per cent are in the services sector. But they operate in a very challenging environment. There is hardly any scheme or benefits targeted to support the services MSME.

Service enterprises in MSME sector is defined as the enterprises engaged in providing or rendering of services. It is defined in terms of investment (original cost) in equipment excluding land and building as also furniture and fittings not directly related to services rendered. The services include small road & water transport operators, small business, professional and self-employed persons and traders among others. Following are the focus sectors for MSMEs in services

  1. Tourism and Hospitality
  2. Business Management and Consulting
  3. IT and IT enabled services
  4. Education
  5. Banking and Financial Services
  6. Media and Entertainment
  7. Retail and e-Commerce
  8. Beauty and Wellness
  9. Logistics and Transportation
  10. Professional Services

Challenges faced by Services MSMEs

Access to Capital

Most MSMEs operating in the service sector hardly have any hard assets. Due to this they find it almost impossible to get bank loans or other kinds of capital to support the business growth. Grassroots level study conducted by the SKOCH Group show that majority of the services enterprises in MSME category who manage to get bank finance have to mortgage their home or other personal properties.

Sustainability of Work

A substantial portion of services are cyclical or seasonal in nature. Due to this a large number of small service providers find it challenging to sustain their businesses. This often results in survival problems.

Marketing System

Small businesses hardly have money to spend on expensive advertisement and marketing. There is no affordable marketing channel to support the small service providers.


There are so many regulatory hurdles in conducting business. There are tortuous unnecessary regulations at every stage from starting to running business. So many small businesses can be conducted from home without putting any extra burden on the civic amenities. But even a basic registration requires commercial office, commercial electricity and water connection etc. All this act a big hurdle.

Benefits Available for MSMEs

A number of schemes and programmes have been introduced by the Government of India and also the state governments to support MSMEs. Following are the major schemes for MSMEs being pushed forward by the central government.

  1. Loans upto Rs 1 crore within 59 minutes through an online portal.
  2. Interest subvention of 2 per cent for all GST registered MSMEs on fresh or incremental loans.
  3. All companies with a turnover of more than Rs 500 crore to be mandatorily on TReDS platform to enable entrepreneurs to access credit from banks, based on their upcoming receivables, thus, solving the problems of cash cycle.
  4. All PSUs to compulsorily procure 25 per cent from MSMEs instead of 20 per cent of their total purchases.
  5. Out of the 25 per cent procurement mandated from MSMEs, 3 per cent reserved for women entrepreneurs.
  6. All CPSUs to compulsorily procure through GeM portal.
  7. 100 Technology Centres to be established at a cost of Rs 6000 crore.
  8. Government of India to bear 70 per cent of the cost for establishing Pharma clusters.
  9. Returns under 8 labour laws and 10 Union regulations to be filed once a year.
  10. Establishments to be visited by an Inspector will be decided through a computerised random allotment.
  11. Single consent under air and water pollution laws. Returns will be accepted through self-certification and only 10 per cent MSME units to be inspected.
  12. For minor violations under the Companies Act, entrepreneurs no longer have to approach court but can correct them through simple procedures.

There are a plethora of schemes in the name of supporting the MSME sector. More than 50 schemes are run by the central government. Several ministries and departments independently run schemes and programmes for MSME. The largest number, of course, is by the Ministry of MSME. Following are the major schemes of the Ministry of MSME:

Scheme on Employment Generation and Credit Support

  1. Prime Minister Employment Generation Programme(PMEGP)
  2. Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)
  3. Interest Subsidy Eligibility Certificate (ISEC)

Development of Khadi, Village and Coir Industries

  1. Science and Technology Scheme
  2. Market Promotion & Development Scheme (MPDA)
  3. Revamped Scheme Of Fund for Regeneration Of Traditional Industries (SFURTI)
  4. Coir Vikas Yojana (CVY)
  5. Coir Industry Technology Upgradation Scheme (CITUS)
  6. Science and Technology (S&T) for Coir
  7. Skill Upgradation & Mahila Coir Yojana (MCY)
  8. Export Market Promotion (EMP)
  9. Domestic Market Promotion Scheme (DMP)
  10. Trade and Industry Related Functional Support Services (TIRFSS)
  11. Welfare Measures (Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Technology Upgradation and Quality Certification

  1. Financial Support to MSMEs in ZED Certification Scheme
  2. A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE)
  3. National Manufacturing Competitiveness Programme (NMCP)
  4. Credit Linked Capital Subsidy for Technology Upgradation
  5. Marketing Support/Assistance to MSMEs (Bar Code)
  6. Lean Manufacturing Competitiveness for MSMEs
  7. Design Clinic for Design Expertise to MSMEs
  8. Technology and Quality Upgradation Support to MSMEs
  9. Entrepreneurial and Managerial Development of SMEs through Incubators
  10. Enabling Manufacturing Sector to be Competitive through QMS & QTT
  11. Building Awareness on Intellectual Property Rights (IPR)

Marketing Promotion Schemes

  1. International Cooperation
  2. Marketing Assistance Scheme
  3. Procurement and Marketing Support Scheme (P&MS)

Entrepreneurship and skill Development Programme

  1. Entrepreneurship Skill Development Programme (ESDP)
  2. Assistance to Training Institutions (ATI)

Infrastructure Development Programme

  1. Micro & Small Enterprises Cluster Development (MSE-CDP)

Schemes run by the Ministry of Commerce

  1. Startup India
  2. Trade Infrastructure for Export Scheme
  3. Modified Industrial Infrastructure Upgradation Scheme

Schemes run by Ministry of Food Processing Industries

  1. Marketing Research and Information Network
  2. Development/Strengthening of Agricultural Marketing Infrastructure
  3. Grading and Standardisation
  4. Agro processing Cluster
  5. Mega Food Parks
  6. Publicity and Marketing

Schemes run by Ministry of Textiles

  1. Capacity Building in Textile Sector
  2. Powerloom Cluster development
  3. Integrated Textile Parks
  4. Ambedkar Hastashilp Vikas Yojana

Schemes run by the Ministry of Chemicals and Fertilizers, Department of Pharmaceuticals

  1. Cluster Development Programme for Pharma Sector (CDP-PS)
  2. Pharmaceutical Promotion and Development Scheme

Apart from these a large number of schemes are also run by the state governments in the name of supporting and promoting the MSMEs. Majority of these schemes are for supporting the MSMEs in the manufacturing sector. Very few schemes are targeted to support the services sector.

Credit to MSMEs

The biggest stumbling block for the MSMEs in India has been the inadequate access to institutional finance. Banks have always shown hesitation in lending to small businesses. Despite all the government promises and schemes access to credit remains a big problem for the MSMEs.

Out of the gross bank credit of Rs 8822209 crore as on December end 2019 only Rs 365398 crore, or 4.14 per cent went to the micro and small enterprises. Medium enterprises got Rs 107166 crore as bank credit, which is just 1.21 per cent of the gross bank credit as on December end 2019, according to the RBI Bulletin for February 2020.

The more disturbing trend is that there has been a decline in the credit to the micro and small enterprises. Bank credit to micro and small enterprises declined by 2.7 per cent in the first three quarters of 2019-20 year-on-year. For the medium enterprises this rose by a paltry 0.7 per cent. Gross bank credit grew by 1.7 per cent during this period.

Lending to services sector under the priority sector lending rose by a paltry 0.7 per cent to Rs 696555 crore. Lending to micro and small enterprises declined by 0.5 per cent to Rs 1061953 crore at the end of December 2019.

Total outstanding credit to the MSME sector by Scheduled Commercial Banks in the last three years

Year Number of a/c (in lakh) Amount (in Rs crore)
March end 2017 233.63 1296398.82
March end 2018 261.54 1324239.35
March end 2019 320.68 1510650.52

Source RBI

The total number of MSMEs in India stood at 633.88 lakh during the year 2015-16, according to the 73rd round of National Sample Survey, conducted by National Sample Survey Office (NSSO). There must have been a substantial increase in the number of MSMEs after 2015-16. However, even if for the sake of argument we assume that the number of MSMEs remained the same in March 2017 as it was in 2015-16 the number of enterprises accessing credit from the banks is dismal.

Out of the assumed 633.88 lakh (the number could be higher) total MSME only 233.63 lakh accessed credit from commercial banks. This means the majority 63.15 per cent of the total registered unit did not get any credit from banks. The number has not improved much over the years. More than half of the MSMEs don’t get credit.

SMEs access to capital market

SMEs access to capital market in India has been very limited. The country’s two leading stock exchanges – National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) – have launched separate platform for small and medium enterprises to list. These exchanges offer SMEs the option to migrate to the main board without the need to make an initial public offering (IPO).

The framework for setting up of SME exchanges was first propagated by the Securities and Exchange Board of India (SEBI) in 2008. However, a major step in this direction was the report by the Prime Minister’s Task Force in January 2010 on Micro, Small and Medium Enterprises, which recommended setting up of SME exchanges to promote inflow of equity capital in this sector. Subsequently, in 2012, the BSE SME and NSE Emerge platforms were established.

The total number of listed entities on the BSE SME platform are 280. These companies put together have raised Rs 2805.10 crore of funds from the equity market. The BSE claims that it is the biggest player in the SME segment and currently controls 60 per cent market share.

India’s largest stock exchange National Stock Exchange (NSE) runs a dedicated platform for SMEs in the name of NSE Emerge. There are 192 companies listed on the NSE Emerge. The total capital raised by these companies are Rs.3020 crore.

SME presence on Capital Market

Stock Exchange Number of SME listed Capital Raised (in Rs crore)
BSE SME 280 2805.1
NSE Emerge 192 3020
Total 472 5825.1

Source: BSE & NSE

If we put the BSE SME platform and NSE Emerge number together the total number of listed SME stands at 472. Put together these companies have raised Rs 5,825.10 crore. The total number of MSMEs stood at 6.33 crore in 2015-16. Out of these only 472 opt ing for the option of raising money from the capital market shows that nothing much is right with the current SME stock exchange set up. A comprehensive change is required to get more and more SMEs to the capital markets.

Comparative Growth of MSME

For the purpose of comparision we can take into account the two comprehensive sets of data available on the MSME sector in India. The first comprehensive data is from the 4th All India Census of MSMEs 2006-07. The most recent available data on MSME sector is from the 73rd round of National Sample Survey (NSS) conducted by the National Sample Survey Office, Ministry of Statistics and Programme Implementation. The 73rd round of the NSS was conducted during July, 2015 to June, 2016.

In fact, the 4th All India Census of MSMEs 2006-07 was the first attempt at generation of data sets on MSME sector in India.

Earlier, three censuses were conducted. The first one in 1972-73, the second in 1988-89 and the third in 2001-02. But none of these had a set of data on MSMEs as we know today. In fact, the MSMEs were defined through the MSMED Act, 2006. Before that there were segment specific definition that hardly covered services.

The first two censuses covered industrial units registered with District Industries Centres (DICs) of State/ UTs, Directorate of Industries often referred to as Small Scale Industries (SSIs). The third census, which was conducted in 2001-02, expanded the scope beyond SSIs registered with DICs to SSIs not registered with DICs and limited activities under Small Scale Service & Business (industry related) Enterprises (SSSBEs) under the banner of Unregistered sector. Enterprises registered with DICs formed the Registered Sector. These small scale business service enterprises were surveyed on sample basis, as part of the third census for the first time.

However, even in the third census major components of service sectors like transportation, storage (except cold storage), retail/wholesale trade establishments, general merchandised stores, sale outlets for industrial components, health services including pathological laboratories, legal services, educational services, social services and hotels were not covered.

Comparative analysis of the two sets of the MSMEs data

Number of MSMEs (figures in Lakh)

Sector 4th MSME Census, 2006-07 NSS 73rd Round, 2015-16 Compound annual growth (%)
Manufacturing 115 196.65 6.14
Services 246.76 437.23 6.56
Total No of MSMEs 361.76 633.88 6.43

Services dominate the MSME sector. In terms of the total number it accounted for 68.21 per cent of the total MSMEs as per the fourth All India Census of MSMEs, 2006-07. The share of services in the total MSMEs rose further to 68.97 per cent as per the NSS 73rd round 2015-16.

Employment in MSMEs

Employment in MSMEs (figures in lakh)

Sector 4th MSME Census, 2006-07 NSS 73rd Round, 2015-16 Compound annual growth (%)
Manufacturing 320.03 360.42 1.33
Services 485.21 749.47 4.95
Total Employment 805.24 1109.89 3.63

MSMEs are the largest provider of employment after agriculture. However, the comparative study of the 2006-07 and 2015-16 data show that the growth in employment generation is slower than the growth in the number of entities. During this period under review the total number of MSMEs increased by a compound annual rate of 6.43 per cent. The number of employed people in the sector increased at a slower rate of 3.63 per cent on an average per annum. Job generation in services sector was much higher than manufacturing. Employment in services sector rose to 7.49 crore in 2015-16 from 4.85 crore in 2006-07, registering a compound annual growth of 4.95 per cent. For manufacturing this growth rate stood at 1.33 per cent.

As per the NSS 73rd Round, 2015-16 data, 11.1 crore workers were engaged in unincorporated non-agricultural enterprises (excluding construction) in the country. Out of these total 11.1 crore workers involved in the MSMEs, 34.8 were engaged in trading, 32.8 per cent were in other services and 32.4 per cent were in manufacturing.

Among the total number of workers estimated to be engaged in the MSME sector, 55 per cent worked in urban areas and 45 per cent worked in rural areas. Own Account Enterprises, i.e. enterprises that do not employ any hired worker on a fairly regular basis, has a dominant share accounting for 62 per cent of the total workforce involved in the MSMEs in the country.

Nearly 50 per cent of the total workforce engaged in the MSMEs are in the top five states with Uttar Pradesh leading with 14.9 per cent. Other top states included West Bengal (12.2 per cent), Tamil Nadu (8.7 per cent), Maharashtra (8.2 per cent) and Karnataka (6.4 per cent).

MSMEs contribution to the Economy

MSMEs contribute neary 30 per cent to India’s GDP. Annual Gross Value Added (GVA) per enterprise for MSME is estimated at Rs.1,81,908, as per the NSS 73rd Round, 2015-16 data.

Out of the three categorisation – manufacturing, trading and other services the GVA of other services is the highest. In fact, the GVA of other services is 55 per cent more than the GVA of manufacturing sector. GVA of other services sector per enterprise stood at Rs. 2,10,860, which is 54.68 per cent higher than GVA of manufacturing sector that stood at Rs. 1,36,317 per enterprise. For enterprises in trading at stood at Rs. 1,94,877 per enterprise.

GVA of Own Account Enterprises (OAEs) is substantilly lower than that of establishments. GVA per enterprise for OAEs was Rs. 95,753 and that of establishments was Rs. 6,41,104 at all India level. For rural India, annual GVA per enterprise for OAEs and establishments were estimated as Rs. 71,217 and Rs. 4,78,319 respectively. The corresponding estimates for urban areas were Rs. 1,26,529 and Rs. 7,03,848 respectively. Annual GVA per enterprise for enterprises in rural areas was Rs. 1,06,136 and that of enterprises in urban areas was Rs. 2,61,554.

Among the major States, Delhi has reported the highest annual GVA per enterprise (Rs. 4,97,524) and West Bengal had the lowest GVA per enterprise (Rs. 96,686).

During 2015-16, the aggregate GVA by MSMEs was estimated as Rs.11,52,338 crore. At all India level, establishments (i.e., those units that employ at least one hired worker on a fairly regular basis) contributed about 56 per cent to the aggregate annual GVA. However, in rural areas OAEs had a higher share (61 per cent) in aggregate GVA. Contribution by enterprises in urban areas (70 per cent) to overall GVA was much higher than that of rural enterprises (30 per cent).

Maharashtra had the highest share (11.8 per cent) in the aggregate annual GVA at all India level followed by Uttar Pradesh (11.0 per cent), Tamil Nadu (9.2 per cent), Karnataka (8.0 per cent) and West Bengal (7.4 per cent). These five States accounted for nearly half of the aggregate annual GVA by the unincorporated non-agricultural enterprises.

Per worker contribution of services sector is 61 per cent higher than that of manufacturing sector. For other services sector per worker GVA stood at Rs.1,19,947, which is 61.26 per cent higher than Rs.74,379 for manufacturing sector. For trading sector this stood at Rs.1,15,885. The annual GVA per worker for enterprises engaged in market production at all India level was estimated at Rs.1,03,744.

OAEs had an annual GVA per worker of Rs.73,951 at all India level whereas, establishments had an annual GVA per worker of Rs.1,52,723. Annual GVA per worker for enterprises in rural areas was Rs. 69,198 and that of enterprises in urban areas was Rs.1,31,811. Among the major states/UT, Delhi had the highest GVA per worker (Rs.2,02,616) and Odisha had the lowest GVA per worker (Rs.60,933).

Emoluments per hired worker was also the highest in the services sector. The average emoluments per hired worker for other services stood at Rs.1,01,094, which is 33.73 per cent higher than Rs.75,595 per worker emoluments in manufacturing sector. For trade it stood at Rs.80,267.

The overall average annual emoluments per hired worker was estimated at Rs.87,544. Among the major states, Kerala (Rs.1,25,616) and Assam (Rs.53,726), respectively, reported the highest and lowest value of average annual emoluments per hired worker.

MSMEs State Wise

Almost three-fourth of the MSMEs are located in big 10 states. The country’s most populous state Uttar Pradesh is also the home to the largest number of MSMEs. As per the NSS 73rd round, 2015-16, the total number of MSMEs in Uttar Pradesh stood at 89.99 lakh, which is around 14 per cent of the total MSMEs in India.

With 88.67 lakh MSMEs West Bengal comes at close second. What is noteworthy is a sharp increase in the number of MSMEs in West Bengal during 2006-07 to 2015-16 period. The total number of MSMEs in West Bengal stood at 34.64 lakh as per the the 4th All India Census of MSME conducted in 2016-07. This number increased to 88.67 lakh in 2015-16, posting an increase of over 150 per cent. This also resulted in a sharp increase in the share of West Bengal in the total number of MSMEs in India. West Bengal’s share in the total number of MSMEs in India stood at 10 per cent in 2006-07. This rose to 14 per cent in 2015-16.

With 49.48 lakh MSMEs Tamil Nadu is placed at the third position. Tamil Nadu’s share in the national number dropped to 8 per cent in 2015-16 from 9 per cent in 2006-07. Maharashtra’s position remains steady at the fourth position with 8 per cent share of the national total.

MSMEs distribution in State/UT as per 4th All India Census of MSME, 2006-07

Sr No State/UT Number of MSMEs in Lakh Share in total India (%)
1 Uttar Pradesh 44.03 12
2 West Bengal 34.64 10
3 Tamil Nadu 33.13 9
4 Maharashtra 30.63 8
5 Andhra Pradesh** 25.96 7
6 Gujarat

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