Journal of Technology Management &

Innovation
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Universidad Alberto Hurtado
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Afshar Jahanshahi, Asghar; Nawaser, Khaled; Sadeq Khaksar, Seyed Mohammad; Reza Kamalian,
Amin
The Relationship Between Government Policy and the Growth of Entrepreneurship in the Micro, Small
& Medium Enterprises of India
Journal of Technology Management & Innovation, vol. 6, núm. 1, 2011, pp. 66-76
Universidad Alberto Hurtado
Santiago, Chile

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 Journal of Technology
Management & Innovation
Received August 31, 2010 /Accepted March 10, 2011 J. Technol. Manag. Innov. 2011, Volume 6, Issue 1

The Relationship between Government Policy and the Growth of

Entrepreneurship in the Micro, Small & Medium Enterprises of India

Asghar Afshar Jahanshahi1, Khaled Nawaser2, Seyed Mohammad Sadeq Khaksar3, Amin Reza Kamalian4

Abstract

With an impressive history of small firm development policy, in post-Independence India MSMEs (Micro, small and me-
dium enterprises) dominate the industrial scenario through its contribution to generation of employment and income as
also tackling the problem of regional disparities. Policymaking in the entrepreneurship field is complex and messy. Many
areas of Government policy affect levels of entrepreneurial activity - regulatory policies, trade policies, labor market
policies, regional development policies, social policies, and even gender policies. This means Governments must adopt
more horizontal structures for developing and implementing an integrated policy approach. The mix of policy options
will depend on a number of factors, including the prevailing attitudes of the population towards entrepreneurship, the
structure of the labor force, the size and role of Government, the prevalence of existing level of entrepreneurial activity
and the existing MSMEs. It is commonplace for Governments to have policies to encourage the growth of local MSMEs as
they can help to directly alleviate poverty by increasing income levels and creating jobs. So the main purpose of the arti-
cle is to introduce and analyze the relationship between Government policy and the growth of entrepreneurship in the
micro, small &medium enterprises of India. In particular, it also considers the contribution of MSMEs towards country’s
employment generation. The global market has changed considerably as also the activities of Micro, Small and medium
enterprises. Today, for businesses to survive, dynamism and entrepreneurship must exist in its fullest degree.

Keywords: India; government policy; entrepreneurship; micro; small and medium enterprises; employment.

1
PhD Scholar in Business Administration, Department of Commerce and Research Center, University of Pune, India,
[email protected] : Ph: 00919890581970 (Corresponding Author)
2
MBA - Marketing Management, University of Pune, India, [email protected]
3
Master of Information Technology Management, University of Sistan & Bluchestan, Iran, [email protected]
4
University of Sistan and Baluchestan, School of management and accounting, Department of Management, Zahedan, Iran,
[email protected] - Mailing Address: Flat No.305, Legend, Palace Orchard, Undri, Kondhwa, Pune, India- 411028

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

Introduction Aim of study

In the present world of globalization, Micro, small and me- • This paper starts with a literature review regarding the
dium enterprises (MSMEs) are key actors in almost every definition of MSME in various countries and also the new
production system. In all continents they represent the definition of MSME in India
largest number of firms, and also contribute significantly • The second part will focus on the Government policies
to both employment generation and Gross Domestic Pro- for the MSME sector in India
duct (GDP) formation (AESMEC, 1998; Peres and Stum- • The third part and the most important part will deal
po, 2002). Micro, Small and Medium Enterprises (MSMEs), with the Role and performance of Entrepreneurship on
including khadi and village/rural enterprises constitute an the MSMEs sector in India and Contribution of MSME in
important segment of Indian economy in terms of their Employment Generation
contribution to country’s industrial production, exports,
employment and creation of an entrepreneurial base Research Approach
(MSME, 2008-09). As a legacy of Gandhian philosophy in
India, since independence the micro, small and medium In an attempt to learn as much as possible about the Go-
sectors have played an important role in the economic vernment policy and the growth of entrepreneurship, we
development of the country. Especially since the com- conducted in depth research to obtain most of the ne-
mencement of planning for economic growth, adequate cessary data. Through content analysis of historical data
emphasis has been given on the development of MSMEs analysis, firm disclosure data, company case studies, and
by policy makers, politicians and the intelligentsia alike sector reports, we gained much valuable information per-
(Gupta, 2006; Banerjee, 2005). The multi pronged objec- taining to our research. We used secondary sources of
tives of increased industrial output, generation of emplo- data collection such as the Internet, websites, books and
yment, dispersal of industrial activities across regions and magazines etc.
development of entrepreneurship has been successfully
met through the propagation of MSMEs. Entrepreneurs- Definition of Micro, Small and medium
hip is vibrant assertion of the facts that individual can be enterprises in various countries
developed, then outlook can be changed and their ideas
can be converted into action though on organized and The lack of a formal means of defining an MSME has lead
systematic program for entrepreneurs. It was also felt to diverse approaches by Governments and other orga-
that systematic training can be given a better output and nizations in different countries. Defining the SME sector,
attracting people for taking up business venture can chan- and particularly small businesses, is fairly difficult, as the-
ge economic scenario. re are differences in what is appropriate to describe as
“small” in different industries. The main criteria that pre-
dominate to define the MSMEs sector are the number
of employees, turnover and the balance sheet total. The
new European Union (EU) definition for micro-, small-
and medium-sized enterprises is shown in Table 1.

Criterion Micro Small Medium

Maximum number of employees 9 49 250
Maximum annual turnover 2 million Euros 10 million Euros 50 million Euros

Maximum annual balance sheet total 2 million Euros 5 million Euros 43 million Euros

Table 1: the new European Union definitions for micro-, small- and medium-sized enterprises/ Source: (SME definition User guide and
model declaration, 2003)

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 67
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

The Australian Bureau of Statistics (ABS) defining a small thresholds vary for the different activity classifications.
business as an enterprise employing up to 99 people. A This is also the case in Korea, where MSMEs are classified
medium enterprise employs between 100 and 199 indivi- by the number of permanent workers, capital and sales. In
duals and organizations with more than 200 employees the US the number of employees is used to identify small
are considered large businesses. The ABS definition has businesses in most sectors, except in the non goods pro-
become the de-facto definition of SMEs in Australia. In ducing sectors where annual receipts are the criteria.
2001, more than 1.2 million organizations fell into this The statistical definition is generally based on the number
category according to the ABS (Macgregor, et al. 2007). of employees or takes account of a mix of the number of
persons employed and turnover. However, a number of
The United States bases its definition on the position of countries do not differentiate SME statistics collection from
the organization within the overall marketplace. Accor- other statistics; this is the case, for instance, in Denmark,
ding to the United States Small Business Administration Germany, New Zealand and the US. Norway uses the num-
(SBA), Section 3 of the Small Business Act of 1953 defines ber of employees together with the independence criteria.
an SME as “one which is independently owned and ope-
rated and which is not dominant in its field of operation.” Finally, a simplified definition, based on the number of em-
The SBA defines different size standards for each indus- ployees, is used in France and Finland in addition to the
try in the USA. More than 99% of all businesses in Swe- EU recommendation (Lindner, 2005).
den are classified as small to medium enterprises (SMEs),
which means they employ less than 250 people. Of those, Enterprise in India is broadly classified into two categories:
94% are micro businesses with less than 10 employees
(MIEC, 2003). 1- Manufacturing and
2- those engaged in providing/rendering of services.
Some countries tend not to make a distinction between
legal and statistical definitions. This is the case for Ca- The Graph describes the composition of the Micro, Small&
nada, Greece, Portugal, Mexico and the Slovak Republic. Medium Enterprises in India. This Graph also highlights
The definition can be based on a threshold in revenue, the decomposition of MSME units based on nature of ac-
like it is the case in Canada, it can be based on number of tivity. In the sector as a whole, about 33 percent of en-
employees, as in the UK, or it can combine the number of terprises are engaged in services sector and a majority of
employees and turnover for legal and statistical purposes enterprises are in the manufacturing space (67 percent).
like in Portugal. The Slovak Republic, Mexico and Greece
use the number of employees as criterion.

In most EU countries, there is a distinction between the

legal definition and the statistical definition. The legal de-
finition, based on EU recommendation number 2003/361/
EC takes account of the number of employees, annual tur-
nover, annual balance sheet and independence. In some
cases the monetary thresholds have been adapted (Italy,
Hungary and Moldova). Some EU countries do not have
a commonly accepted legal and administrative definition;
this is the case for the Netherlands and Spain. Similarly,
in New Zealand there is no common administrative de-
finition; turnover is used by some, taxes on employee
salaries and wages by other administrations. In Brazil, !
different criteria and thresholds are used for different Data source: Annual Reports, Ministry of Micro, Small and
legal, fiscal and international trade purposes. Denmark, Medium Enterprises, Government of India (2009-10)
France, Norway and Switzerland do not use a legal de-
finition. In Japan, the regular workforce, together with
capital or investment, determine the size class, however,

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 68
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

There was a longstanding demand from entrepreneurs, Under the MSMED Act 2006, the earlier, rather limited,
small industry associations and related stakeholders for concept of ‘Industries’ has been widened to that of ‘En-
a single comprehensive legislation. The” Micro, Small and terprises’. Enterprises have been classified broadly into
Medium Enterprises Development (MSMED) Act, 2006” two categories, namely enterprises engaged in the manu-
is the first Act for micro, small and medium enterprises facture/production of goods pertaining to any industry;
which, inter alia, provides for establishment of a statutory & enterprises engaged in providing/rendering of services.
National Board for Micro, Small and Medium Enterprises, Enterprises have been defined in terms of investment in
filing of memoranda, measures for promotion, develop- plant and machinery/ equipment (excluding land & buil-
ment and enhancement of competitiveness of micro, small ding) as below:
and medium enterprises, credit facilities, procurement
preference and provisions related to delayed payments to
micro and small enterprises. The medium sector has been
defined for the first time in India and Micro enterprises
have been defined for the first time in this Act.

Investment ceiling for plant, machinery or fixed assets (land & building)

Classification Manufacturing enterprises Service enterprises

Micro Up to Rs. 2.5 million (US$ 50,000) Up to 1 million Rs. ($ 20,000)

Small Between 2.5 & 10 million Rs ($ 50,000 & $ Up to 1 million Rs. ($ 20,000)
0.20 million)

Medium Not defined before 2006 Not defined before 2006

!
Table 2-1: Definitions before 2 October 2006 (Ravi, 2009)

Investment ceiling for plant, machinery or equipments

Classification Manufacturing Enterprises* Service Enterprises**

Micro Up to Rs. 2.5 million (US$ 50,000) Up to Rs. 1 million (US$ 20,000)

Small Rs. 2.5 to Rs. 50 million / (US$ 1 million) Rs 1 to 20 million Rs (US$ 40,00,000)

Medium Rs.50 million to Rs.100 million (US$ 2 Rs 20 to 50 million Rs (US$ 1 million)

million)
!
Table 2-2: Definitions after 2 October 2006 (Ghatak, 2010)
* Investment limit in Plant & Machinery ** Investment limit in equipments *** Rs 50 = 1 USD

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 69
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

Government policies for the MSME sector in

India: an historical view

The evolution of the policy framework and support mea- were created to accelerate finance and technical services
sures of the Government can be broadly grouped into the to the sector. A Delayed Payment Act was enacted to fa-
following three periods: cilitate prompt payment of dues to MSEs and an industrial
infrastructure development (IID) scheme was launched to
1948-1991: set mini industrial estates for small industries.
In all the policy resolutions from 1948 to 1991, recogni-
tion was given to the micro and small enterprises, termed 1999 onwards:
as an effective tool to expand employment opportunities, The ministry of MSME came into being from 1999 to
help ensure equitable distribution of the national income provide focused attention to the development and pro-
and facilitate effective mobilization of private sector re- motion of the sector. The new policy package announced
source of capital and skills. The micro, small and medium in august 2000 sought to address the persisting problems
enterprises development organization [earlier known as relating to credit, infrastructure, technology and marke-
small industries development organization (SIDO)] was ting more effectively. A credit liked capital subsidy scheme
set up in 1954 as an apex body for sustained and organi- was launched to encourage technology up gradation in the
zed growth of micro, small and medium enterprises. Wi- MSE sector and a credit guarantee scheme was started to
thin next two years, the national small industries corpo- provide collateral – free loans to micro and small entre-
ration, the Khadi and Village Industries Commission and preneurs, particularly the first generation entrepreneurs.
the Coir Board were also set up. The era provided the su- The exemption limit for relief from payment of central
pportive measures that were required to nurture MSEs, excise duty was raised to Rs. 1 crore ($0.25 million) and
in the form of reservation of items for their exclusive ma- a market development assistance scheme for MSEs was
nufacture, access to bank credit on priority Sector Len- introduced. At the same time, consolations were held
ding Programs of commercial banks, excise exemption, with stakeholders and the list of products reserved for
reservation under the Government Purchase Programs production in the MSE sector was gradually reduced each
and 15% price performance in purchases, infrastructure year. In 2006, the long- awaited enactment for this sector
development and establishment of institutes for entre- finally became a reality with the passage of the micro,
preneurial and skill development. MSME- Development small and medium enterprises act. In march 2007, a third
Institutes [earlier known as Small Industries service Ins- package for the promotion micro and small enterprises
titute (SISI)] were set up all over India to train youth in was announced which comprises the proposals/schemes
skills/entrepreneurship and Tool Rooms were established having direct impact on the promotion and development
with German and Danish assistance for providing techni- of the micro and small enterprises , particularly in view
cal services essential to MSEs as also for skill – training. of the fast changing economic environment, wherein to
At the State level, District Industries Centers were set up be competitive is the key of success (MSMEs in India an
all over the country. overview, 2007).

1991- 1999: Some of the recent policy reforms for the MSME sector
The new policy for small, tiny and village enterprise of in India are as follows:
august 1991 laid the framework for Government support •National Manufacturing Competitiveness Council
in the context of Liberalization, which sought to replace (NMCC) was set up to energies and sustains the growth of
protection with competitiveness to infuse more vitality the manufacturing industry. New Promotional Package for
and growth to MSEs in the face of foreign competition MSMEs, and focus on accelerating development of clusters.
and open market. Supportive measures concentrated on • A single comprehensive legislation for the promotion,
improving infrastructure, technology and quality. Testing development and enhancement of the competitiveness of
centers were set up for quality certification and new tool the MSME sector - Micro, Small and Medium Enterprises
rooms as well as sub-contracting exchange were establis- Development (MSMED) Act, 2006 came into effect from
hed. The small industries development bank of India (SID- October 2006.
BI) and a technology development and modernization fund • Revised strategy of lending and introduction of newer

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 70
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

measures, such as the scheme to establish Small Enter- Role and performance of Entrepreneurship on
prises Financial Centres (SEFC) for strategic alliance bet- the MSMEs sector in India
ween branches of banks and SIDBI located in 388 clusters
identified by ministry of SSI. Promotion of entrepreneurship among MSMEs is widely
• Promotion and financial support for Credit-cum-Perfor- handled through a combination of public- and public-pri-
mance Rating in MSME sector in India, to facilitate greater vate sector organizations in different countries. Entrepre-
and easier flow of credit from the banking sector to SMEs. neurship development within MSMEs has been made part
• The National Commission for Enterprises in the Unor- of the development Action Plan at the national level by
ganized Sector (NCEUS) has been set up as an advisory India also (Asian Productivity Organization, 2007). Des-
body and a watchdog for the informal sector to bring pite the definitional differences, it is commonly agreed
about improvement in the productivity of these enterpri- that entrepreneurship is a driving force behind MSMEs.
ses for generation of large scale employment opportuni- Available evidence suggests that entrepreneurship can
ties on a sustainable basis, particularly in the rural areas. contribute significantly to achieving key policy objectives.
• Facilitation of technology transfer through the Techno- Entrepreneurship is an effective means of achieving cer-
logy Bureau for Small Enterprises (TBSE) tain policy objectives, but not all, and at least in the short
• Accelerating initiatives to address various developmen- term, there are trade offs which have to be recognized.
tal needs for MSMEs in the 11th Five Year Plan. Entrepreneurs are the driving force behind MSMEs, and
• Guarantee coverage under Credit Guarantee Fund for MSMEs play an important structural and dynamic role in
Small Enterprises expanded substantially all economies. The main areas where increased levels of
• Credit Linked Capital Subsidy Scheme for Technological entrepreneurial activity can contribute significantly to
Up gradation. specific policy outcomes are:
• New legislation on Limited Liability Partnerships being i) Create opportunities -Job creation, careers, and new
worked on. products/services
• Merger of the Ministry of SSI with the Ministry of ARI ( ii) Economic growth, productivity improvement, and in-
India at 60 & beyond, 2007). novation.
• Package for Promotion of Micro and Small Enterprises iii) Poverty alleviation and social opportunities.
(MSEs): in order to assist the MSEs in fully harnessing their iv) Create new customers and open up new markets.
potential by enhancing their competitiveness to face the
challenges of stiff competition and in availing opportunities Over the last two decades, there has been a shift toward
generated by trade liberalization, the Government in its encouraging greater “social entrepreneurship” as a means
NCMP declared that a “major promotional package” will of poverty alleviation, increasing employment opportuni-
be announced for this segment to provide full support in ties and empowerment of disadvantaged or under-repre-
the areas of credit, technological up-gradation, marketing sented groups, particularly in rural areas. Awareness of
and infrastructure up-gradation in industrial infrastructure. the potential which entrepreneurship may offer for pro-
• Filing of Entrepreneurs’ Memorandum by Enterprises: In moting social inclusion is growing worldwide. Much of this
pursuance of Section 8 of the MSMED Act, 2006, an enti- emphasis placed by Governments is focused on assisting
rely new process of filing of Entrepreneurs’ Memorandum target groups to start up micro enterprises, usually by
(EM) by Micro, Small and Medium Enterprises (MSMEs) means of the provision of low cost micro finance. These
has been put in place. policies implemented in many developing economies have
• Steps Taken to Discourage Delayed Payments to MSEs been shown to be remarkably effective by some criteria,
(MSME, 2007-08). and are well illustrated by the success of the Grameen
• Notification for Authority for receiving Memoranda Bank. Micro enterprises are important in their own right,
for Micro and Small Enterprises (MSEs): All States & UTs for two closely interrelated reasons:
except Meghalaya and Mizoram have issued the Notifi- • In the longer term, they can provide a seed bed for
cations nominating authority for receiving Entrepreneurs entrepreneurship, and for the corporate growth and eco-
Memorandum for MSEs (MSME, 2009-10). nomic renewal needed to maintain international competi-
tiveness. Almost all MSMEs start as a micro enterprise, in
that they start as a concept developed by a single person
or a few people.

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 71
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

• In the immediate term, they can provide an alternative nizations to foster entrepreneurship and self-employing
to unemployment, and they can provide a means of alle- using S&T with special focus on backward areas as well.
viating poverty and social disparities. Most micro enter- 4. To act as a policy advisory body with regard to entre-
prises are non-employing, but they create a job (even if it preneurship.
is only part time) for the entrepreneur (Yadav,2007).
In this regard, The National Science & Technology Entre- The Programmes have created awareness among S&T
preneurship Development Board (NSTEDB), established persons to take to entrepreneurship as a career. The aca-
in 1982 by the Government of India under the aegis of demics and researchers have started taking a keen inter-
Department of Science & Technology, is an institutional est in such socially relevant roles and have engaged them-
mechanism to help promote knowledge driven and te- selves in several programmes. About 100 organizations,
chnology intensive enterprises. The Board, having repre- most of which are academic institutions and voluntary
sentations from socio-economic and scientific Ministries/ agencies, were drafted in the task of entrepreneurship
Departments, aims to convert “job-seekers” into “job- development and employment generation (Yadav, 2007).
generators” through Science & Technology (S&T) inter- It can be deciphered from the following graph that the
ventions (Das, 2007). Objectives are below: number of persons employed in MSMEs has increased gra-
1. To promote and develop high-end entrepreneurship dually from 22.9 million in 1999-00 to 29.5 million in 2005-
for S&T manpower as well as self-employment by utilizing 06 and jumped suddenly from 29.5 million in 2005-06 to
S&T infrastructure and by using S&T methods. 59.5 million in 2006-07 then steady rise from 59.5 million
2. To facilitate and conduct various informational services in 2006-07 to 65.9 million in 2008-09. This indicates that
relating to promotion of entrepreneurship. The Government has followed a supportive policy towards
3. To network agencies of the support system, academic Micro, Small and Medium Enterprises, aimed at facilita-
institutions and Research & Development (R&D) orga- ting their growth and enhancing their competitiveness.

Number of Employment
Number in MSME
of Employment Sector
in MSME in India
Sector in India
Number of Employment in MSME Sector in India
70 70
65.9 65.9
70 62.6 62.6
60 60 59.5 59.5 65.9
62.6
60 59.5
50 50
No. in Million
in Million

50
40 40
in Million

40
30 30 29.5 29.5
27.1 27.128.3 28.3
No.No.

24.9 24.926 26
30 22.9 22.923.9 23.9 29.5
20 27.1 28.3
20 24.9 26
22.9 23.9
20
10 10
10
0 0
1999-1999-
2000-2000-
2001-2001-
2002-2002-
2003-2003-
2004-2004-
2005-2005-
2006-2006-
2007-2007-
2008-2008-
0
00 00 01 01 02 02 03 03 04 04 05 05 06 06 07 07 08 08 09 09
1999- 2000- 2001- 2002- 2003- 2004- 2005- 2006- 2007- 2008-
00 01 02 03 Year04Year05 06 07 08 09

Graph 2: Number of employment in MSME sector in India/ Year *The data for the period upto 2005-06 is only for
small scale industries (SSI). Subsequent to 2005-06, data with reference to micro, small and medium enterprises
are being reflected.

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 72
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

MSMEs enterprises in India contribute to employment ge- for Entrepreneurship and Small Business Development
neration by creating jobs to skilled and unskilled workers. (NIESBUD), NOIDA, (UP). Further, the Ministry has been
The above graph illustrates clearly the growth of micro, implementing [in addition to the schemes operating by
small and medium enterprises in India, which has a direct the Office of the Development Commissioner (MSME)],
effect on growth in employment. an important scheme, namely, Scheme for Assistance to
Training Institutions, which has been modified recently.
Government policy toward employment The main objectives of the scheme are development of
generation and entrepreneurship promotion indigenous entrepreneurship from all walks of life for
in MSMEs developing new micro and small enterprises, enlarging the
entrepreneurial base and encouraging self-employment in
Entrepreneurship development and training is, thus, one rural as well as urban areas, by providing training to first
of the key elements for development of micro, small generation entrepreneurs and assisting them in setting up
and medium enterprises (MSMEs), particularly, the first of enterprises.09/10
generation entrepreneurs. To undertake this task on Indian Micro Small and Medium Enterprises (MSMEs) con-
regular basis, the Ministry has set up three national-level tribute significantly to the national priorities of employ-
Entrepreneurship Development Institutes (EDIs). These ment generation, entrepreneurship promotion, backward
are the National Institute for Micro, Small and Medium area development and wealth distribution. The number
Enterprises (NI-MSME), Hyderabad; the Indian Institute of and percentage of employment generation by Indian re-
Entrepreneurship (IIE), Guwahati and the National Institute gistered MSMEs are as under:

Num ber of Em ploym ent generation by MSME IN 2009-10 Employment by type of MSME enterprises

Medium, Services,
633339, 7% 1219343, 13%

Sm all,
2209485, 24%

Micro,
6360840, 69%
Manufacturing
, 7984321, 87%

Graph 3 & 4: number of employment generation by MSME sector/ Data source: Annual Reports, Ministry of Micro, Small and
Medium Enterprises, Government of India (2009-10)

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 73
 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

Arguably, micro and small industries are the most likely Conclusion
candidates for leading India’s manufacturing growth in the
coming decades. They can, provided the right environ- The early history of entrepreneurship in India reflects
ment exists, lead both output and employment growth. from the culture, customs and tradition of the India
The contribution of the Micro, Small and medium enter- people. To process of entrepreneurship therefore passed
prises to the economic growth of a nation is well recogni- through the potential roots of the society and all those
zed. In developing countries, as some authors argue (Leu- who accepted entrepreneurial role had the cultural herita-
tkenhorst, 2004) the contribution of MSME’s towards ge of trade and business. On the other hand, Micro, Small
employment generation is significant because they and Medium Enterprises are a critical economic factor in
• tend to use more labor intensive production processes India. They make up a majority of the domestic business
than large enterprises, boosting employment and leading transactions and at the same time play an important role
to more equitable income distribution. in international trade. they have emerged as a vibrant and
• Provide livelihood opportunities through simple, dynamic component of the economy by virtue of their
value adding processing activities in agriculturally based significant contribution to GDP, industrial production
economies; and exports. However, the most important contribution
• Nurture entrepreneurship; and of this sector is towards employment generation which
• Support the building up of systemic productive capacities is second only to agriculture. The experience of recent
and the creation of resilient economic systems, through years shows that while employment in agriculture sector
linkages between small and large enterprises. has been declining, large industries are also experiencing
jobless growth. In such a situation, the main responsibility
Micro, Small and Medium Enterprises, have for long re- for job creation rests with unorganized sector including
mained an integral part of businesses in India. In fact, small and medium enterprises and the service sector.
globally too, be it the developed nations like the US and Considering its potential and ability, the MSMEs sector
UK or the developing nations like Malaysia and Indone- has been assigned a target of 12 per cent annual growth
sia, MSMEs have been recognized as a vital component of and additional employment of 4.4 million persons.
the domestic economy (Sisodiya, 2006). The below table It has been observed that in India a large number of micro,
shows the total number of working MSMEs in India with small and medium enterprises (1,035,102 out of 1,552,492)
reference year of 2006-07: concentrate on manufacturing sector. The micro, small
and medium enterprises sector contributes significantly
to the manufacturing output, employment and exports of
Type Registered Unregistered Total the country. It is estimated that in terms of value, the sec-
tor accounts for about 45 per cent of the manufacturing
Manufacturing 1035102 6418294 7453396
output and 40 per cent of the total exports of the coun-
Services 517390 18130011 18647401 try. The sector is estimated to employ about 65.9 million
persons in over 28.5 million units throughout the country.
Total 1552492 24548305 26100797 Further, this sector has consistently registered a higher
growth rate than the rest of the industrial sector. There
!
Table 3: Total number of working MSMEs in India/ Data are over 6000 products ranging from traditional to high-
source: Annual Reports, Ministry of Micro, Small and Medium tech items, which are being manufactured by the MSMEs
Enterprises, Government of India (2009-10) in India. It is well known that the MSME sector provides
the maximum opportunities for both self-employment and
jobs after agriculture sector. We also founds in the past
record of MSME development that, those countries have
The Government of India since 1951 has encouraged and succeeded in achieving higher growth of MSME, who have
supported the SME’s through its various policy initiatives. given much more emphases on Entrepreneurship Deve-
Since 2005, The Government of India has identified 3,000 lopment Program (EDP). Consistently they are trying to
SME clusters of artisan-specific, village and small enterpri- accumulate optimum utilization of their resources in this
ses in the country and has taken up 1,150 such clusters for field. Through the EDP, they have earned a very significant
intervention and improvement. achievement to reach in to their development goal.

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 J. Technol. Manag Innov. 2011,Volume 6, Issue 1

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Journal of Technology Management & Innovation © Universidad Alberto Hurtado, Facultad de Economía y Negocios 76