Microbusinesses play a crucial role in the Indian economy. They are the backbone of job creation, economic growth, and diversity. In this blog, we will explore the definition of micro-businesses, their significance in the economy, their role as the backbone of the economy, the growth they have experienced in recent years, and the government support and initiatives available for their success.
By understanding the importance of microbusinesses, we can appreciate their contribution to the Indian economy and the opportunities they provide for individuals and communities. In this blog, we’ll go in-depth on microbusinesses and their significance to the Indian economy.
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The Meaning of the Term “Microbusiness” and Its Role in Economic Growth
A micro business is a small enterprise that typically has fewer than 10 employees and a turnover of less than INR 5 crore. Microbusinesses play a vital role in the Indian economy, accounting for over 90% of all businesses and employing over half of the workforce. Microbusinesses are also essential to local economies, providing jobs, creating economic opportunities, and contributing to the unique character and vitality of a community.
In recent years, micro-businesses in India have experienced exponential growth. According to data from the Ministry of Micro, Small, and Medium Enterprises (MSME), these enterprises contribute significantly to the country’s GDP and employ millions. The growth is evident in the increasing number of micro businesses registered and the expanding range of sectors they operate in.
A Brief Explanation of the Role of Micro Businesses
Microbusinesses play a vital role in the Indian economy, accounting for over 90% of all businesses and employing over half of the workforce.
According to the latest data from the Ministry of Micro, Small, and Medium Enterprises, there are approximately 63 million microbusinesses in India, accounting for 95% of all businesses in the country.
These micro businesses employ over 120 million people, representing more than 50% of the total workforce. Microbusinesses in India are often involved in sectors such as agriculture, handicrafts, and small-scale manufacturing. They not only provide essential products and services to local communities but also play a crucial role in preserving traditional crafts and promoting cultural heritage. Additionally, microbusinesses often create employment opportunities in rural areas, helping to reduce unemployment rates and alleviate poverty.
Studies have shown that micro-businesses contribute significantly to the Indian GDP, accounting for approximately 30% of the total. Furthermore, micro-businesses often serve as catalysts for entrepreneurial endeavour and innovation, providing opportunities for individuals to start their businesses and contribute to economic growth. Additionally, the presence of micro-businesses in local communities can lead to increased economic activity, as they tend to source goods and services locally, supporting other small businesses in the area.
The Growth of Micro Businesses
India’s economy relies heavily on its micro-businesses. Small businesses, or “microbusinesses,” are vital to the health of their surrounding communities because they contribute to the local economy by employing locals, generating new opportunities for commerce, and enhancing the area’s distinct identity and sense of vitality. A few ways in which micro businesses boost regional economies are:
- micro businesses are a major source of new job creation
micro businesses create demand for goods and services from other businesses in the community. This helps to support other businesses and creates a multiplier effect.
Microbusinesses often employ people from the local community. This helps to reduce poverty and inequality.
- Micro businesses have experienced rapid growth in recent years
According to the Ministry of Micro, Small, and Medium Enterprises (MSME), the number of micro-enterprises in India has increased from 5.11 crore in 2015-16 to 6.34 crore in 2020-21. This represents a growth of over 24% in just five years.
There are many examples of successful micro businesses in India that have thrived despite economic challenges. For example, Amul, a dairy cooperative that started in 1946, is now one of the largest dairy cooperatives in the world. Over 3.6 million milk producers own Amul, and it employs over 100,000 people.
Another example is Zomato, a food delivery company that was founded in 2008. Zomato is now one of the largest food delivery companies in the world, with operations in over 24 countries. Zomato employs over 40,000 people and provides a platform for over 2 million restaurants to reach their customers.
Microbusinesses are also important to the flexible nature of the economy and are more agile and adaptable than larger businesses. This allows us to weather economic downturns more effectively.
The Role of Small Businesses in Economic Growth
Microbusinesses not only contribute to economic growth but also play a significant role in sustainable development. They help preserve local culture and heritage by promoting traditional crafts and skills. Additionally, micro-businesses often provide employment opportunities for marginalised communities, empowering them and reducing inequality.
Many businesses also prioritise environmental sustainability by adopting eco-friendly practices and promoting local and organic products. The provision of employment, generation of economic prospects, and enhancement of the distinctiveness and liveliness of a community are among the contributions made by these entities. There are several significant ways in which micro enterprises contribute to the betterment of local communities, such as:
- Job creation: Micro businesses are a major source of job creation in local communities. They employ a significant share of the workforce, and they often provide opportunities for people who may be struggling to find jobs in the traditional economy.
- Economic growth: Micro businesses contribute to economic growth by generating revenue and spending money on local goods and services. This helps to support other businesses in the community and creates a multiplier effect.
- Diversity and innovation: Micro businesses are often owned and operated by people from diverse backgrounds. They also tend to be more innovative than larger businesses, as they are more agile and responsive to changing market conditions.
- Community engagement: Micro businesses are often actively involved in their local communities. They sponsor events, donate to charities, and support other local businesses. This helps to create a sense of community and make local communities more vibrant and livable.
- Preserving Local Culture and Heritage: Micro businesses often celebrate and preserve the rich cultural heritage of their regions. Artisans, traditional craftsmen, and local food producers contribute to the preservation of customs, skills, and traditions that have been passed down through generations.
Furthermore, micro-businesses contribute significantly to the preservation of the distinct character and diversity of local communities, in addition to their economic and social advantages. Small businesses frequently provide goods and services that are not readily accessible through larger corporate entities, thereby contributing to the preservation and promotion of local culture and heritage.
Government Support and Initiatives for the Growth of Businesses
The Indian government has recognized the integral role played by micro-businesses in the country’s economic perspective. As a result, several programs and policies have been introduced to support and nurture these enterprises.
The Indian government has implemented several initiatives and programs to support micro businesses. One such program is the Pradhan Mantri Mudra Yojana, which provides loans to micro businesses at affordable interest rates. Additionally, the Atmanirbhar Bharat Abhiyan introduced several measures to support micro-businesses during the COVID-19 pandemic, including the provision of collateral-free loans and the extension of credit guarantee schemes.
The government’s initiatives play a significant role in providing financial support and stability to businesses, despite challenges such as limited access to credit, finance, and markets. These initiatives encompass a wide range of areas, including financial assistance, skill development, market access, and regulatory reforms. Some of the key government initiatives include:
- Pradhan Mantri Mudra Yojana (PMMY): The Pradhan Mantri MUDRA Yojana provides financial support to micro and small enterprises through loans, helping them access the capital needed for growth and expansion. The scheme provides collateral-free loans of up to INR 10 lakh to micro-enterprises. Since its launch in 2015, PMMY has sanctioned over 34 crore loans worth over INR 18 lakh crore.
- Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE): CGTMSE provides credit guarantees to banks and financial institutions for loans extended to micro and small enterprises. This helps reduce the risk for lenders and makes it easier for micro businesses to access credit.
- Startup India: The Startup India initiative encourages entrepreneurship by simplifying regulations, offering tax incentives, and providing funding opportunities to startups and micro businesses.
- Micro Units Development and Refinance Agency (MUDRA): MUDRA is a non-banking financial institution that provides refinance support to banks and microfinance institutions for lending to micro-enterprises. MUDRA has played a key role in increasing the flow of credit to micro businesses.
- Stand-Up India: This scheme focuses on empowering women and marginalized communities by providing loans for setting up greenfield enterprises, thereby promoting inclusivity in the micro business sector.
- Digital India: The Digital India campaign has enhanced the digital infrastructure, enabling micro-businesses to leverage technology for marketing, sales, and operations.
- Make in India: Make in India is a government initiative to promote manufacturing in India. The initiative has led to several policy reforms and incentives that have benefited micro-businesses, such as simplified labor regulations and easier access to land and infrastructure.
The Role of Technology in the Growth of Micro Businesses
Technological advancements have played a pivotal role in driving the growth and proliferation of small and local businesses in India. With the rapid growth of e-commerce platforms and the ever-evolving circumstances of digital advertising, microbusinesses now have an unprecedented chance to broaden their market reach.
This expansion goes beyond the boundaries of their local communities, allowing them to tap into their vast potential. By implementing this strategy, they have effectively grown the number of their consumers, drawing in a larger audience and expanding their reach.
For instance, a large number of craftspeople and artisans have begun selling their wares through online stores, which allows them to reach customers not only in the United States but also in other countries.
In addition, technology has enabled micro businesses to improve their operational efficiency by employing digital tools for inventory management, customer relationship management, and financial tracking. This has resulted in microbusinesses being able to compete more effectively with their larger counterparts.
Challenges Faced by Micro Businesses
Microbusinesses have grown significantly in India in recent years as an increasing number of people try their hands at starting and running their businesses. The government’s proactive initiatives and measures to support this vital part of the economy have contributed to this growth. Micro-businesses face many obstacles, including restricted access to capital, financing, and sales channels.
Microbusinesses are resilient and adaptable, but they are susceptible to new challenges. It is susceptible to difficulties as a result of technological advancements and the rise in global competition, particularly in industries that are becoming increasingly automated. Micro businesses face several challenges, including:
- Restrictions on movement and transportation: The COVID-19 pandemic has had a significant impact on micro-businesses in India. Many businesses have faced disruptions to their supply chains as restrictions on movement and transportation have made it difficult to source raw materials and deliver finished products. Additionally, the lockdown measures and social distancing guidelines have led to a loss of customers for businesses that rely on foot traffic and in-person sales.
- Limited access to credit and finance: Micro businesses often have difficulty obtaining loans and other forms of financing from banks and other financial institutions. Furthermore, the financial struggles faced by micro-businesses including reduced cash flow and difficulty accessing government relief programs, have put many businesses at risk of closure.
- Difficulty in competing with larger corporations and established businesses: Micro businesses often face competition from larger corporations and established businesses. These larger businesses may have more resources and economies of scale, which can give them an advantage in the marketplace.
- Struggles in navigating complex regulations and compliance requirements: Micro businesses often struggle to navigate complex regulations and compliance requirements. This can be time-consuming and costly, and it can divert resources away from other important business activities.
Notwithstanding these challenges, small and medium-sized businesses play an essential role in the Indian economy. Small businesses play a significant role in fostering employment opportunities and driving economic expansion, while also making valuable contributions to the distinctiveness and liveliness of the communities around them. Therefore, the government and other relevant entities must persist in offering assistance and enacting policy revisions that effectively tackle the distinct requirements and obstacles faced by microenterprises, thereby guaranteeing their long-term viability and ongoing contribution to the Indian economy.
How to Overcome the Challenges
Several strategies can be employed to assist micro businesses in conquering the obstacles they encounter. The aforementioned items include the following:
- Governments and financial institutions can facilitate micro businesses’ access to capital and financial resources by implementing initiatives like microfinance and loan guarantees.
- Governments can help micro businesses compete with larger corporations and established businesses, create and implement marketing and sales strategies, and enter new markets.
- Streamlining regulations and compliance requirements can help governments support microbusinesses. This will streamline microbusiness operations, saving money.
How does Make Vision Clear help in the entire process?
In the current decade, 30% of businesses are micro businesses, employing millions. They boost innovation, employment, and local economies. Make Vision Clear marketing and compliance services empower Indian micro businesses.
We provide tools, loans, grants, and support to help them achieve their objectives. Our expertise and support will help your business grow. Here at Make Vision Clear, we offer the following services to ensure the success of micro-businesses in the online world:
- Digital Marketing
- SEO Services
- Email Marketing
- Digital Advertising Services
- Content Marketing Services
- Web Design and Development
- Social Media Marketing
Micro businesses can benefit from digital marketing by increasing online visibility, customer acquisition, and reach. Micro businesses can compete in the digital world and achieve their goals by using digital marketing strategies like SEO, social media management, and online advertising.
Contact us today for a free consultation and let us support your micro business! In this consultation, we’ll evaluate your online presence, find areas to improve, and give you personalized recommendations to boost your digital marketing strategies. Get a free consultation for your micro business throughout.