Entrepreneurship Development in the Micro Small and Medium Enterprise Sector in India: A Policy Analysis

The MSME sector has often been termed the ‘engine of growth’ for developing economies. We begin with an overview of this sector in India and look at some recent trends which highlight the development and significance of this sector vis-à-vis the Indian economy. Over the last few years, there have been major policy changes at the federal and state level aimed at consolidating and developing this sector. This paper critically analyzes a few policy recommendations which have been commonly suggested to settle some of the ongoing debates in this sector which the MSME Development Act of 2006 has been unable to resolve. In the second part of this paper, we do an impact assessment of specific government policy interventions. The policies of interest are state outlays and subsidies targeted towards this sector. More specifically, we analyze the impact of total financial subsidies to the sector, total state investment in industrial parks and clusters aimed at this sector and the total state expenditure to support technology within the MSME sector. We do a state level analysis based on data from 1991 until 2002 and study some key outcomes of interest such as total number of units, total output, total employment and total exports from the MSME sector. Our main findings are that while specific policies that are aimed at the MSME sector have basically no significant impact on the growth of this sector, more general development policies such as expenditure on infrastructure and access to finance have significantly positive impact on growth of the MSME sector across states in India over the last 15 years.