Everything You Need to Know About Micro, Small and Medium Enterprises in Karnataka

Karnataka is one of the prominent economic states of India, with varied MSMEs working in the fields of manufacturing, information technology, and agriculture. As per a survey, Karnataka has the third largest number of startups across the globe.

Currently, Karnataka is at the boom in terms of startups and MSMEs, and the government is supporting them with the help of various initiatives. Across Karnataka, Bangalore alone has 4000+ small and medium-sized businesses.

In this blog, we’ve mentioned every essential thing regarding the MSMEs of Karnataka and all the efforts taken by the government. Without any delay, let’s begin the guide!!

Define Karnataka MSME sector growth

Karnataka is one of the best places in India to establish and grow any business. According to the Statista report, MSME (Micro, Small and Medium Enterprise) contribute nearly 27% and 42.6% to India’s GDP and overall exports. There are more than 8.5 lakh MSMEs present in the state that are providing employment to over 55 lakh people. Hence, MSME sectors in Karnataka play a vital role by contributing to the state’s economic growth, industrial development, employment generation, and fostering entrepreneurship.

In Karnataka, over the last five years, the government has invested almost Rs. 4 lakh crore in the growth and development of MSME sectors. It has been owed to varied government initiatives, favorable policies, access to resources, skilled manpower, and a lot more. It has led the Karnataka state to reach 5th position in the country in terms of industrial growth. Food processing, electronics, readymade garment manufacturing, automobile manufacturing, and chemical plants are the five top-notch industries in the MSMEs of Karnataka.

The state government is focusing on economic and industrial development with a progressive outlook, considering the evolving needs over the decades. Small and medium-sized businesses have to face varied challenges in today’s globalized world. Therefore, the government is coming up with several initiatives, subsidies and policies to support MSMEs with all the essential resources, including funds, training programs, and more. It helps small-scale businesses to become more competitive, foster innovation, and facilitate the integration of MSMEs across global value chains.

In recent years, the adoption of digital technologies and e-commerce platforms has revolutionized the entire business game, especially for small and medium-sized business owners. The Karnataka government is very well coping with new technological solutions and, in fact, is helping the business with the possible resources. According to an Economic Times survey, Karnataka state generates 10.4% of formal jobs across the country while contributing only 4.7% of the country’s population. Hence, the MSMEs are growing widely in Karnataka because of the significant efforts of their respective governments.

Top 6 MSME Loan Schemes in Karnataka

Here are six loan schemes provided by the Indian government for the growth and establishment of MSMEs across every state, including Karnataka. 

1. Pradhan Mantri Mudra Yojna (PMMY)

On 8th April 2015, our Honorable Prime Minister launched Pradhan Mantri Mudra Yojna to provide a loan of Rs. 10 lakhs to various non-corporate and non-farm small or micro-enterprises. MUDRA (Micro Units Development and Refinance Agency) is basically a non-banking financial company (NBFC) to support the growth and development of MSMEs.

In simple words, MUDRA provides finances to banks, microfinance institutions (MFIs), and NBFCs so that they can provide loans to micro units with loan requirements of up to Ra. 10 lakh. MSMEs have to approach commercial banks, small finance banks, MFIs, and NBFCs through the online UdayMitra portal.

The PMMY scheme has defined the loans under three main categories: Shishu, Kishore, and Tarun. MSMEs will be categorized under these schemes based on the stage of development or growth and funding requirements. For instance, the “Shishu” scheme offers loan amounts up to Rs. 50,000. The “Kishor” scheme offers loan amounts ranging from Rs. 50,000 to Rs. 5 lakhs. The “Tarun” scheme provides loan amounts ranging from Rs. 5 lakhs to Rs. 10 lakhs for micro units. 

2. Prime Minister’s Employment Generation Programme (PMEGP)

The Prime Minister’s Employment Generation Scheme was formed by merging two mainstream schemes: Prime Minister Rojgar Yojna (PMRY) and Rural Employment Generation Scheme (REGP). Under these schemes, the state government focuses on establishing more MSMEs in the non-farm sector to generate potential opportunities for unemployed youth and traditional artisans. Khadi and Village Industries Commission (KVIC) is mainly responsible for the execution part, as it functions as a nodal agency for this scheme at the national level.

However, at the state level, State KVIC Directorates, State Khadi and Village Industries Boards (KVIBs), District Industries Centers (DICs), and Banks are responsible for the implementation of this scheme. KVIC directly routes the designated government subsidies through the required banks to the entrepreneurs and beneficiaries into their bank accounts.

Any individual above 18 years who has an VIII standard pass is eligible to get a loan in the manufacturing sector that costs above Rs. 10 lakhs and the business/service sector that costs above Rs. 5 lakhs. This scheme sanctioned only new projects along with certain traditions, including Institutions registered under the Societies Registration Act of 1860, Self Help Groups, Charitable Trusts, and Production-based Co-operative Societies. Make sure that the maximum cost for the manufacturing and business/service sectors is Rs. 25 lakhs and Rs. 10 lakhs, respectively.

Here, the subsidiary rate for the beneficiary in the general category is 15% in urban areas and 25% in rural areas, while the subsidiary rate for the beneficiary in the special category is 25% in urban areas and 35% in rural areas. 

3. Credit Guarantee Trust Fund for Micro and Small Enterprises (CGT MSE)

The Ministry of Micro, Small and Medium Enterprises (MSMEs) and Small Industries Development Bank of India (SIDBI) has formed the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide the small and medium size industries with financial aid. It is free from any third-party guarantee or collateral.

Both new and existing enterprises fulfill the eligibility criteria of this scheme. You have to approach the banks, financial institutions, or Regional Rural Banks, eligible for getting assistance under this scheme. Under this scheme, 85%, 75%, and 50% guarantee coverage is provided for Micro Enterprise (uptown Rs. 5 lakh), others, and retail activity, respectively.

4. Credit Linked Capital Subsidy Scheme (CLCSS)

CLCSS is a scheme launched by the Indian government to advance technology in MSMEs. Under this scheme, potential micro and medium-sized businesses receive a 15% subsidy for any additional investment up to Rs. 1 crore for updating the company with new technology. It clearly refers to the induction of state-of-the-art or near-state-of-the-art technology.

MSMEs are required to approach 12 nodal banks to apply for this scheme, including SIDBI, SBI, BoB, PNB, BOI, NABARD, Andhra Bank, TIIC, SBBJ, Canara Bank, Indian Bank, and Corporation Bank. Any MSME has the right to apply for this scheme, but they must not be replacing the same technological equipment. Otherwise, they won’t be acceptable under the subsidy scheme. Only some specified sub-sectors or products have been approved for this scheme in order to enhance technological advancement. 

5. Equity Infusion for MSMEs through Funds of Funds

MSMEs are generally in shortage of equity, as Venture Capital (VC) or Private Equity (PE) easily offers early-stage fundings but not the growth stage fundings. Therefore, the Fund of Funds provides financial assistance to MSMEs that have growth potential and viability.

Hence, this scheme releases different types of funds for underserved MSMEs and caters to the growing needs of viable and growing businesses, with complete intervention of government. Every MSME is eligible to apply through the Investors Funds onboarded and register with the proposed Funds of Funds.

Through this scheme, the Indian government encourages and supports the Venture Capital and Private Equity firms to invest in the growing MSMEs. Moreover, the proposed fund of funds also encourages private sector investments in the MSME with a leverage of Rs. 50,000 crore. 

6. SIDBI Make In India Loan for Enterprise (SMILE)

SMILE is one of the governmental initiatives to promote the “Made in India” campaign by supporting the MSMEs. In this scheme, you’ll receive a soft loan in the quasi-equity. Moreover, businesses can also get a term loan here at relatively soft terms. It will help them to maintain the debt-equity ratio.

New enterprises working within the manufacturing and service sectors are eligible to participate in this scheme. Moreover, the existing enterprises that are on the verge of growth and expansion are also eligible to benefit from this scheme. It is generally used for modernization, technology upgradation, and other projects as far as business growth is concerned.

Smaller companies, within MSMEs, get more attention under this scheme. The minimum loan size is Rs. 10 lakh for equipment and finances and Rs. 25 lakh for other essentials. The repayment period is up to 10 years, including a moratorium of 36 months.

What is the process for MSME registration in Karnataka?

To register for MSME in Karnataka, you must require certain documentation listed below:

• Pan Card 
• Adhar Card 
• Incorporation Certificate 
• MOA of the company/business Objective 
• Investment in Plant and Machinery 
• Canceled cheque or bank statement in the name of proprietor, company, or LLP
• Utility bill 
• Number of employees in the company

Here’s the step-by-step process for MSME registration in Karnataka. 

Step 1: Evaluate Your Business 

First, you must define the category of your business from micro, small, and medium, based upon the investment criterias. Hence, you have to verify your eligibility at foremost and gather essential documents. 

Step 2: Udyam Registration 

Next, you are required to initiate your online registration process through the Udyam Portal. Submit certain details accurately, including PAN, GSTIN, and business address. 

Step 3: Submit Documentation  

Make sure that all of your documents are properly aligned. It includes the aadhar card of the proprietor or partners and business location proof. 

Step 4: Submit Your Application 

Finally, you have to submit your application with self-declaration, where you have to confirm the required compliances with eligibility criteria. After that, you can only wait for the confirmation of MSME registration Karnataka.

Also Read: MSME Registration in India: Procedure, Documents Required

Top 3 Industries for MSME in Karnataka

There are three major industries for MSMEs with greater potential for providing employment and contributing significantly to the state’s economy. Listed below are three major industries that are vital for the state’s growth. 

1. Electronics and IT Industry

Karnataka is one of the biggest producers of electronic manufacturing items, including consumer electronics, IT products, auto components, home appliances, and more. Karnataka government is providing the Electronics and IT Industry MSMEs with various incentives like tax benefits, subsidies, and loans. It allows businesses to get support for new projects. 

As per a report shared by the Karnataka government, IT industries have seen exceptional growth across the state over the past few years. Bengaluru, the capital city of Karnataka, is known as the Silicon Valley of India due to having 67,000 registered IT companies. It also has technological giants like Microsoft, IBM, Oracle, AWS and more.

Karnataka’s state government has implemented varied initiatives to boost the IT industries. Setting up IT-based parks, providing financial assistance to newly emerged startups, conducting events, and investing in research and development are some of the significant steps taken by the officials. This industry contributes 24% to Karnataka’s GDP, as per a survey conducted in 2023. All the initiatives taken by the state government have helped it to create a significant market presence.  

2. Automobile Industry

Karnataka is widely known as an auto innovation hub of India, as it consists of all the global companies, including Volvo, Mercedes (Daimler), Bosch, Toyota, Scania, and a lot more. This state is India’s 4th largest manufacturer of automobiles and contributes to 8.5% of the total national output. It is also home ground to Reva Mahindra and 45+ EV innovation startups. MSMEs highly support these giants and varied other smaller companies in terms of managing the components and services.

Plus, MSMEs also play a crucial role in the state’s automotive industry by helping it produce automotive components, parts, and accessories for various types of vehicles, including cars, motorcycles, trucks, and buses. They also help businesses to bring new technologies, improved efficiencies, and diverse employment opportunities. Hence, it helps the automotive industry by pushing it into the global competitive market and boosting the state’s economy. 

3. Textile and Apparel

The textile and apparel industry is highly flourishing in Karnataka state, as it is one of the leading producers of cotton and silk. It consists of various old spinning mills across the country. Governmental MSMEs have implemented numerous policies for the growth and welfare of business. For instance, the Karnataka Textile and Garment Policy has been executed with an investment outlay of INR 15,000 crore to generate employment for around 5,00,000 people within a five-year period from 2018 to 2023.

In Karnataka, there are a number of textile and apparel-based MSMEs that produce varied fabrics and garments. Fabrics include silk, cotton, wool, jute, and synthetic fiber, while garments include sarees, salwars, kameez, and kurtas. Moreover, home furnishings products like bed sheets, curtains, and cushion covers are also included in the production of MSMEs. All these productions are highly dependent on manual labor and small-scale machinery across the state.

5 Major Challenges faced by MSMEs in Karnataka

1. Lack of Access to Capital: Karnataka is a relatively underbanked state considering its neighboring ones. Hence, it negatively impacts their existing businesses by availing them with a lesser share of bank credit in comparison to their economic size, as many firms in MSME sectors are credit-constrained. For FY 2022-23, Karnataka’s share of loans sanctioned under CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprise) was INR 1 lakh crore, which is a huge amount, considering the past sanctions.

It is a clear indication that banks can provide credit to constrained firms if the government is ready to share the credit risk. Here, the state government must encourage the banks and NBFCs via the State Level Bankers Committee in India to financially assist the businesses affected by the Pandemic under (the Emergency Credit Line Guarantee Scheme) ECLGS. Plus, the government should also think about creating a credit-linked subsidy scheme to encourage borrowing to small and medium businesses within specified areas that face higher credit constraints.

2. Technical Updation: In the technological era, there is no end to improvement in order to grow and stay competitive. Therefore, all the MSMEs are required to implement the latest technical changes based on AI (Artificial Intelligence) and ML (Machine Learning). To adopt new updates, small businesses are required to install a heavy computer-based system within their premises, which will cost them a good amount of money. Moreover, learning new technological methods and software also requires you, as a business owner, to implement varied training programs.

3. Lack of Standardized Policies: India has a very low number of MSME policies, which results in inconsistent development in the MSME sector. It also doesn’t leave scope for development in the entrepreneurship promotion programs. Therefore, the Karnataka government is still required to focus on their MSMEs and develop some standardized policies, considering their growth and development. It is one of the major challenges faced by MSMEs in Karnataka that needs to be sorted out by the government.

4. Lack of Innovation: The majority of Karnataka-based MSMEs run their business using outdated technologies and don’t show any innovation. This sector has more enthusiastic entrepreneurs that can help the industry to adopt new technologies and business methods. Although implementing technologies comes with varied challenges, they are major contributors to the growth of any sector. Therefore, it is required for the MSMEs to get out of their comfort zone and adopt new and innovative measures to even compete with the larger firms.

5. Lack of Proper Management Practices: Every organization must have a productive workforce to be successful in the long-term game. This is where almost all the MSMEs lack. In simple words, you should implement effective management practices to boost the productivity of your business. As per RBI’s recent report, companies should implement training programs for learning management practices. You should opt for such programs based on your industry. It will create an enthusiastic and productive environment within your business. Here, the state government should take some initiatives and implement workshops and training programs to develop standard management practices, considering the modern technologies and methods.

Also Read: Unveiling the MSME challenges in India

Government Initiatives for MSMEs in Karnataka

As per the 2023 Asia News International report, the Karnataka government has recently initiated a plan to create integrated platforms that allow the state’s MSMEs (micro, small and medium enterprises) to access all the fintech platforms. This action taken by the state government may help in the growth of MSMEs by enabling them to access the UNLOCK KARNATAKA” (s) manufacturing potential. The state of Karnataka is popularly growing as a fintech hub, as this initiative will directly aid all the existing MSMEs in growing at their best by availing them of certain funds.

Success Stories of MSME Entrepreneurs in Karnataka

There are many successful stories of MSME entrepreneurs based in Karnataka. It can help you understand the different landscapes of small and medium-sized businesses and create your own story through these inspirations.

Listed below are X successful stories of MSME entrepreneurs: 

1. Sid Naidu: A story of a boy earning Rs 250 as a newspaper boy to launching a fashion production house

Source: https://yourstory.com/smbstory/from-earning-rs-250-a-month-to-launching-a-fashion-production-house-read-how-sid-naidu-found-success

In 2007, Sid Naidu, an eleven-year-old kid, lost his father and got the burden of his family. He used to distribute newspapers to support his family and earn Rs 250 monthly. His financial conditions were getting even worse. After completing his 10th standard, he started working as an office boy, earning around Rs 3,000 per month.

Though he was going through a tough time, his passion for the fashion industry never faded away. Moving from one job to multiple, he has created a network of varied stakeholders in the fashion industry. After a decade of hard work, he has decided to leverage his network and launch Sid Productions to deal with fashion shoots, model grooming, art direction, print ads, TV commercials, and a lot more.

Starting from a very small business, he achieved immense growth within just one year, registering a revenue of Rs 1.3 crore. He has never looked back since then. Now, those who used to degrade him for his conditions praise him for his immense success in the MSME sector.

2. Mama Hegde: From being an unhappy employee to starting his own ice-cream-based venture

Source: https://yourstory.com/smbstory/from-an-unhappy-employee-to-running-a-successful-business-this-entrepreneur-found-sweet-success-in-ice-cream-business

Mama Hegde, 35-year old woman, was a teacher of Kannada language in an NGO at a salary of Rs 6,000 per month. Getting out of the rat race, she has taken financial assistance from her husband and the government through the “Mudra Scheme” and initiated an ice cream parlor named Shree Nandan Creme Glacee with a total investment of Rs 10,00,000.

They offer a wide variety of cold delights in multiple flavors. The best-selling items here are Fruit ice cream, Italian Gelato, sundaes, and Shakes. This simple MSME initiation has taken her to a whole different league. Currently, she is managing 200 daily customers with a team of three people and generating a potential revenue of Rs 10-12 lakhs. 

3. Poojitha Prasad: Started a masala company to feed people with home-like food

Source: https://yourstory.com/smbstory/missing-home-food-deccan-diaries-traditional-masalas-have-got-you-covered

People living across India, due to work, studies, or any other reasons, generally miss the food at home. Here, Poojitha Prasad, aged 35 years, has found the opportunity to launch their masalas and make those people her paying customers. It started with spices for cooking South Indian food.

She launched the Deccan Diaries in Bangalore and started skiing in a wide variety of spiciest. He has also taken the help of his business partner Karthik Setloor (aged 37 years). It started with a Rs 2 lakh profit in its first year. The best thing is that this business has mainly given employment to women. She mainly focused on scaling the brand while sustaining the product quality.

These are some of the successful stories of MSME entrepreneurs in Karnataka. You can also create your own story by taking some governmental help and with your passion. Reading these stories will allow you to understand how normal people start a business, facing the hardships of their lives and success after a certain point of survival.

Impact of MSMEs on Karnataka’s economy

Micro, Small, and Medium Enterprises (MSMEs) are considered the backbone of Karnataka’s industrial sector. More than 8.5 lakh businesses operate in Karnataka and significantly contribute to the state’s economy.

Moreover, the MSMEs provide employment to 55+ lakh people across diverse sectors. The government encourages and supports such entrepreneurial programs so that they can boost the economy. These businesses also contribute to the state’s industrial output by working as a supply chain for larger industries, manufacturing essential components, and delivering services. Hence, this enhances the industrial base of Karnataka and sets up its position as a leading manufacturing hub.

The Karnataka government also supports these businesses by giving them access to capital and raw materials. In this way, businesses can streamline the registration process and get the required financial aid. It helps the MSMEs significantly contribute to and boost Karnataka’s economy.

Future of MSMEs in Karnataka Based Upon 2024

Micro, Small, and Medium Enterprises (MSMEs) in Karnataka have a positive impact on the environment. They generate more employment opportunities for the unemployed. Moreover, the government also promotes certain initiatives, including Make in India, Skill India, and Local Pe Vocal.

However, there are still varied emerging challenges for the MSMEs that prevent them from reaching their full potential. Listed below are certain significant challenges faced by small and medium-sized businesses:

• There are very limited funding options available for MSMEs. 

• They lack legal support and a regulatory environment. 

• Many MSMEs have lower working capital.  

• Prices of raw materials are also on the rise. 

• Large industries generally have delayed payments.

As per 2024 reports, the state government has initiated various programs, including “Make in India” and “Self-reliant India.” They play a crucial role in the development of MSMEs. Moreover, clear policies and regulatory reforms help businesses streamline all operations. Public-private partnerships are crucial for the overall future growth of the economy.

All the government and financial institutions help in enhancing the financial inclusion of small and medium businesses in 2024. Here, governmental officials have simplified the loan processes, offered varied financial literacy programs, and promoted alternative financing methods.

Currently, MSMEs are also adopting technological advancements to reach out to a larger audience base and stay competitive. It helps them to be updated with today’s up-to-date requirements. 23% of MSMEs are currently building their social media presence, 38% have a great focus on selling online, and 24% are focusing on digitizing their accounts and payment flow. Therefore, MSMEs have a bright future and full governmental support, considering today’s scenarios.

Also Read: Stay Ahead: MSMEs, Secure Your Future with the New Payment Rule

To Wrap Up!

MSMEs are one of the major contributors to the Karnataka economy. Even the government is supporting the newly emerging and existing businesses through various initiatives and policies. The electronics and IT Industry, Automotive Industry, and Textile and Apparel Industry are majorly found in the state. However, you can opt for any industry based on your interest and expertise. We hope this guide helps you know everything regarding the MSMEs in Karnataka.

Frequently Asked Questions (FAQs)

• What is the MSME subsidy scheme in Karnataka?

MSME subsidy scheme is designed by the government of India to provide financial aid to self-employment ventures. It also contributes to generating sustainable employment opportunities across the state.

• What is the 15 lakh subsidy scheme for MSMEs?

Under the MSME scheme, if a business has taken an institutional credit of up to Rs. 1 crore, then you can get a 15% subsidy. Simply put, it will allow you to get a 15 lakh subsidy cap for identified sectors, subsectors, and technologies.

• What are micro enterprises under the MSME category?

• Who clears the eligibility criteria for MSME?

Any proprietor, partnership firm, company, trust or society with an approximate investment of Rs. 50 crore can be applied for MSME registration. However, their annual turnover must be less than Rs. 250 crores. You should know that an individual can not register for MSME.

• What is the 25 lakh subsidy scheme?

Prime Minister’s Employment Generation Program (PMEGP) is one of the prominent government schemes for people who want to start a business and require a loan of up to Rs 25 lakhs. It is regulated by the government of India. You must clear eligibility criteria, gather documentation, and make online applications to apply for this scheme.

• Who is eligible for an MSME loan?

There are various profiles eligible for MSME loans. It includes self-employed professionals like company secretaries, chartered accountants, and practicing architects. It includes self-employed non-professionals (SENP) like traders, retailers, manufacturers, proprietors, and service providers.

• What is the turnover limit for micro-enterprises?

For an enterprise to be considered as micro, the investment in plant and machinery or other equipment should not exceed the limit of Rs 1 crore, and turnover must not exceed the limit of Rs 5 crore.

• Is GST mandatory for MSME registration?

GST is not mandatory for the MSME registration process. Instead, you will require the GST only when your business turnover exceeds the Rs. 40 lakh amount. After that, you have to pay taxes to the government.

• Which loan offers a 50% subsidy?

Udyogini Scheme offers a 50% subsidy for the loan amount ranging from Rs 1 lakh to 3 lakhs. However, the income limit should be below Rs 2 lakhs.

• What is the MSME loan limit?

Prarabdh Gupta Freelance Content Writer & Strategist

Prarabdh Gupta is a finance content writer with 4+ Years of Industry experience in simplifying complex finance terms. He crafts captivating and engaging content around mutual funds, insurance, banking, real estate, taxation, and financial planning. He has completed his graduation from Jiwaji University, Gwalior.

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