79 Journal of Social and Development Sciences Vol. 1, No. 2, pp. 79-90, Mar 2011 Evolution of the MSMEs in India Madhavi A Lokhande Welingkar Education, 102 & 103, Electronic City Phase 1, Hosur Road, Bangalore, India madhavial@yahoo.com Abstract: There is a growing and worldwide appreciation that the Micro, Small and Medium Enterprises play a catalytic role in the development process of most economies. This position gets reflected in the form of their increasing number and rising proportion in the overall product manufacturing, exports, manpower employment, technical innovations and promotion of entrepreneurial skills. This paper attempts to look at the changing definition of the Micro, Small and Medium Enterprises and the role these enterprises are playing in the growth story of our economy. In India, the MSME sector is the second largest manpower employer, after agriculture and the output from this sector alone constitutes 40 percent share of the value added in the manufacturing sector and one third of national exports. The importance of Micro, Small and Medium enterprises (MSME) for its contribution in the Indian economy growth is a matter of record and needs no further elaboration. However, with the changing focus from economic growth to inclusive growth, MSME sector’s role in the socio economic development of India needs to be understood, explored and facilitated. The opportunity in MSMEs exists, however, the fact remains that most of the funding goes to the larger and more solvent MSMEs and to those who have business linkages with large corporate. The banks compete with each other to grant loans to the top rung MSMEs. Key Words: Economic Development of India, Micro, Small and Medium Enterprises, Funding needs of MSMEs, Future of MSMEs, Unorganized sector. 1. Introduction Economic Growth and Transformation in India: The Indian Economy has shown a remarkable performance of economic growth in the 90s. The growth rate of real Gross Domestic Product (GDP) passed a peak of 9.7% in 2007. Experts predict that India’s GDP will grow annually at 7%. The era of social and economic transformation is one of the leading chapters in the story of economic growth of the country. India is changing from an agrarian rural and agricultural society into a society with an economy dominated by the services and Industry sectors. Experience around the world suggests that the transformation process is resulting in a steep urbanization trend i.e., more people are migrating to cities and towns, from the villages and the rural areas. Compared to this trend India has actually recorded a slower urbanization rate over the last decade. About 1 out of 3 Indians live in towns, with the lion’s share taken up by mega cities (more than 1 crore population) (GOI Report). On the one hand, there are potential threats arising due to the massive growth of slums followed by unemployment, inequalities, degradation in the quality of urban life leading to conflicts. On the other hand, the village is unable to give its people jobs. Nor it is possible to reform agriculture which will mean mechanization of farming resulting in fewer jobs. So it is not possible to modernize the Indian economy unless the country urbanize more rapidly and in a better manner than it has done so far. One slow down factor of Indian urbanization no doubt is the insecurity of urban poor’s jobs which restrict them from bringing their families from the villages to the cities. As these jobs are often available only on a day to day basis, the job holders are never sure if they will have work and income the next day. Ruchismita and Gupta (2005) in the approach paper on “Delivery of Comprehensive Financial Services to the Informal and Unorganized Sector” pointed out that a third of India’s population continues to live in conditions of abject poverty. Most of these people are either unemployed or are engaged in vocations that are insufficient to even meet their basic physiological needs. Studies suggest that the largest number of this surplus labour will be absorbed by the tiny and very small scale enterprises, giving a big boost to the overall economy. These enterprises are diverse, in their size, employment opportunities, production of goods & services, and are spread out throughout the geography of the nation. These small enterprises are identified to