By Manish Shah
Micro, small, and medium enterprises (MSMEs) embody the spirit of enterprise deeply rooted in the Indian ethos. Over the years, these small-scale powerhouses have evolved into formidable forces, significantly contributing to India’s economic growth. From traditional artisans to innovative startups, MSMEs are the threads that weave together the fabric of our diverse economy.
India’s thriving ecosystem of SMEs is a monumental force in the global economic landscape, contributing nearly a trillion dollars to our nation’s prosperity. As we set our sights on the horizon, we anticipate an even more remarkable future. It’s noteworthy that the government foresees India becoming the world’s third-largest economy by reaching a $5 trillion GDP milestone.
With budget projections estimating a significant leap to $3.7 trillion by FY24 and the IMF forecasting a surge to $4.2 trillion in the subsequent fiscal year, these strides not only signify growth but also highlight the dynamic nature of India’s economic landscape. Furthermore, SMEs are on the brink of expanding their economic imprint, potentially surpassing $2 trillion by 2024, while catalyzing the creation of an astounding 50 million job opportunities.
Despite showing promise, small businesses in India encounter various problems that slow down their growth. These issues include difficulty getting formal credit due to strict requirements and slow approval processes, hindering their use of technology and expansion. Many of these businesses haven’t fully embraced digital tools, making it hard for them to operate efficiently and reach international markets.
To grow and reach more customers, they need better marketing skills and resources. Additionally, they face tough competition from smaller, informal businesses, and even with government support, they struggle to get the help they need. Investing in research and development is a challenge, and they are sensitive to changes in the global economy, further impacting exports and financial stability.
NBFCs: Enabling MSMEs to Grow, Drive Exports, and Generate Employment
MSMEs form the backbone of India’s economy, driving employment, export promotion, and GDP growth. However, accessing credit from traditional banks, burdened with rigid eligibility criteria and lengthy approval processes, often hampers the potential of these enterprises. This is where non-banking financial companies (NBFCs) play a transformative role, providing tailored financial solutions that fuel MSME growth. From short-term working capital to long-term investment funding, NBFCs’ agile and innovative approach addresses the unique needs of MSMEs, propelling them forward.
Amidst the challenges of limited access to capital and the complex financial landscape, NBFCs have emerged as essential allies for MSMEs. Their agility and tailored financial solutions provide the much-needed fuel for growth. By empowering MSMEs to expand operations, seize export opportunities, and create jobs, NBFCs not only boost individual enterprises but also play a vital role in energizing the broader economy.
Moreover, NBFCs have been instrumental in promoting export-oriented MSMEs, and therefore, by offering export finance, trade credit, and forex solutions, they facilitate international market access for MSMEs, helping them to compete on a global scale.
Public-Private Partnerships (PPPs): A Catalyst for MSME Growth
In the context of MSMEs, PPPs play a pivotal role in fostering a supportive ecosystem through policy backing, infrastructure enhancement, and transformative initiatives such as GeM (Government e-marketplace) and ONDC (Open Network for Digital Commerce). This collaborative approach, involving the government, NBFCs, and banks, is key to formulating policies that nurture MSME growth. By collectively identifying and addressing regulatory challenges, PPPs create a more favourable business environment for MSMEs to thrive.
To add to that, building good infrastructure is crucial for helping small businesses grow. Having strong roads, dependable electricity, and access to modern logistics facilities is important for these businesses to work well. Through PPPs, NBFCs, banks, and the government can invest in and develop the necessary infrastructure for the MSME sector. This teamwork ensures that MSMEs have the right support to expand their operations smoothly.
Initiatives like GeM and ONDC are transformative for MSMEs, providing digital platforms for procurement and commerce. NBFCs and banks play a significant role in supporting the implementation of these initiatives. They provide MSMEs with essential financial tools and knowledge, empowering them to leverage these platforms and broaden their business opportunities. By embracing digital solutions facilitated by PPPs, MSMEs gain access to larger markets, streamline operations, and enhance their competitiveness.
In essence, PPPs serve as catalysts for MSMEs, combining the strengths of the government, financial institutions, and enterprises. This collaborative framework amplifies the impact, driving MSMEs to the forefront of economic growth while ensuring a resilient and vibrant entrepreneurial ecosystem in India.
Promoting Entrepreneurship at the Grassroots Level in India
India’s entrepreneurial vigour isn’t confined to corporate boardrooms; it thrives at the grassroots level. Initiatives like “Startup India” fuel this spirit, cultivating a culture where innovation flourishes. By fostering an environment that encourages startup growth and eases business processes, we pave the way for an inclusive and dynamic economy that reaches every corner of our nation.
The synergy between budding entrepreneurs, favourable interest rates, a business-friendly environment, and an improved ease of doing business creates the perfect recipe for economic dynamism. As these enterprises sprout across the nation, they contribute to employment and the diversification of our economic foundation. The initiatives targeting startups and microenterprises encourage innovation and entrepreneurial zeal at the grassroots level. This, in turn, ensures that the fruits of economic growth are distributed widely, benefiting both urban and rural regions alike.
This grassroots movement extends beyond individual businesses, creating a ripple effect that stimulates local development, generates jobs, and drives economic diversification. By nurturing this ecosystem, we lay the foundation for a more resilient and innovative India. With government support and the collective determination of budding entrepreneurs, India secures its position as a global hub for innovation and economic opportunity, taking steady strides towards the ambitious goal of a USD 5 trillion economy.
Manufacturing Units Shifting to India: Embracing the Opportunity
As global manufacturing dynamics shift, India stands at the beacon of opportunities. Companies worldwide are exploring new manufacturing bases, and India’s vast potential has captured their attention. The strategy of sourcing raw materials from India, following the “China One” model, has nudged manufacturers to consider India a prime destination. This shift not only elevates our status in the global market but also opens the door for MSMEs to be an integral part of these evolving supply chains.
This shift in manufacturing dynamics underscores MSMEs’ critical role in driving India’s economic resurgence. As manufacturing units pivot towards India, they bring along a wave of opportunities for collaboration and growth. The presence of these companies not only boosts the manufacturing sector but also sets the stage for MSMEs to scale up their operations and integrate into global value chains. Through strategic alliances, technology transfers, and capacity-building initiatives, MSMEs can tap into the expertise of these global giants, enhancing their capabilities and widening their horizons.
In embracing this shift in the manufacturing segment, India not only showcases its potential but also redefines its position as a production hub on the global stage.
Bringing together NBFCs, government, companies, and local businesses will make India flourish. By supporting small businesses, we create a place where there are lots of opportunities, new ideas are encouraged, and the economy grows everywhere in our country. This teamwork, based on partnerships between the government and private companies, doesn’t just help individual businesses; it builds a country where everyone is involved and self-reliant. If we all aim for a $5 trillion economy together, we might achieve it earlier than expected. These efforts ensure a better future, where small businesses are strong, making India’s economy shine globally.
Manish Shah is the MD & CEO of Godrej Capital. Views expressed are personal.