By Mukul Goyal
Ease of doing business for MSMEs: Richard Branson once said ‘A big business starts small’. Therefore, while we must create an environment for our MSME industry to thrive, there is no doubt that MSMEs are facing multiple challenges. Providing them with the support they need to overcome these challenges and thrive is the most urgent need of the hour. Worldwide, MSMEs contribute significantly to economies accounting for 90 per cent of the business, 60 per cent to 70 per cent of employment, and 50 per cent of GDP. In addition to contributing to local and national economies, these groups sustain livelihoods and contribute to the economic development of the society including women, youth, and vulnerable groups.
Threats to MSMEs negatively impact economies and societies. Governments around the world have made supporting this segment a priority by providing direct financial assistance, public guarantees on loans, reduction in taxes and a host of other such initiatives. Despite these benefits, firms still do not necessarily benefit from it in the long run, nor do they overcome the many converging challenges they face today, such as internationalizing, keeping up with digitalization, and securing talent.
MSMEs serve as a catalyst for growth given their ability to create jobs and accelerate progress. Even though MSMEs form the backbone of the Indian economy, they require robust technological, advisory and resource support to flourish and thrive. Furthermore, a strong and strategic policy supporting this sector cannot be overstated. The ground level involves businesses collaborating with organizations advocating changes:
Policy Transformation: For MSMEs to grow and create jobs, a two-pronged policy approach is necessary. The first part would address the sector’s current needs, while the second would create an environment conducive to long-term growth. Several research organizations and think tanks are engaged in this field and recommend policy changes to support job creation and equity.
Advisory services: Large enterprises have access to a host of services to aid their growth and adopt forward-looking initiatives. This is a luxury that most MSMEs do not have. Developing focused support programs that assist small and medium-sized businesses in realizing their growth potential over a defined period is vital. It could involve building capabilities (such as digital, marketing, and leadership skills), providing market advice, guiding transformation efforts, connecting businesses with new ones etc.
Financial Services: MSMEs face several challenges that limit their growth and ability to scale, including access to finance and support to collect pending payments. Several programs have been implemented by the government to make it easier for MSMEs to obtain financing; however, the key is that they are implemented in a way that is beneficial to the MSME industry.
Keeping up with digitalization: Most of the world is digitizing, a trend that has accelerated, and MSMEs risk being left behind. The government is promoting the digitization of enterprises as an enabler of all-around progress. Technology makes it easier for large companies to stay competitive and improve efficiency. However, a working mechanism is needed for smaller firms to join the digital revolution.
Internationalizing strategically: Studies suggest that MSMEs need to internationalize to grow, but most find it difficult to do so or to do so strategically. Many high-potential MSMEs found success domestically even before the Covid-19 pandemic, but their potential was capped by the size of their local market. Promoting trade between countries and creating favourable trade policies will help MSMEs explore international territories.
Acquiring the right talent: For any business to prosper, it must have access to the right kind of talent. For MSMEs, this is one of the biggest challenges they face. For a business to consistently be successful and grow, it is imperative that it can attract skilled and high-performing talent. Since India is such a diverse country, talent is widely spread. Building platforms to access talent will help MSMEs grow.
Establishing associations to promote collaboration with research and technology institutions, as well as education and training programs, will greatly assist MSMEs in strengthening their position in the ecosystem. Creating a spirit of collaboration between the private sector, the government, and the academic and research community will prove beneficial and promote economic development. In these fragile times, policymakers must look beyond recovery to lower and eliminate barriers facing small and medium-sized businesses, improve business environments, and improve access to finance, markets, and technology. By inspiring innovation, creativity and decent work for all, countries and their development partners must continue to support and empower MSMEs.
Mukul Goyal is the Co-Founder of Stratefix. Views expressed are the author’s own.