Ease of Doing Business for MSMEs: Indian micro, small and medium enterprises (MSMEs) have arguably got a long road ahead to become globally competitive. The scope of improvement in international markets is vast given their contribution to Indian exports at nearly 50 per cent and around 30 per cent share in the gross domestic product. Hence, MSMEs are critical to India’s overall ability to be a dominant player in global trade. In 2021, India was ranked 43rd among 64 nations on the annual World Competitiveness Index compiled by the Institute for Management Development (IMD). However, the country has been ranked at that position for three years consecutively. To improve the competitiveness of Indian businesses, experts believed technology to be the key enabler.
During a panel discussion on building competitiveness of MSMEs at Financial Express Online’s SMExports Summit 2022 on Friday, Ajay Sahai, Director General and CEO, Federation of Indian Export Organisations (FIEO) complimented the government for reclassification of MSMEs based on turnover instead of investment in plant and machinery in erstwhile definition as it would help in ‘internationalisation’ of MSMEs. However, if MSMEs want to increase their share in total GDP, they will have to focus on technology, he said.
“Global trade is driven by technology sectors like machinery, electronics, automobile sector. The combined share of these three sectors comes to roughly 35 per cent of global imports worth around $7 trillion and here our share is less than 0.9 per cent. Hence, when we talk about MSMEs, technology is very important. I’m happy that some new emerging sectors like hi-end engineering and electronics are seeing new technology coming in,” Sahai added. The session was moderated by Soumyadeep Ganguly, Partner at McKinsey & Company.
Importantly, the government had discontinued the Credit Linked Capital Subsidy Scheme for Technology Upgradation through a circular last year and formulated the MSME Champions scheme for small businesses to become sustainable, competitive, and innovative through financial assistance.
Among the key reasons for the lack of investment in technology by MSMEs have largely been the compliance burden, which though has been reduced over the past few years, but gaps still exist such as liquidity. Sahai said while banks claim there is no dearth of funds on their part and they don’t reject any worthy proposal, MSMEs have always been struggling to get funds from banks. Hence, the government would have to look into why can’t there be end-to-end digitisation of entire credit process right from filing application to disbursement, he said.
Another reason for low investment in technology by MSMEs has been a lack of funds as a sizeable chunk of their funds go into the purchase of land or building. Here, Sahai suggested providing MSMEs with a plug-and-play facility in excess lands of SEZs and industrial zones. “We also have to look at providing marketing platforms to MSMEs and a planned scheme with a very detailed mapping of what we need to be doing five-10 years down the line (in exports) and a sizeable fund should be available,” he added.
The MSME sector’s growth in FY22 is likely around to be 15-17 per cent in revenues on the back of demand recovery following the pick-up in economic activity with the gradual easing of Covid restrictions, a study by Assocham-Crisil had said in April this year. The recovery post Covid was reported across sectors with construction, commodities, exports, and consumption services leading the pack. The FY22 growth follows the negative growth of the sector by an estimated 10 per cent in FY21 and 6 per cent in FY20. For the current financial year, the study estimated 11-13 per cent growth.
However, to grow from around 15 per cent to 25 per cent, the focus on some key sectors is mandatory. Tamal Sarkar, Senior Adviser at MSME cluster development body Foundation for MSME Clusters, during the panel discussion, suggested taking the cluster approach to identify the key sectors.
“Except handicraft and handloom clusters out of around 5,000 MSME clusters we have, there are 1,400-1,500 clusters of 14-15 sectors which are quite ‘well advanced’ such as machine tools, metal products, leather etc. These are sectors of excellence which are pushed by certain lead firms which are SMEs. So, a policy which can identify more such areas of excellence and give them a special advantage of leapfrogging in the value chains where returns are much higher will percolate to other clusters as well,” said Sarkar.
For that to happen, MSMEs need exposure to global lead clusters and also global technology institutions should come to India to open their centres in these sectors,” he added.
Along with technology, the overall focus on quality is also important for MSMEs to maintain sustainability at any level of growth. So, how to build this mindset among MSMEs? Mahesh Desai, Chairman, Engineering Export Promotion Council (EEPC) India said there is a need for more awareness along with training of MSMEs on quality and also taking them overseas where they have to follow quality assurances.
“For sustainability, first thing to focus on is the innovation which can be done every day on the shop floor. Then there is partnership (to be formed) with bigger companies and groups, and lastly, it is about human capital development. Also, there has to be industry-institute interface which has to be improved,” added Desai.
India had improved on the Global Innovation Index by the World Intellectual Property Organisation (WIPO) to 46th rank in 2021 among 132 countries from 48th in 2020, 52nd in 2019, and 81st in 2015 on the back of ICT services exports, domestic industry diversification, and other factors.