When it comes to discussing the productivity of any economic sector , it’s not just the agricultural segment to be blamed. The MSME ( Micro, Small and Medium Enterprises) status has always been a subject of observation. There are over 63 million MSMEs in the country which form a key pillar of employment. 99% of the life of these enterprises dwell in the micro cycle. There are a lot more reasons to be added for the consistent unproductivity of this segment, to begin with Lack of technology and limited means which keeps sliding down the companies from entering to a wider market. Technology plays a very important role in optimizing the operational and production cost, In other words it helps in econominizing. In addition, even though there are several financially supportive schemes for upscaling, low efficiency and lack of timely funding makes the sector even more stagnant. There has always been a cut-throat competition with the major stake holding players of the particular market, who naturally have better bargaining power, so all the small players are at their mercy.
Furthermore, the demonetisation has been a major jolt to SMEs. The profit margins for SMEs are already very narrow. Then the very consecutive blow, the Covid-19 pandemic, led to a lack of manpower and overheads making them start from scratch. In conclusion the government has a lot more potential role to play in chanellsing the MSMEs. AllB (Asian Infrastructure Investment Bank) senior economist Abhijit Sengupta stated that the Indian banks and NBFCs (Non-Banking Financial Company ) should get out of the risk shell when it comes to lending loans to small businesses. MSMEs also face high costs of supervision. They really need to run for their money since it is very excruciating for them to acquire funds from banks so usually they depend upon their internal funding.
COMPOSITION IN GDP
India’s MSMEs GDP composition is 30% which is way lower than the benchmark set by the other countries. Formal SMEs contribute up to 40% in the emerging economies Moreover, in these emerging markets 7 out of 10 jobs are a creation of SMEs. Even Though it seems flourishing in South Asia formal MSMEs are facing a financial gap of $337 billion. It is due to lack of financial aid.
MSMEs should be made to compete in global competition. As mentioned earlier that they
face lack of trust from financial institutions, they end up working within their small chain of business cycle leading to lack of additional capital infusion. Most of them are afloat in the sole proprietorship culture. Moreover due to lack of technology, they have always been regulated in labour intensive methods. Even though with so many unfavourable constraints there is one advantage indian MSMEs have gained over the time is the endurance towards these constraints. The greatest achievement is their profound stint in the automobile sector. SMEs have particularly thrived in the Auto sector. India has surpassed USA and Europe by making its auto industry capable of manufacturing 25.3 million vehicles in comparison to their 17.5 Million and 12.6 million respectively. Liberalization was a major positive stroke by the indian government which primarily played its part. It brought diversification and widening of their business ecosystem.
When Maruti was introduced in India, 1981, many small and medium based manufacturers started supplying them with the auto parts. Today India is a major Auto parts supply player. The production linked Incentive of the government can be beneficial. Animesh Saxena, the MD of FIMSE stated that the MSMEs do comprehend the significance of modern technology and the requirement to upskill their efficiency. South Korea and Taiwan have witnessed a robust establishment of SMEs. These small organizations are also looking for local collaborations in India. This partnership with Taiwan is a hope to envision more proliferated use of solar energy and electric vehicles.
RAMP (Raising and Accelerating MSME Productivity ) is a five-year scheme ( 2021-22 to 2025-26 ) launched by central sector, with a total project cost of INR 6062.45 Cr, comprising of INR 3750 Cr (USD 500 Mn) as world bank’s contribution in the entire composition and the remaining is funded by Govt. of India. RAMP is projected on the basis of the design of the UK Sinha led Reserve Bank of India’s Expert Committee report (June 2019), which recommended various regulatory, financial and implementation reforms as well as firm level access reforms to provide targeted interventions to MSMEs across recognized challenge areas. In addition to building the Ministry of SMEs capacity at the national level, the RAMP program will seek to scale up implementation capacity and firms covering Gujarat, Maharashtra, Punjab, Rajasthan and Tamil Nadu.
Whether it is functionally and operationally growing in India or in the wider global ecosystem, the agenda always should be on competitiveness, profound brand building and providing certainty. There is a lack of certainty in the SME space, increased in recent times backed with Covid-19 waves. This has a negative impact on the sector’s growth. But the only remains to be seen is MSMEs stint in the market.