MSMEs in need of an ecosystem


India is primarily agricultural country with most of the population depending on agriculture and allied activities and living in villages and small towns. This is despite a large number of people migrating towards urban centers and deserting agriculture. In such an environment, it is essential that industry, both manufacturing and services are made strong and vibrant enough to absorb a huge number of people and provide job opportunities close to the native place of people so that unwanted migration can be prevented which is burdensome for people and for cities.

By their nature MSMEs are most suited to do both. They can remain scattered geographically besides providing localized employment. This is not possible for large scale manufacturing or services which because of internalization of across-the-spectrum functions, need to be concentrated at a particular location where people need to come from far and wide. Secondly, big industries cannot provide employment to so many people, especially in a high tech and mechanized paradigm. It is not without reason, therefore, that MSMEs are the major job providers and GDP contributors in most major economies of the world.

Indian MSMEs are also big contributors to national economy, employment and exports. But sadly, this lot is in a bad shape today. They suffer from poor infrastructure, which hurts them more because they cannot afford alternative or captive infrastructure the way biggies can. On the other hand, because of the intrinsic weaknesses, which emerge out of their “key person” structure, most MSMEs are constrained as far as operational and managerial capabilities are concerned. Further, they lack scale. All of these prevent them from achieving their latent potential. On top, because of their weak fundamentals, they find it hard to get loans, which is the biggest problem area for Indian MSMEs.

What is required is to realize that in the highly competitive and technology driven world, MSMEs need to move up the value chain. As such, small players need to be financially strong and operationally smart, equipped with latest IT, communication and operational tools. It is true that all these cost money, but in the long run, they allow much higher returns per rupee invested. The government is trying to empower by various schemes to improve operational capabilities of Indian MSMEs. It is also making efforts to enhance managerial skills of promoters. Banks have also been asked to increase lending to this segment.

Because of India’s rich agro based knowledge and capabilities, Indian MSMEs can dominate the agro based product markets, which is exploding globally. Indian MSMEs also have very strong tradition in leather, gems and jewelry and apparels. Lately, Indian MSMEs have also shown tremendous capabilities in engineering production. But to win global markets, Indian players need hand holding in exports, which is also being tried now.

Over the last decade, global markets have become more integrated than ever before and as such, Indian MSMEs would need to upgrade to fit in the global value chain which is highly competitive as well as quality demanding. MSME players of the country have displayed resilience and capability and shown what they are capable of. They now want a proper ecosystem to play a bigger role in the economy, which they richly deserve.