India is expected to emerge as one of the leading economies in the world over the next few decades. The Micro, Small & Medium Enterprises (MSME) sector is expected to play a significant role in the emergence of the Indian economy. The development of this sector is extremely critical to meet the national imperatives of financial inclusion and generation of significant levels of employment across the country. Further, it can nurture and support development of new age entrepreneurs who have the potential to create globally competitive businesses from India.
The MSME sector in India was largely unorganized and was governed by the Ministry of Small-Scale Industries and the Ministry of Agro and Rural Industries. Prior to the 1980’s, while the sector contributed significantly in terms of number of units, employment generation and exports, in the post liberalization & globalization phase, growth and performance of the sector declined due to increased competition as the sector moved from a protective environment into a competitive one.
Recognizing the need for legalizing policy framework for the sector, The Micro, Small and Medium Enterprises Development (MSMED) Act was notified and subsequently came into force with effect from 2 October 2006. On 9 May 2007, the erstwhile Ministry of Small Scale Industries and the Ministry of Agro and Rural Industries were merged to form the Ministry of Micro, Small and Medium Enterprises (M/o MSME). The Ministry now designs policies and promotes/ facilitates programmes, projects and schemes and monitors their implementation through various offices and nodal agencies. Over the past two decades several initiatives have positively impacted the sector and contributed to its growth and development.
Thus far, the MSME sector has contributed substantially to India’s growing economy. According to recent statistics, there are approximately 6.5 crore MSME units across various industries, employing nearly 110 million people throughout the country. Overall, the MSME sector accounts for 33.4 percent of Indian industrial output and 48 percent of our exports. The sector’s contribution to India’s GDP currently stands at around 30 percent, with the Government setting a target of 40% in the short to medium term.
Over the years the sector has grown more or less in tandem with the overall growth of our economy. This could be attributed to the fact that MSMEs have a comparative advantage when it comes to adaptability and flexibility in business due to their smaller size and existence of deep technical and entrepreneurial skillset. They also have huge and growing opportunities as ancillary units to larger players, being in a position to supply products and services in a cost-efficient manner. However, MSME enterprises face many challenges that have impeded their potential immensely. Some of its most persistent challenges include lack of access to credit and funding coupled with a lack of trust placed in the sector by providers of finance, lack of financial expertise, unorganized labor and resistance to digitization. In addition, the MSME’s are easily affected by changes in the external environment. The most recent example of this has been the effect of the COVID pandemic from which the sector is still struggling to recover. Not to mention, the redundancy that many MSMEs units may face due their inability to adapt to rapid changes in technologies and increasing global competitiveness.
The Government in its part is making significant efforts specially in the last decade to eliminate hindrances and improve ease of doing business. This is seen in the form of increased budget allocations year-on-year, initiatives under Atma Nirbhar Bharat and Make in India as well as financial support through MSME loans, credit guarantee schemes and the like. On the qualitative side, significant measures have been made to hand-hold the sector through promoting entrepreneurial skillsets, technology upgradation partnerships, technical support groups and cluster development schemes. The development of several MSME support portals on digital platforms and the digital registration system through Udyam is also seen as a welcome move towards bringing more units under the formal sector net, providing them access to the various initiatives, schemes and protective support from the Government. Further, the recent change expanding the definition of MSME is a major enabler which is likely to improve the ease of doing business manifold.
While the government’s efforts are pivotal in resolving the many challenges faced by MSMEs, these alone would not suffice if the sector is to achieve its true potential. This is because the nature of support provided by the Government is mostly external in nature. In order to cope with a rapidly changing business environment, MSME’s need to also look inward, more closely into their businesses and make critical changes in their approach towards solving common business problems. MSME’s need to be enabled through strategic partnerships, better financial solutions and strong business networking. The role and scope for professionals like CA’s cannot be undermined in this regard. Moreover, they need to recognize the need to think differently, to strategize, identify gaps in their business and adopt a systematic approach towards bridging these gaps. This is possible only through a collaborative effort from professional bodies and a willingness for MSME business owners to break through the ‘small business’ mindset.
Our government has envisioned to make India a USD 5 trillion economy and global powerhouse in this decade. The MSME sector has the potential to emerge as a backbone for this economy and act as an engine for growth, given the right set of support and enabling framework. The MSME opportunity is to develop entrepreneurship and support growth led by innovation, digitization and financial inclusion over the next decade. With adequate business and strategic support from professionals coupled with the Governments initiatives, MSMEs are at the cusp of driving the economy towards this target.
Published in November Newsletter by Bangalore Branch of ICAI
Related Post
If you enjoyed reading this, then please explore our other articles below:
