Unlocking MSME Potential

Context: 

• According to the survey, ‘Leveraging E-commerce for the Growth of MSMEs, by Indian Council for Research on International Economic Relations, technology may represent a survival threat rather than an opportunity for MSMEs not integrated with e-commerce platforms. 

More on news: 

• Rising Inequities: Firms that are not integrated with e-commerce platforms find it challenging to access markets.
  • In contrast, firms integrated with e-commerce platforms are making deeper inroads into markets.
  • This is exacerbating inequities between firms linked to platforms and those which are not integrated.
• Technology Divide: Non-integrated firms have not joined platforms due to lack of knowledge and information about digital technologies and e-commerce platforms. 
• Rising profits with Digitalization: With e-commerce platform integration, over 85 percent of surveyed MSMEs reported an increase in their total sales and profit margins. 

MSME Definition:

• MSME stands for Micro, Small, and Medium Enterprises. They are classified in accordance with the Micro, Small, and Medium Enterprises Development (MSMED) Act 2006 as follows: 

Status of MSME in Indian Economy: 

• MSME Sector: 
  • It contributes approximately 33% to the country’s gross domestic product (GDP) and 50% of exports. MSPI Data)
• Gross Value Added (GVA):
  • In the fiscal year 2019-20, the share stood at 30.5%, which slightly declined to 27.2% in 2020-21 but rebounded to 29.2% in 2021-22  showing Fluctuating trend in the last three years.
• Manufacturing Output: The share of MSMEs in the overall Indian manufacturing output remained relatively stable, accounting for 36.6%, 36.9%, and 36.2% during the fiscal years 2019-20, 2020-21, and 2021-22, respectively.
• Share in exports: The share of MSME products in India’s total exports experienced a decline over the past three years. 
  • In the fiscal year 2020-21, MSME products constituted 49.4% of India’s exports, which decreased to 45.0% in 2021-22 and further to 43.6% in 2022-23.
• Employment: MSME sector has been a significant source of employment in India. 
  • As of August 2, 2023, the Udyam Registration Portal reported that the total number of persons employed in MSMEs registered between July 1, 2020, and August 1, 2023, amounted to an impressive 12,36,15,681. 

Significance of MSME Sector for India:

• Employment: MSMEs are the largest employer in India outside of agriculture, employing over 11.1 crore people, or 45% of all workers.
• MSME Contribution to Export in India: Specified MSME-related product exports accounted for 49.5% of India’s total exports in FY 21, compared to 49.8% in FY 20. 
• Connecting Remote Areas to Rest of the Country: By preparing key raw materials and finished goods with global demand, MSMEs in remote and backward areas help connect these areas with the rest of the country and the world.
• Inclusive Growth: By creating employment opportunities and connecting backward areas, the sector helps reduce regional imbalances across the country and increase equality among citizens.
• Driver of Make in India:  The MSME sector is an essential part of “Make In India” and its growth is critical to the success of the government initiative.

Challenges faced by the MSME Sector:

• Informal Nature of Sector: With over 90% of the MSME sector in the informal category, most of the micro-enterprises are unable to access formal credit or other government schemes or benefits.
  • Only about 16 per cent of MSMEs in India are financed through formal banking systems and the credit gap for MSMEs in India was estimated to be about Rs 16.66 trillion in 2018.
• MSMEs and the Global Market:
  • India’s domestic market accounts for only about 2 percent of the global market size for these industries.
  • However, to address the global market, India must aim for at least a 10 percent share of the global trade.
• Integration with ‘E-commerce’ Platforms:
  • The rise of e-commerce platforms means MSMEs can compete in the global arena.
  • However, India’s current e-commerce exports stand at a modest $2 billion, a mere 0.5 percent of our merchandise exports.
• Small Scale (Dwarfism):
  • It is nearly impossible for a typical small business to first find customers abroad, and then navigate the logistical, financial and compliance complexities of the export sector.
  • However, 85 percent of MSMEs are classified as “dwarfs” — older than 10 years but still smaller than 100 employees.
• Systemic Gender Discrimination: It is preventing the realisation of significant untapped potential, as only 18% of registered MSMEs are owned by women.
  • Majority of women entrepreneurs remain in micro-MSME strata and over 3,057 women-owned MSMEs closed post-pandemic. 

Way Forward:

• Introduce Separate Micro-MSME division:  It will provide targeted support and policies to help micro enterprises grow and transition into small and medium enterprises.
• Bridging The Gap Between Integrated And Non-Integrated Firms (E-Commerce Platforms): It will require investments in technology, digital skills, information, enhancing the capabilities and productivity of MSMEs.
  • This can be achieved by providing them with infrastructure services, financial services, managerial and business skills and enterprise support and training.
  • Study by Institute of Governance, Policies and Politics shows that 1 per cent rise in imported digital services production inputs by MSMEs results in a 0.4-0.8 per cent rise in MSME employment, 0.1-0.2 per cent rise in MSME value addition and a 0.04-0.08 per cent rise in labour productivity.
• Initiate Support For Women-Owned Msmes: Implementing policies that promote women entrepreneurship.
  • Providing dedicated support, such as access to capital, training, and networking opportunities, will empower women-led micro MSMEs and contribute to inclusive economic growth.
• Improve Ease Of Doing Business: Simplified and streamlined regulatory processes specifically designed for micro-MSMEs can help reduce their compliance burden, allowing them to focus on their core business activities.
• Streamline The Rules Of Financial Regulation For Exports: Reduce the burden on MSMEs and give them the flexibility to price their products dynamically.
  • Implementing a one-stop trade portal that brings together all information and processes related to exporting, and places it into a single, streamlined workflow. 
• Digitalisation: There is a need for replicable digital solutions adapted for MSMEs, including digital enhancements for machinery and equipment currently in use. 
  • Initiatives such as the Digital Saksham and the interlinking of the Udyam, Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) portals have shown commendable results.
• Formalisation of Sector: Udyam Registration is a positive initiative in this regard.
  • More than 13 lakh informal micro-enterprises that have now become formalised and there is room to expand this broadly across the MSME sector.

Source: Business Standard

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