The MSME sector is a priority sector for India as it plays a vital role in the economic and social development of the country. If we look at the statistics provided in the Economic Survey 2022, the MSME sector accounts for 45% of the total manufacturing output, 40 percent of exports and 30 percent of the national GDP. Furthermore, the Union Budget 2022-23 also highlighted the importance of the MSME sector.
A specific segment in the Budget highlights the government’s focus on certain important schemes and interlinking of various portals that will help to develop the MSME sector. In fact, it is also one of the biggest employers providing maximum employment opportunities in the country. However, despite the important role that MSMEs play in the economy, all is not hunky-dory when we look at this sector closely.
Shortcomings of the MSME Sector
At present, there are more than 6.5 crore MSMEs in India.
However, many of these MSMEs consist of relatively unproductive micro enterprises, which are either unregistered/informal, new to formal credit or distinguished by low growth and employment.
On the other hand, there is an alarming shortage of formal, productive and job-creating small and medium enterprises.
Even though the MSME sector is considered as a job creator, the quality and job conditions are often perilous. They are mostly in the form of casual labour, daily labour or self-employment.
A simple reason for this is that for most micro/small enterprises, the focus is on keeping the business afloat rather than growing the business, which causes business stagnation in the long run. This in turn impacts the efficiency, innovation and production quality.
Three-pronged approach to tackle shortcomings of MSME sector
Technically speaking, a business requires three crucial ingredients to thrive- access to markets, skills and working capital. Furthermore, public investment will also be required to create market linkages, skills and mentorship. In fact, emerging technologies such as fintechs and e-commerce provide us with a unique opportunity to address the issues listed above with reasonable effectiveness. Therefore, it is imperative that MSMEs embrace digitization to ensure that the country becomes a trillion dollar economy. However, digitization is only one part of the solution. Along with digitization, skill development also plays an important role. Support from the government in the form of various schemes and policies is also quite helpful. Let’s understand this in detail-
Digitization, a major part of daily lives
Digitization has become a major part of our everyday lives, and will be even more omnipresent in the near future. Therefore, it is safe to say that technology will be required to transform the MSME sector. For this purpose, the strong ecosystem of Indian technology start-ups are helping with the technology requirement of MSMEs. These tech start-ups have created innovative digital solutions for the MSME sector.
Digital startups have helped small businesses to create more awareness, plan and implement new technologies and solutions by providing easy to understand solutions, which are safe and secure and focus on solving a particular problem. Furthermore, MSMEs that have gone through the digital transformation to keep up with the ever-evolving ecosystem have been able to adapt and survive during the pandemic.
Given that we live in a technologically driven world, skilling and upskilling have become major factors for the success of individuals/organizations. Therefore, it is important to concentrate on skill development along with digitization. This is because skills will be required to navigate through the current digital landscape.
More importantly, skilling and upskilling is more essential for Small and Medium Businesses (SMBs) since it will help their growth and relevance. Moreover, it will ensure their survival against the big tech giants. In fact, the small businesses have faced the worst impact of the Covid-19 pandemic. This has led to the realization among small business owners that upskilling is the only way to compete with large businesses. Therefore, upskilling in this new normal has become imperative to make the most of the evolving situation. This is possible thanks to the number of courses that have enabled MSMEs to participate in government schemes, simplifying the funding process and access issues. These courses include- digital marketing, e-commerce adoption, fundraising, etc.
Role of the government
The Government has played an important role as an enabler to ensure the digitization among MSMEs. It has launched various initiatives and policies to encourage the skill enhancement of small merchants. Trade and ICT policies have been framed by the government to encourage digital adoption among small businesses. Moreover, the Ministry of MSME has created Technology Centers (TCs) across the country to assist MSME ventures to access advanced technologies. These centers provide technical support to MSMEs and undertake technical skill development of youths to ensure the availability of skilled labour to SMBs.
From the above discussion, we can conclude that the need for a digital ecosystem is essential to transforming India’s MSME sector. Moreover, a greater focus has to be placed on skill development which will enable MSMEs to support themselves in this complex and ever-changing business environment.
(Chandraprakash Joshi is Founder & CEO, ixamBee)