MSMEs have emerged as one of the most crucial pillars to drive India’s economy forward throughout the last few years, especially in 2023. Whether it was the implementation of various policies aimed at boosting the sector or our Prime Minister’s consistent emphasis on how MSMEs need to become the backbone of the economy, 2023 was the year for MSMEs. It is worth noting that contrasting with their contribution of 37.54 per cent to GDP in 2013, MSMEs now account for over 48 per cent, marking a substantial acceleration.
This surge can be attributed to several factors including proactive policy measures, India’s progression into a technology-driven manufacturing hub, and the widespread accessibility of the internet throughout the nation. MSMEs today are innovating, exporting, driving international standards of quality, paying competitive wages, and providing more secure and stable employment.
The stage is set to further strengthen and better serve distinct segments within the MSME ecosystem.
Access to credit is a critical need for MSMEs to thrive and expand. They face challenges in securing financing due to limited collateral, lack of credit history, and stringent lending criteria. This hampers their ability to invest in technology, innovate, and upgrade infrastructure hindering their competitiveness and growth potential. Data suggests that the overall finance demand by MSMEs is ₹69.3-lakh crore, with 70 per cent of the credit requirement attributed to filling the working capital gap.
Addressing this issue requires implementing policies that facilitate easier access to credit, such as streamlined loan application processes, collateral-free loans, and financial literacy programmes. Moreover, increasing financial inclusion through the provision of multiple options to address the working capital needs of the MSMEs lies at the heart of addressing this issue. Policies to strengthen cash flow-based lending, incentivising corporate buyers to support their MSME partners, and integrating TReDS portals with the GST e-invoice portal are some of the potential solutions to mitigate the problem of access to credit in the MSME ecosystem.
Ease of doing business
Facilitating business operations holds paramount importance for the MSME sector. Achieving this entails the formulation of both State and Central-level policies encompassing incentives, streamlined regulatory procedures, and labour laws. The government’s ongoing efforts on simplifying regulations, enhancing processes, and providing clear guidance on future regulatory expectations will provide the requisite boost to MSMEs. Additionally, MSMEs stand to gain significantly from industrial policies aimed at fostering growth in scale and supporting the development of specific sectors.
Encouraging FDI is vital for the MSME sector. With liberalised policies allowing 100 per cent FDI, India has attracted significant inflows, benefiting digital-first brands and tech companies. This inclusive approach must extend to MSMEs. FDI inflow in the sector will help in boosting productivity, competitiveness, job creation, and tax revenues. One example is that of India’s automotive sector which witnessed a 5 per cent rise in FDI resulting in global competitiveness with advanced technology for Indian auto-makers. Embracing liberalised FDI aligns with global trends, sustaining India’s appeal for multinational enterprises and fostering rapid economic growth.
It is evident that tier 2 and tier 3 cities harbour immense potential, however, that potential is yet to be realised. These regions have numerous industrial clusters, favourable growth environments, and connectivity to major economic centres. As India aspires to reach a $30 trillion economy with a population of 1.7 billion by 2047, it is clear that relying solely on a few large corporations will not suffice. A multitude of small enterprises, particularly from these smaller cities, addressing local challenges, is required. This necessitates targeted interventions at the grassroots level, fostering entrepreneurial ecosystems akin to the likes of the Ludhiana bicycle parts ecosystem around Hero or an automotive cluster in Pune around Tata Motors, Cummins, Bajaj, and so on, across every district. Initiatives and policies focusing on mindset transformation, disseminating business knowledge, empowering women entrepreneurs, and overcoming growth stagnation are vital for unleashing entrepreneurial potential even in the remotest corners of the nation.
India stands at a crucial juncture with the potential to elevate its manufacturing capabilities to meet domestic needs and tap into global markets. The combined efforts of Central and State governments, alongside businesses, possess the capability and resources to propel India towards becoming a high-growth manufacturing-centric economy. With the stage set and several opportunities opening up, an ambitious vision supported by a robust execution will enable MSMEs to realise its potential to meet the requirements for sustainable economic expansion, the creation of meaningful employment opportunities, and increased productivity.
The writer is president of Global Alliance for Mass Entrepreneurship