By SK Nag
MSME in India has a population size of 63million as per the National sample survey (73rd Round). This same survey also recorded the size of employment it has created. The sector has engaged 36.04 million in manufacturing, 38.72 million in trading, and 36.22 million in other services, making around 11.1 million. This sector has contributed 29% to Indian GDP until the last financial year, and GOI has a scaling-up vision to 50% in the coming years.
Navigating a development through the planned growth of any country is potentiated by the growth of essential sectors (known as the backbone sector). Therefore, a prerequisite driver for economic growth is the outcome of piggybacking on the Industrial revolution in a limited life span of a couple of decades. Since Independence, through a series of planning commission plans, India has witnessed many developments. But this MSME has never had the opportunity of exclusive focus like the current Govt. is paying attention to. Despite many efforts, the industrial sectors are predominantly biased to Heavy industries.
After the Corona pandemic, India is now expected to replace Chinese dominance in the manufacturing sector. Our road map for the coming decades must augment the manufacturing sector. MSME has already succeeded in gaining the required focus with a new head in the MSME sector. Funding plans are being worked out to provide supply chain support in finance. The core difficulties of MSME is not financing the institution through Govt funding. The sectors suffer from a huge skill gap. The required workforce for manufacturing are of low-quality untrained professionals due to poor pay structure. The sectors are functioning in an unorganized manner. Without the right skill, the focus on the business is unproductive. Funding plans are being worked out to provide supply chain support in finance. Besides all these, the creation of TLTRO (targeted long-term repo operation) by RBI is another move towards uplifting the entire ecosystem. How TLTRO will augment the sector is yet to be seen, but this will create another liquidity window to facilitate the growth.
Liquidity availability and managing the same and reaping the benefit out of it are skills of the managers who use this money. The cost of money will come down with effective utilization and cash rotation. The concept of ‘More rupees per rupee’ is a financial engineering skill, grossly absent in MSME sectors due to the absence of the right financial expertise. The funds are utilized randomly due to inefficient management of cash. The knowledge of the supply chain of finance in this sector is fragile, affecting the whole ecosystem very badly. The waterfall mechanism followed in MSME while handling finance unable to harvest the yield to the fullest. The WACC (Weighted average cost of capital) is very high compared to any organized sector.
Now let us look further into the core issues of MSME and why they cannot achieve the required business traction. Why so much fungible capacity they are holding at the factory level unutilized. The sectors facing challenges to acquire and inculcate the right skill. They can also create an ecosystem to attract a highly efficient workforce (technical & commercial). Low salary, No salary is widespread, which is holding this sector to grow. Uncertainty in the employees’ livelihood is a big concern that should be addressed with priority before the Government is getting to revive MSME with added financial help to the entrepreneurs. AMUL has created a healthy ecosystem in Cooperative mass production in Anand, which is worth copying for our MSME growth plan across the country.
Brand building is another area in which the Government should help them through online publication of the sector’s potential. Currently, it is challenging for a customer to find out a source location of their requirement. So dependence on few branded companies is imminent, leading to creating a monopolistic or oligopolistic ecosystem. This sector’s visibility should be enhanced through government intervention to gain business relevance and esteem. Like the Hannover trade fair in Germany each year, India also should organize MSME fair across the country to have an enhanced customer producer interface.
Finally, for an ecosystem to be more business-friendly, robust, and resilient, it should have a smooth financial support program, employee-friendly ambiance for attracting the right and quality technical human resources, and the right-sized, latest equipment reducing investment need. Of course, a competitive marketing strategy is, last but not least. Focusing only one of these will not bring the desired momentum to bring in efficient and sustainable outcomes.
(SK�Nag is�Chartered Engineer,�Energy Expert and industry mentor. The views expressed are personal opinion of the author. He can be reached at�saibal.iim@gmail.com�)
