The manifest capacity of Micro, Small and Medium Enterprises (MSMEs) around the world for driving economic growth and development at regional, national and global levels cannot be overemphasized.
As India gears up to retrace the high growth path, the MSME sector assumes a pivotal role in driving the growth engine. The MSME sector in India continues to demonstrate remarkable resilience in the face of trialing global and domestic economic circumstances. The sector has sustained an annual growth rate of over 10% for the past few years. With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive economic shocks, even of the gravest nature. The significance of MSMEs is attributable to their caliber for employment generation, low capital and technology requirement, promotion of industrial development in rural areas, use of traditional or inherited skill, use of local resources, mobilization of resources and exportability of products.
According to the estimates of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout the geographical expanse of the country. With 38% contribution to the nation’s GDP and 40% and 45% share of the overall exports and manufacturing output, respectively, it is easy to comprehend the salience of the role they play in social and economic restructuring of India. Besides the wide range of services provided by the sector, the sector is engaged in the manufacturing of over 6,000 products ranging from traditional to hi-tech items.
The figure below depicts some of the leading industries in the sector with the shares they constitute.
Performance of Indian MSME Sector
The Indian MSME sector provides maximum opportunities for both self-employment and wage-employment outside the agricultural sector and contributes in building an inclusive and sustainable society in innumerable ways through creation of non-farm livelihood at low cost, balanced regional development, gender and social balance, environmentally sustainable development, etc.
Performance of the MSME sector is assessed and recorded by the conduct of a periodic All India Census of the sector. The latest census conducted was the Fourth All India Census of MSME sector. Some indicators to assess the performance of this sector are presented in the table below sourced from the Fourth All India MSME Census.
The graphs below present a comparative model for the estimation of the annual performance of Indian MSMEs through 2006-07 to 2012-13 based on the statistics in the table above in terms of total market value of assets and gross output contributed by this sector.
The Diversity of the Indian MSME Sector
The MSME sector in India boasts of diversity in terms of its size, level of technology employed, range of products and services provided and target markets. MSME Tool Rooms have been credited to provide at least ten components that were used in India’s Mangalyaan (Mars Orbiter Mission probe), the Indian Space Research Organization’s (ISRO) most ambitious mission till date, which is the country’s first inter-planetary space mission. The sector has also contributed vital inputs for other space satellites such as the Chandrayan. India’s second moon mission, Chandrayaan II, set to be launched in 2016-17, will have a soft land over a wheeled robotic vehicle to explore the landing area. India seeks to launch other ambitious projects like a global sea traffic monitoring system and an earth observation satellite, in cooperation with the EU. The projects envision significant contributions and convergence opportunities from the Indian MSME sector.
India is one of the world’s top ten countries in terms of military expenditure. According to the database prepared by the Stockholm International Peace Research Institute, which has listed the countries of the world in terms of their military expenditure at current US$ millions in 2013, Indian ranks ninth.
With spending in Defence and Aerospace on the rise in India, it is estimated to become the third largest market by 2020, after the US and China. Increasing passenger traffic and military expenditures are expected to boost demand for new aircrafts. Investment opportunities of US$110 billion are anticipated with US$80 billion in new aircraft and US$30 billion in the development of airport infrastructure by 2020, according to the Investment Commission of India. Many global companies are increasingly looking to Indian MSMEs for strategic partnerships of mutual benefit due to the innovative capabilities in niche manufacturing, comparative advantages of advanced engineering, low-cost manufacturing and overheads, ability to speedily absorb new technologies and local skills and capabilities that set these enterprises apart from other national and international players in the sector.
With its vast resource pool of engineering talent and high skill labour at competitive costs, India has the potential to become a significant player in the global auto industry, especially in engineering and component manufacturing. India’s close proximity to key automotive markets like the ASEAN, Japan, Korea and Europe provide an added fillip to the sector. Exports of auto components increased at a CAGR of 17% during 2008-13, reaching USD 9.7 Billion in 2012-13. MSMEs assume a dominant position in the automotive and auto components sector.
Many more lucrative opportunities can be tapped by Indian MSMEs in the foundry industry, electronics industry, chemicals, leather, textiles, agro and food processing, pharmaceuticals, transport and tourism industries, etc. The globalization of businesses has increasingly drawn SMEs into global value chains through different types of cross-border activities. Many entrepreneurs are recognizing the opportunities that this advent ushers and gaining access to global markets has become a strategic instrument for their further development. These opportunities have arisen as a result of the government’s increased focus on the MSME sector, larger investments in research and development, technological upgradation, thrust towards international collaborations and measures to boost competitiveness and propel growth.
Supportive Role of Government of India
Recognizing the potential of this sector for the nation’s development, the Government of India, through its various agencies, has taken many key steps to strengthen the MSME sector and promote innovation and capacity building in this sector. Regular dialogue is facilitated between various stakeholders through the constitution of specific task forces and inter-ministerial committees. The Micro and Small Enterprises¬¬¬-Cluster Development Programme is being implemented by the government for the holistic and integrated development of these enterprises in clusters through soft interventions, hard interventions and infrastructure upgradation for enhancing their productivity and competitiveness. During the year 2014-15, 43 new clusters have been taken up for various interventions. So far, around 966 clusters and 171 infrastructure development programmes have been initiated by the government. Provisions are also being made to strengthen the framework of virtual clusters with an aim to assist MSME accessibility of the Ministry from the remote location of their operation. The Credit Linked Capital Subsidy Scheme also assists in the technological upgradation on MSMEs. The National Manufacturing Competitiveness Programme is another flagship programme of the Ministry of MSME which endeavors to equip these enterprises with technology-based tools in the areas of quality upgradation, productivity, design development, energy efficiency and marketing. To ensure better flow of credit to SMEs, the Ministry has introduced a Policy Package for Stepping up Credit to Small and Medium Enterprises (SMEs) under which it operates schemes like the Credit Guarantee Fund Scheme and the Performance and Credit Rating Scheme.
CII’s Initiatives for Nurturing Indian MSMEs
For over 120 years, CII has been persistently engaged in creating and sustaining an environment conducive to the development of Indian industry through advisory and consultative processes. CII has undertaken a slew of measures for supporting the development of the Indian MSMEs and enhancing their global competitiveness. The Indo-German Manager Training Programme (IGMTP), run with support from the Governments of India and Germany, aims at enhancing the international business and economic potential of Indian enterprises by bringing them in contact with German enterprises. MSMEs have been guided to enhance their competitiveness through the time tested techniques of the Cluster Approach. Along with its strategic partners, about 245 clusters have been constituted by far impacting over 3000 MSMEs. In partnership with the Overseas Human Resources Development Association (HIDA), Japan, CII is operating a training programme on Production Management for Manufacturing in India to enhance production management capability in the Indian manufacturing industry in order to achieve the idea of “Make in India” through Japanese-style Management. To enhance their leadership skills and awareness on diversity management as well as to provide them with networking opportunities, CII runs a training programme on the Empowerment of Women Leaders with HIDA. CII has set up an online SME Finance Facilitation Centre to provide advisory and credit facilitation support to SMEs.
The Make in India Strategy adopted by the Indian Prime Minister Shri Narendra Modi aims to facilitate investment, foster innovation, enhance skill development and build a sustainable eco-system for the manufacturing infrastructure in the country. These measures have succeeded in raising the business confidence in India. The stage has been set through these industry and MSME interventions for a larger share of global business in India which presents opportunities for MSME integration in almost all industry sectors. The Indian MSME sector is poised for rapid growth and integration with major global value chains. Timely policy intervention and due support have promptly resulted in rendering the Indian MSMEs globally competitive.
The views expressed are personal.