The MSME sector would be at the center stage in the Indian economy in the coming years to help achieve Prime Minister Narendra Modi’s vision of a $5 trillion economy. There are over 6.3 crore MSMEs in India that contribute more than 45 percent of the country’s industrial output and employ over 111 million people, the single largest employer in the non-farming sector after agriculture. In addition, the MSMEs contribute significantly to exports. To take a leap forward and achieve the $5 trillion economy target, the MSME sector in India would need to have more focus on technology upgradation, targeted import substitution endeavors and make conscientious efforts to enhance exports and help the country compete with neighboring economies.
The prime minister’s call to take up the ‘Make in India’ and ‘Start-up India’ initiatives has already laid the foundation in this direction. This has realigned India’s economic growth strategy and brought the country’s manufacturing sector growth to the fore. Moreover, India’s rank in the World Bank’s ease of doing business has also shown a significant stride by rising from the rank of 130 in 2017 to 77 in 2019. India’s rank in the Global Innovation Index has also improved from 60th position in 2017 to 57
th in 2018.
The Ministry of MSME is supporting the sector by a host of schemes and initiatives that aim at strengthening the development life cycle. From support in starting a business and marketing assistance to facilitating formal finance while addressing infrastructural capacity challenges and technological obsolescence, the government has introduced a number of measures towards promotion of the MSME sector.
At a policy level, the public procurement policy was a welcome step which mandated 20 percent of the annual central public sector enterprises (CPSE) procurement to be earmarked from the MSEs. As a result, government, which is the biggest buyer in the country, is now a ready market for MSEs. Moreover, the mandate was further enhanced to 25 percent in November last year. As a result, in FY 2018-19, procurement of goods and services worth Rs 40,333.3 crore was done from MSEs benefitting 1,26,634 MSEs. Moreover, procurement worth Rs 823.37 crore was done from SC/ST-owned MSEs, while procurement worth Rs 231.19 crore was done from women-owned MSEs. In the last 5 years, the overall procurement of CPSEs has increased from 11.61 percent to 26.65 percent. The procurement from the SC/ST-owned MSEs has also increased ten-fold. One of the reasons for this increase is the MSME ‘Sambandh’ portal which is monitoring the implementation of public procurement policy for micro and small enterprises.
In addition to this, all the public sector enterprises have also been mandated to be a member of the government’s e-marketplace (GeM) to facilitate online procurement of commonly used goods and services and bring about greater efficiency and transparency into the central procurement process.
Moreover, the Trade Receivable e-Discounting System (TReDS) platform has also been introduced for facilitating the financing of trade receivables of MSMEs through multiple financiers. More than 3,700 MSME sellers, 600-plus buyers (including 75 PSUs) and 70-plus banks have been registered on TReDS platform. Invoices worth Rs 6,699 crore have been financed through this digital initiative.
To promote ease of access to credit, PSB loans initiative had been introduced. PSB loans portal enables MSMEs to get the in-principle approval of loans in 59 minutes. The scheme has witnessed an increase in amount of loan sanctioned by 5,959 percent.
On the technological front, the government is going to invest Rs 6,000 crore to facilitate technological advancement by developing state-of-the-art tool rooms and bringing in global experts who would help in training the Indian Technology Centre experts and help in joint product development. In addition to this, the government’s Credit Linked Capacity Subsidy - Technological Upgradation has also facilitated MSMEs to upgrade their technology by providing an upfront capital subsidy of 15 percent. Similar initiatives have been introduced to skill and upskill entrepreneurs while focus on infrastructure and common facilities has been provided through the Cluster Development Programme.
However, to achieve the $5 trillion goal, systemic changes need to be administered. The Ministry of MSME realises this and is therefore, in the process of expanding its footprint significantly across the country. With a focus on incubation, awareness, facilitation and support to struggling MSMEs, the ministry now plans to offer extended support to aspiring as well as existing entrepreneurs in each district. Coupled with the existing schemes, it is also continuously trying to create synergies within the sector and developing potential strategies to improve linkages between the government, industry and academia.
Timely credit availability is a pivotal requirement of MSMEs. The government has strengthened the Credit Guarantee Fund so as to enhance the guarantee coverage of loans to micro and small enterprises. As a result of some key structural reforms in the scheme, the credit guarantee coverage rose from Rs19,066 crore in 2017-18 to Rs 30,168 crore in 2018-19. Similarly, the number of MSEs that benefitted rose from 2,63,195 in 2017-18 to 4,35,520 in 2018-19, recording a 65 percent growth.
These measures will cumulatively help the Indian MSMEs grow, expand and over time be an integral part of the global value chain system – providing customers across the world globally competitive, best priced, high quality products. We hope that all these initiatives will change the way the world looks at the Indian manufacturing industry and conversely, also the way Indian entrepreneurs interact with their international counterparts. We can expect that given this large support from the ministry, more Indian enterprises will stand at par with their international partners and help drive India’s industrial growth trajectory to reach new heights.
Arun Kumar Panda is Secretary at Ministry of Small and Medium Enterprises.