Plays a pivotal role in economic development

MSME Sector : Plays a pivotal role in economic development

An interview with Vipul Goel | Chairman & Managing Director | National Small Industries Corporation Limited

How is the overall scenario of MSME sector in India?

Reply: The micro, small, and medium enterprises (MSME) sector in India indeed represents a critical segment of the economy, contributing approximately 30% to economic growth. India boasts a staggering count of 633.9 lakh MSMEs, with over 99% classified as micro-enterprises, totaling a remarkable 630.5 lakh enterprises. Small businesses make up 0.5% of all MSMEs, totaling 3.3 lakh, while medium-sized enterprises constitute merely 0.01%, amounting to 0.05 lakh. The rural landscape hosts a significant majority with 324.9 lakh businesses, slightly outweighing the 309 lakh MSMEs nestled within urban areas.

Acknowledged as a vibrant and pivotal component of the economy, the MSME sector plays a vital role in driving growth, fostering employment opportunities, and fostering innovation. Its contributions are evident across various sectors and regions, making it a significant pillar of India’s economic landscape.

However, despite the sector’s strengths and the considerable support from government interventions and policies, MSMEs face a myriad of challenges that hinder their self-sustained advancement. Issues such as limited access to credit facilities, infrastructural deficiencies, technological gaps, regulatory complexities, and global market uncertainties pose formidable barriers to their independent growth.

The government’s support and initiatives have undoubtedly played a crucial role in assisting MSMEs. Yet, to truly empower the sector and enable it to chart its distinct growth trajectory, there’s a need for a concerted effort to address the systemic challenges faced by these enterprises. Streamlining access to finance, bridging infrastructure gaps, simplifying regulatory processes, fostering technological advancements, and enhancing global competitiveness are among the critical areas that require focused attention.

Furthermore, while the government’s intervention has been instrumental, a collaborative approach involving public-private partnerships, industry stakeholders, financial institutions, and educational entities could amplify the impact of initiatives aimed at bolstering the MSME sector.

What potential MSME sector has in India?

Reply: The MSME sector holds immense potential in India, being a major source of employment and fostering entrepreneurial spirit. It plays a pivotal role in economic development, especially in rural and semi-urban areas.

India’s MSME sector boasts the world’s second-largest base after China. This diverse sector encompasses the production of over 6,000 products, spanning from traditional to cutting-edge items, and provides an extensive range of services. With the Indian government’s emphasis on fostering a self-reliant economy through initiatives like Atmanirbhar Bharat, the MSME sector is primed for rapid expansion and aims for deeper integration into major global value chains.

MSMEs are key contributors to employment opportunities, providing livelihoods to a large section of the population. According to official statistics, the sector employs over 111 million people, accounting for approximately 25% of India’s total workforce.

The growth of MSMEs has been pivotal in bridging the gap between urban and rural development. It fosters decentralization by nurturing entrepreneurship in smaller towns and villages, driving economic activities in these regions. Around 30% of MSME units are situated in rural areas, playing a crucial role in their development.

The MSME sector significantly contributes to the country’s GDP, accounting for nearly 30% of India’s economy. Additionally, it contributes approximately 48% to the country’s total exports, highlighting its role in foreign trade and global economic integration.

MSMEs serve as incubators for budding entrepreneurs, encouraging innovation and creativity. They offer opportunities for individuals to transform ideas into businesses and contribute to the country’s economic growth.

While the sector exhibits immense potential, it faces challenges such as lack of access to formal credit, inadequate infrastructure, technology adoption barriers, and global market competition. Addressing these challenges is crucial to unlocking the sector’s full potential and maximizing its contributions to the Indian economy.

As per the 73rd round of the National Sample Survey (NSS) conducted in 2015-2016, the Indian government aims to elevate job opportunities within the MSME sector to 16.10 crore by 2025, a significant increase from the existing 11.10 crore positions.

With what objective was NSIC set up?

Reply: The founding principle behind the establishment of the National Small Industries Corporation (NSIC) was to serve as a catalyst for the growth and development of MSMEs in India. NSIC was envisioned as an entity geared towards nurturing these enterprises by extending an array of essential services and assistance programs. Its primary goal is to facilitate the advancement of MSMEs by offering financial aid, technological support, market access, and skill development initiatives. The corporation acts as a pivotal link between these enterprises and government schemes, aiming to empower them to compete effectively in the market and contribute significantly to the nation’s economic growth.

What is the exact role of NSIC in MSME sector?

Reply: Our mission is to promote and support the MSME sector by providing integrated support services covering Marketing, Technology, Finance, and various other services.

The NSIC operates through a network of offices and Technical Centers throughout India. Additionally, NSIC has established Training cum Incubation Centers managed by professional personnel. NSIC offers a range of specialized schemes tailored to enhance the competitiveness of MSMEs, spanning marketing, technology, finance, and other support services.

We facilitate marketing support through initiatives like Consortia and Tender Marketing, Single Point Registration for Government Purchases, and the MSME Global Mart B2B Web Portal, which connects businesses globally.

The corporation also provides Marketing Intelligence, conducts Exhibitions and Technology Fairs, and organizes Buyer-Seller meets to enhance the business capabilities of MSMEs. In terms of credit support, NSIC assists in financing for procurement of raw materials and marketing activities, as well as facilitates credit through various banks. Regarding technology support, NSIC offers advisory services, material testing, product design, common facility support, energy and environment services, and skill enhancement training through its Technical Services Centers and Extension Centers.

Moreover, NSIC has established Software Technology Cum Business Parks, supports the incubation of unemployed youth for setting up new MSMEs, and facilitates international cooperation through exchange programs, exploring new markets, and providing consultancy services in areas such as capacity building, policy, entrepreneurship, and business development.

How do you view the NSIC’s significant progress since its inception?

Reply: NSIC’s evolution since its inception has been instrumental in fostering the growth and resilience of MSMEs across India. Through a spectrum of initiatives, NSIC has orchestrated a transformative journey for these enterprises by providing vital assistance in three pivotal areas: market access, technological advancements, and financial support.

In terms of market access, NSIC has been a driving force, enabling MSMEs to penetrate domestic and international markets. NSIC’s Technical Services Centers have offered essential facilities like training, material testing, product design, and common facility support, empowering these enterprises to adopt contemporary technologies and enhance their competitiveness.

Moreover, the corporation’s focus on exhibitions, technology fairs, and buyer-seller meets has allowed MSMEs to keep abreast of industry trends and best practices, contributing to their technological upgradation.

NSIC’s role in providing credit support has been significant in meeting the financial needs of MSMEs. The credit facilitation through banks has been pivotal in connecting MSMEs with financial institutions, easing the credit acquisition process.

What are the factors affecting MSME sector?

Reply: While many MSMEs compensate for the lack of machinery by training unskilled labor, there’s a trend of workers transitioning to larger companies when given the opportunity. This labor turnover creates a dearth of skilled workers in MSMEs. Additionally, favoring labor-intensive processes over machinery upgrades impacts operational efficiencies, often due to financial constraints. This hampers their competitiveness not just locally but globally as well.

The shortage of affordable and timely credit poses a significant threat to the survival and growth of MSMEs. The credit gap, estimated by the UK Sinha Committee report in June 2019, was between INR 20-25 trillion, hindering their progress. While government support and collateral-free loans are available, financial institutions still perceive these businesses as high-risk, imposing stringent conditions on them.

Furthermore, despite the widespread adoption of digital technology post-pandemic, MSMEs have been slow in integrating these advancements into their operations. To thrive, they need to embrace digital tools across various aspects like process efficiency, supply chain management, e-commerce, and payment systems.

Which are the thrust areas for MSME sector in India?

Reply: The MSME sector in India is placing significant emphasis on several pivotal areas to drive growth and sustainability. Technological advancement involves integrating modern tools and systems into business operations, enhancing efficiency and competitiveness. Skill development initiatives aim to equip the workforce with up-to-date skills, enabling them to adapt to evolving market demands.

Innovation is crucial for fostering new ideas, products, and services, propelling businesses forward and addressing emerging needs. Market expansion strategies involve reaching new domestic and international markets, allowing MSMEs to broaden their customer base. Additionally, promoting sustainable practices ensures that businesses operate responsibly, considering environmental and social impacts while maintaining profitability.

These areas represent a comprehensive approach to strengthen the MSME sector in India, fostering resilience, adaptability, and long-term success.

What are the limitations of MSME sector?

Reply: The MSME sector in India faces several notable limitations. One significant challenge lies in the sector’s limited access to credit. Many MSMEs encounter difficulties in securing loans due to a lack of sufficient collateral or inadequate credit history, restricting their ability to obtain financial support from lending institutions.

Infrastructure remains another critical concern. Shortages in workspaces, utilities, and technological resources pose challenges, impeding the operational efficiency of MSMEs. This inadequacy in infrastructure often hampers their growth potential and competitiveness in the market.

Moreover, the MSME sector’s vulnerability to market fluctuations, both domestic and global, presents a significant obstacle. Changes in market conditions can lead to instability and uncertainties, impacting the growth and sustainability of businesses within this sector.

What are the challenges MSME sector facing today?

Reply: As the UK Sinha Committee Report points out, and the, challenges persist in developing targeted policies addressing infrastructure development, formalization, technology adoption, credit gap reduction, and ensuring timely payments to MSMEs. The implementation of governmental interventions leans more towards the supply side, often struggling to effectively meet the ever-evolving demands of the market.

Addressing infrastructural bottlenecks is crucial, as they currently hinder the competitiveness of MSMEs and restrict their access to both domestic and global markets. Inadequate availability of essential amenities like work sheds, tool rooms, electricity, rural broadband, and innovation hubs acts as deterrents to the sector’s growth. Moreover, the development of MSME clusters has seen minimal private investment and remains largely confined to government organizations.

Facilitating capacity building within MSMEs is crucial. These entities often face information asymmetry problems, lacking access to critical information on various schemes, market opportunities, and necessary managerial, legal, and technical expertise.

What are the important steps taken by NSIC to face the challenges?

Reply: The NSIC initiatives are targeted towards alleviating challenges by providing access to markets, finance technology and information while fostering collaborations and capacity building within the MSME sector.

What are the recent activities of NSIC?

Reply:

NSIC facilitate Micro, Small and Medium Enterprises with a set of specially tailored scheme to enhance their competitiveness. NSIC provides integrated support services under Marketing, Technology, Finance other support services.

Marketing Support:
Marketing Infrastructure
Single Point Registration for Government Purchase
Consortia & Tender Marketing
Raw Material Distribution
MSMEs Global Mart B2B Web Portal for Marketing

Credit Support:
Raw Material on Credit
Credit Facilitation under Bank Tie-Up
Bill Discounting

Technology Support:
Training
Material Testing
Job-Work

Other Marketing support
Participation in Exhibitions and Technology Fairs
Incubation for Small Enterprises
Facilitating Government Initiatives

Another recent initiative is the PM Vishwakarma, was launched on 17th September, 2023 by the Hon’ble Prime Minister to provide end-to-end support to artisans and craftspeople who work with their hands and tools. The Scheme covers artisans and craftspeople engaged in 18 trades, viz. Carpenter (Suthar/Badhai), Boat Maker, Armourer, Blacksmith (Lohar), Hammer and Tool Kit Maker, Locksmith, Goldsmith (Sonar), Potter (Kumhaar), Sculptor (Moortikar, stone carver), Stone breaker, Cobbler (Charmkar)/ Shoesmith/Footwear artisan, Mason (Rajmistri), Basket/Mat/Broom Maker/Coir Weaver, Doll & Toy Maker (Traditional), Barber (Naai), Garland maker (Malakaar), Washerman (Dhobi), Tailor (Darzi) and Fishing Net Maker. NSIC would facilitate those eligible and interested to upgrading their tool kits to meet the competitive market.

Have you any observation on any other issues?

Reply: When looking at the broader scope of issues in the MSME world, it’s not just about the hurdles they face day-to-day. It’s also about urging for changes that could make a real difference in their lives. One big aspect revolves around pushing for policy reforms. It’s like asking for simpler rules, less paperwork, and smoother regulations that won’t tie MSMEs down. We’re talking about making it easier for them to do business, spark new ideas, and grow without unnecessary barriers.

Then there’s this push to make MSMEs more competitive globally. It’s like giving them a ticket to the world stage. That means helping them get into international markets, teaming up with global buddies, and even giving them a nudge to meet those international standards. It’s about boosting their game so they can shine bright in the global market.

And let’s not forget about fairness in growth. It’s not just about the big players; it’s about leveling the field for all sizes of MSMEs. That might mean tailoring help for different kinds of MSMEs—whether they’re small, medium, or micro. It’s about giving everyone a fair shot at success, no matter where they start.

These observations aren’t just about what’s happening now; they’re about how to make things better down the road for MSMEs. It’s like rethinking the system, tweaking the rules, and making sure everyone gets a chance to thrive in this sector.

(Shilpa Bichitra | Special Edition | 2023)