Introduction
In India, MSMEs are the most significant source of employment after agriculture. They seem tiny regarding the total number of employees in one enterprise and investment, but there are over 100 lakh MSME units within India, with an investment of more than 1 lakh crore. With so much potential, they are considered the backbone of the Indian economy. Let’s find out what the future holds for Indian MSMEs.
Current Landscape of Indian MSMEs
In the Indian economy, the MSMEs take the central stage since they create employment opportunities for people living in rural and semi-urban areas while breeding innovation and promoting growth. The flagship programs like “Make in India” and “Startup India” have provided a strong foundation for MSMEs to thrive in the Indian economic ecosystem. The advent of the digital wave has not slowed them down but has boosted their competitiveness. MSMEs are embracing cutting-edge technologies to enhance their productivity and growth.
MSME Government Initiatives
The Indian government continues to support the MSME sector with initiatives like “Pradhan Mantri Mudra Yojana”, which offers financial support to MSMEs through various loans and “Make in India”. The government has also helped MSMEs with GST compliance by implementing various GST-related reforms.
Digital Transformation
The digital turn has been a significant catalyst in the transformative growth of MSMEs. The MSMEs have embraced technology with increased internet penetration and the government’s concentrated efforts to foster a digital economy. Adopting technology in MSMEs
has enabled them to streamline their processes and optimise resources effectively. Expanding market reach has opened up new growth opportunities for businesses by crossing geographical boundaries, allowing them to connect with different customer groups.
Enhancing the robustness of the supply chain
The pandemic exposed global supply chain weaknesses, leading MSMEs to reassess and enhance their strategies. MSMSEs actively explore opportunities to source materials from local suppliers, reducing their reliance on the outside market. By diversifying the supplier base, MSMEs minimise risk and ensure continuity.
Addressing Financial Challenges for MSMEs
Even though the government has many initiatives supporting the MSMEs financially, accessing financial help still remains a problem because of a lack of awareness. MSMEs must be aware of available credit options and the processes involved in accessing them.
Cultivating a Skilled and Future-Ready Workforce
MSMEs focus on enhancing digital literacy and virtual collaboration skills among their workforce. This enables seamless remote operations and ensures business continuity in the face of unforeseen disruptions.
Opportunities for Indian MSMEs
Patent subsidies
MSME-registered enterprises are offered up to 50% subsidies on registering their patents to promote innovation and protect intellectual property. This step encourages MSMEs to explore and experiment with new ideas, develop unique products and processes and secure their competitive edge through patenting.
Preferential Financing
MSMEs enjoy discounted interest rates from Banks and under Credit Guarantee Trust Fund Schemes. These options alleviate the financial burden on MSMEs, providing them with support and stability by giving them access to capital on their terms, thus promoting growth and expansion plans.
Thriving Startup Ecosystem
As per the report by NASSCOM, India has produced 66 unicorns. India provides a rich environment for creative new businesses, with many funding options. MSMEs must utilise this potential by developing revolutionary, creative concepts backed by the appropriate incentives.
Shifting to Digital infrastructure
MSMEs are eligible for the Credit Linked Capital Subsidy Scheme (CLCSS), which provides subsidies to support upgrading the technology infrastructure. By embracing modern technologies and solutions, MSMEs can enhance operational efficiency, improve product quality, and remain competitive in a changing market. This financial assistance empowers MSMEs to invest in cutting-edge technologies that drive innovation and enable them to stay ahead of the competition.
Leveraging Service Export
The “Planet, People, and Profit” paradigm summarises the universal pursuit of a simpler corporate regime. MSMEs can position themselves as responsible corporate citizens by embracing sustainable practices and prioritising the well-being of their workforce while maintaining their profit-driven approaches.
Technology Adoption in MSMEs
Cloud Computing:
A way of using computer systems over the internet is known as Cloud Computing.
Cloud computing has the potential to change the operations of MSMEs completely. It can liberate them from the limitations of conventional IT systems. MSMEs can take advantage of various data storage options and software, along with collaborative platforms, to improve flexibility in their operation and facilitate remote work seamlessly.
Using Big Data Analytics to make data-driven decisions.
MSMEs can benefit from big data analytics to uncover valuable insights and make informed decisions. Small and medium-sized businesses (SMBs) can use big data analytics to identify market trends, understand customer preferences, and develop strategies that cater to the evolving demands of the competitive business world.
E-commerce websites.
The e-commerce industry’s growth has changed how MSMEs interact with their customers and handle business operations. E-commerce platforms offer many services, such as Internet stores, making handling products and inventory easy and efficient. Small and medium-sized businesses (MSMEs) can now create an online presence in various e-commerce platforms, bypassing geography’s limitations and reaching the global consumer base.
Challenges and Solutions in Finance
Lack of Financial Literacy
Despite the government trying to boost finance in the MSME sector through various schemes, regulatory holes still exist due to a need for financial literacy. Outdated regulatory practices continue to hinder the growth of MSMEs by stopping them from accessing financial assistance on time. These regulations often have complicated procedures for acquiring business licenses, securing insurance, and conducting tax assessments, creating unnecessary complexities for MSMEs. Financial literacy can be improved by conducting workshops and seminars for MSME entrepreneurs. Furthermore, a helpline channel can be established in banks that assist MSMEs in managing complicated regulatory frameworks.
Inadequate Collateral:
Banks and other financial institutions often require collateral as a prerequisite for loan approvals. However, many MSMEs find themselves in a difficult situation, needing more assets to provide security. Government initiatives can be taken that allow MSMEs to take loans without having to give a considerable amount of money on collateral.
Raising Awareness
The Indian government has introduced several programs and efforts to encourage MSME funding. Nonetheless, the ongoing obstacle is the need for more knowledge regarding these initiatives. MSMEs frequently need access to information about these schemes, which hinders their ability to take advantage of the available opportunities and resources.
Regulatory Environment
Limitations in infrastructure and market.
The lack of proper infrastructure and limited market access have been significant obstacles to the development of the MSME sector.
Nevertheless, the biggest obstacle these businesses encounter is insufficient and punctual availability of financing.
Demand for finances and obstacles in the financial sector
In 2009-10, the informal sector accounted for 80 per cent of the industry’s estimated total financial demand of INR 32.5 trillion. The challenge of this financial crisis is linked to the difficulty in effectively promoting their products.
Challenges with regulations and complexities in taxation.
Many critics have pointed out that India’s tax system is unfavourable for MSME enterprises. Some aspects include but are not limited to the number of payments needed in loan repayment, the procedures for making these payments, and the lack of consistency in taxation among different states.
Also Read:
Development Commissioner (DC-MSME) Schemes
Conclusion
Undoubtedly, MSMEs are the foundation of the Indian economy, but they are still at the beginner stage. They can reach their full potential if a united effort is provided by various players, such as the government, financial institutions, and the private sector. It is essential to take critical measures to support the growth of MSMEs, such as optimising regulatory and taxation laws, which creates a favourable environment for MSMEs, increasing financial access by easing the collateral on loans, improving lending infrastructure, supporting skill development by opening vocational training institutions and encouraging innovation. If MSMEs can overcome various challenges, they will have the potential to become powerful drivers of economic growth, employment opportunities, and overall national progress.