Topic-Unlocking the growth potential of SMEs in India

It is a fact that the MSME sector doesn’t receive the kind of limelight and attention that listed firms and multinationals draw, despite its critical role in the Indian economy. As per the MSME ministry’s FY21 figures, over 6.33 crore MSMEs dot the landscape of India. Over the years, the contribution of the MSME sector to the GDP has remained constant at an incredible 30%. However, MSMEs in India continue to operate in obscurity while persistently underperforming. There is a course correction for those who wish to strengthen their position, but it demands an appetite for innovation and synchronization between the old manual and the digital paradigm.

Bottlenecks to MSME growth

•    Lack of capital

This domain has been struggling for decades due to high barriers to accessing credit. Banks often demand collateral which discourages many entrepreneurs. Consequently, many ventures that could have altered market dynamics don’t take-off the ground.

•    Lack of talent

Operations of MSME units are hemmed in by limited working capital and have little to no resources for recruitment of good talent. Further, larger firms pull-in promising talent thanks to their deep pockets.

•    Digital gulf

Millions of micro units across India are still to equip themselves with digital operations. Inventory monitoring, accounts, payments, and more are still handled traditionally. In a world of lightning-fast payments, undigitized MSMEs get marginalized.

•    Information deficit

MSME units often become victims of their geography. Operating within a small region blinds them to changes in the larger market. These small firms also have limited access to market intelligence and trends, which leaves them vulnerable to disruptions.

Strategies for growth

•    Digital transformation

A digital redesign of the entire business layout and product pipeline can help the firm compete with the prominent players and, perhaps, with an additional capital boost, help it climb to the top.

•    Market-oriented decision making

Data-based insights can help entrepreneurs curb cash flow leakages and supply chain issues. An agile business can also draw up schematics for a future-ready, disruption-proof business that will deliver through all kinds of market fluctuations.

•    Consumer centricity

Consumer centricity is the prime marker of all market-dominating companies. Firms that assume they know better than the customer often end up scripting their own obsolescence.

•    Graded scaling

Scaling endeavours fail because of their timing: they are either paced too slow or too fast. Smarter entrepreneurial risk-taking can help a business develop steadily, ensuring the company delivers stellar returns without wasting precious capital.

•    Rich cash flow

Businesses often struggle by not focusing enough on cultivating a rich cash flow stream. An over-leveraged company might have all the trappings of a growing business, but it is only a crisis away from collapsing.

•    Reducing administrative costs

Administrative cost overruns can scrape away profits. MSMEs often rely on human resources for jobs that can be performed cheaply by computers and machines. Rightsizing is vital to insulate against rising costs and increase net profits.

• Sponsor Programs

Reskilling in-house talent is a proven solution to the talent shortage. To address the lack of professional skills, MSMEs could sponsor skill set enhancing programs. New recruits, with time, could be moved up the ladder and their skill set could be leveraged to train others.

Avenues for growth via registration

There are plenty of benefits for MSMEs that opt to register themselves with local, state, and central authorities. A host of schemes have been designed by the state governments and the MSME ministry to foster the growth of these units. Several financial programs, from a facility for availing collateral-free bank loans, exemptions on overdraft interest rates, protection against delayed payments, electricity bill concessions, and many more, are being dished out to support MSMEs. Other schemes include subsidies on patent registration, reimbursement of ISO certificate charges, and access to business incubators.

The way forward

MSMEs are the untapped resources that can propel the Indian economy to new heights, provided they embrace automation and new dimensions of technology while simultaneously scaling up their business. It is only then that MSMEs can compete with larger firms. One major push for the Indian MSMEs is apparent from the ONDC play by the central government. As ONDC is implemented, the structural inequalities between more prominent firms and smaller stakeholders will be reduced, creating a more level playing field for all.

(The author is Mr. Karan Gupta, Senior Vice-President, SME Online- Moglix and the views expressed in this article are his own)