India is a country of MSMEs (Micro,Small and Medium Enterprises) where of every 100 industrial entities, 95 fall in the category of MSME. With the recent change in definition of MSMEs by the India government, the number will increase even further.

MSME New definition

These MSMEs play a pivotal role in the overall Industrial Development in India contributing:

    • 31% of GDP
    • 33.4% of India’s manufacturing output
    • 45% of total exports of India
    • With around 63.4 million units throughout the geographical expanse of the country
    • About 20 million units in manufacturing alone
    • Employs workforce of around 120+ million

In manufacturing particularly, the supply chain of all the large companies directly or indirectly depend heavily on these MSMEs for fulfillment of orders. Every Central Ministry /Department / PSUs even has an annual target for 25% procurement from MSME Sector.

Despite such strategic importance of MSMEs, they continue to face challenges on multiple fronts when it comes to manufacturing.

    • Procurement of raw materials at competitive prices

      In the manufacturing sector, access to raw materials can make a significant difference in operational efficiency and margins for MSMEs. Unfortunately due their size of requirements they find it difficult to get raw materials at reasonable prices thereby reducing their margins considerably. Also as they have low bargaining power, they need to most often pay advance for the raw materials thereby blocking their working capital.
    • Lack of access to global markets

      90% MSMEs even in this digital age supply within the city boundaries as they face challenges in accessing the markets beyond. Most of these units are single owner/proprietor run businesses where the proprietor has to wear multiple hats of customer support, manager, engineer, technician and accountant thereby leaving very little scope for them to focus on increasing businesses. Thus a lot of these units see sub 10% growth year over year.

    • Lack of skilled manpower

      Given the size of these units, their ability to pay and lack of amenities for its employees, MSMEs find it very difficult to attract and retain skilled manpower. Their modus operandi is more informal thereby making skilled employees look for larger companies that can provide them better pay, benefits, amenities and stability. The lack of skilled manpower hugely affects their quality, delivery and growth

    • Lack of availability of adequate, timely and cheap credit

      Manufacturing industries are most capital intensive as they have the longest working capital cycles which means the money remains locked for a very long time before it generates returns. This makes the access of adequate and timely capital very extremely important for the existence of MSMEs. However, there is a huge dearth of such capital which can be deduced from the fact that about 4% of MSMEs only have access to formal modes of finance. Also the cost of capital is very high for them making it even more difficult to operate in a low margin manufacturing industry.

    • Low technology levels and lack of access to modern technology

      Manufacturing MSMEs in India have low technology levels operating on outdated machines and processes. They are also more labor intensive as access to modern technology still remains a distant dream. It is also one of the reasons why they find it difficult to compete in global markets with peer MSMEs in other countries.

 

The path to USD 5 Trillion economy as envisioned by our Prime minister Mr. Narendra Modi shows huge reliance on MSMEs for pushing up the GDP, exports and employment. All this will remain a distant dream if we don’t address these issues in depth and at the earliest.

 

Ravi Ranjan
Product Manager - CPro

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