#BuildingTomorrow: MSMEs in the Indian Economy

By Aditya Mishra | May 8, 2021

Worldwide, economies rely on their MSMEs (Micro, Small and Medium Enterprises) for job creation and keeping the large enterprises going. India is no exception: MSMEs generate ~30% of India’s GDP, 50% of exports and employment of ~120 million people, the second-largest sector as a source of livelihood for Indians. As India plans to become a 5 trillion-dollar economy, MSMEs will play an important role as well. Let’s focus on the possible actions that MSMEs can take to play a significant role in this growth journey of India.

Ambitious and Inspirational Leadership

Often the entrepreneur is not ambitious enough to envision the future and hence, is unable to chart the path of growth for its key employees. He or she limits his or her aspirations based on what he or she can individually achieve.
In this context, the employees feel that they are mere instruments at the hand of the owner and always consider their employment as a mere source of income. They do not associate professional growth and fulfilment with their work at an MSME.
Often it gets interpreted as a chicken and egg story. But, that’s not true. The entrepreneur has to take the first step of building a vision and a team, aligning the team with the vision. It is not easy to build a strong team, however, one has to persevere until he or she is able to assemble the right people and keep working with them to achieve the vision and the values. They have to work together to co-create the plans and execute them relentlessly.

Organising the Finances

The governments have been working towards enabling MSMEs to contribute better to the GDP, generate greater efficiency and create more jobs. MSMEs typically work with low margins and operate with a lack of economy of scale. For growth, they need finances that are not easy to access in India. Similarly, some companies need M&A support that is tough to come by. For large mandates or orders, an MSME might need a sudden infusion of working capital which is not easy to access, especially when the assets are not adequate to collateralise. Sometimes, the regulatory framework around taxes, licenses and the like could impose challenges in cash flow.
As a result, a large number of MSMEs get constricted, struggle to get out of the bottleneck and destroy organisational value. Hence, at the right time, additional sources of funds are to be organised. Acting at the right time is crucial for the MSME to keep the machine running and seize upon the new opportunities in the market.

Leveraging Technology

As new technology has been making its way, new ways of doing things are evolving and older ways are getting obsolete. As we adopt new technology, we might need to use new equipment, tools and methods. Sometimes, MSMEs want to squeeze the last drop of value out of the established equipment and processes until they become completely obsolescent. As a result, the competition moves forward and becomes better prepared for the future. The cost of late adoption of technology turns out to be high because older methods and equipment cannot match the new ones; thus, the efficiency, quality and sometimes, the product features can be suboptimal if we suffer from inertia. Hence, there has to be an organised attempt to scout for new possibilities and evaluate their relevance proactively.
There has to be a spirit of innovation in our MSMEs so that they can combine their agility with the improved processes and products or services to deliver matchless value to the customers. Their innovation need not be limited to the product or the service; it can be anything from sales and marketing to human resources, supply chain and information technology. The idea is to create value that is hard to match by the competition. MSMEs work at the core of the economy of a country; must discover their strengths and play to them.