MSMEs constitute a significant proportion of Indian economy and are a vital contributor to multiple value metrics in the economy viz. GDP, Employment, Exports, Capital generation, Fresh innovations etc. Given the share MSME has in routine economic and social sphere, the support & encouragement framework has also been evolving over time. Recent modifications in the definition of MSME wherein it has been pegged to both turnover and investment in Plant & Machinery is one such progressive step taken in the direction of giving a stronger structure to this segment. However, at a time, when external environment is evolving faster than the organizations & market, MSMEs may need more initiatives to sustain and grow their contribution in the economy of the country.
In this backdrop, we may look at following measures that can lend incremental value to the segment. Unified Training program for promoters – Last two decades have witnessed more evolution and disruption than any recent history. In order to cope up with changing externalities, management of all organizations whether small or big, have to step up and align themselves with the new normal.
While larger organisations have the allocations and intent for such value pursuits, smaller organizations lack on them. Since MSMEs are largely promoter driven, abilities of the promoter rank’s proportional to the fortune of the firm. Hence, it’s imperative that Promoters of these organizations have access to some course or program which can help them keep pace with the new practices of management. Government and regulatory bodies have many training programs on the functional skill side; however, management centric programs do not significantly exist in the same space. Interventions in this area will add a lot of value to the promoters which will then translate into better results of their organizations.
Improvement in Digital understanding and implementation – It’s a paradox that India boasts to be the home to world’s largest IT enabled human resources and its MSMEs are quite low on appreciation and implementation of IT based solutions. The knowledge and practice barrier still poses a challenge to MSMEs towards digital integration. The problem is compounded by inability or unwillingness of MSMEs to spend on technology purchase and invest in technically skilled manpower. MSMEs largely fail to understand that such inhibition is not only limiting their growth but can also make them obsolete in the days to come.
While this problem may be subjective to individual units, cumulative productivity & opportunity loss at the cluster level has impact at the macro level as well. Hence, it’s important that MSMEs understand and feel encouraged to embrace technical up gradation and strategize their growth with IT/Technology as a functional driver. Easier said than done, but it has to be attempted through policy initiatives and incentivization schemes.
Credit dependence & discipline –It might sound a bit against the tide, but its empirical truth that MSMEs enjoy easy and comfortable access to credit facilities in the present times then they used to get earlier. While this is important and critical to their growth, it’s also true that sometimes it contributes to a lack lusture attitude towards maintaining financial discipline. Convenient access to credit from financial system lets them to allow inefficiencies in collections and payment activities.
Sometimes, it also gives them the opportunity to invest in non-core activities. Given this background, it’s important to note that growth oriented MSMEs also need to make themselves stronger on the financial parameters and fiscal discipline. Hence, initiatives and incentivization schemes should be contemplated for MSMEs which shall encourage them to have stricter and functional financial prudence.
It can be attempted by structuring credit exposures in a manner that they are aligned to their payment and realization cycles. Facilities like Open credit and Clean credit should be discouraged. Here it’s pertinent to note that the TReDS(Trade Receivables Discounting System) platform has been postulated with this thought in mind however it’s yet to have half of its potential in its books. MSMEs and their larger counterparties should be encouraged to enrol themselves on TReDS platform and settle their financial transactions there. This will not only discipline MSMEs in financial prudence, but will also impart transparency and reliability to their financial data points.
Start Up initiatives – If we leave aside some popular names which are majorly in the tech space, Start Ups essentially are a micro stage entity at the conceptualization stage. Speaking in a different manner, they are initially nothing but an idea. For these ideas to take shape, funds are required which can range from as low as 10 lac to modestly high at 10 Cr, depending upon the nature and scale. Again, not all promoters or idea generators are well networked in the venture capital space which can help them take off.
Here, it’s pertinent that some sort of institutional support from the Government or quasi government bodies are formulated which can consider investing even small seed capital of 10 lacs or so in the form of equity. Needless to say, such selections are made specifically on merit basis. If such arrangements are brought to life, there will be many progressive idea generators who will get the opportunity to create businesses and contribute to the economy.
There is no disagreement from the fact that a lot is being done for MSMEs, however, the interventions outlined above may further supplement the growth story of Indian MSMEs.
By : by Shailesh Kumar Jha