By Dr Sabyasachi Saha & Dr Savitha K L

MSME Growth: During India’s Presidency of the G20, India, as part of the Trade and Investment Working Group, placed MSME as a key agenda item. Prime Minister in his address to the G20 Trade and Investment Ministers’ Meeting in Jaipur on 24 August described India’s best efforts in the area pertaining to procurement, technology, sustainability and integration into value chains. He hailed the proposed ‘Jaipur Initiative to foster seamless flow of information to MSMEs’ which has now been agreed as a major outcome of India’s G20 Presidency.

The role of MSMEs as part of the economy has undeniable and enduring significance similar to agriculture which is an indispensable economic activity. We note that global agricultural markets are highly distorted and act to the detriment of small farmers across the developing world. Barriers to market access also severely affect developing country MSMEs and in both areas India’s negotiating position as the ‘voice of the global south’ is notable.

As India, the largest country, also heads to the third spot in the world in terms of its size of the economy, domestic economic activities hold the key to retaining the momentum as well as generating adequate resilience. Supporting farm and non-farm activities across smallholders and small players remains a unique strategy for India to grow further, thereby balancing capital intensity and labour productivity.

Also read: Leveraging gig economy to drive growth for India’s MSMEs

The bigger challenges for MSMEs come from imperfections in the factor markets. Some of these imperfections particularly in the capital market are severe and therefore, increasingly and rightly so, several initiatives are directed to solve those problems. The MSMEs alongside the rest of the economy faced the turmoil of the pandemic and radiated vulnerabilities causing deep concern.

The COVID-19 relief and stimulus uniquely focused on MSMEs before the government announced support for bigger producers through the Production-Linked-Incentive schemes. Economies of scale at the level of industry have impacted global trade enormously, leading to the concentration of manufacturing.

The focus should be on strategies to delineate the needs of the micro, the small and the medium and learn from global best practices on scale and efficiency. In the age of global value chains, competitiveness may come from scale but not without solving foundational challenges of infrastructure and skills. Realities of dualism and missing middle, particularly, in manufacturing need counter-strategies.

A growing economy would need to be ‘serviced’ and hence there are new opportunities for Indian MSMEs. The imperative is to get the right support at the right place for service sector MSMEs in view of the geographical spread. Conveying information, transferring subsidies, skilling people and connecting markets are now possible at a fraction of the cost and with the speed of the internet.

While leaps in all sectors at a time may seem elusive, MSMEs in India are definitely poised for a significant leap forward in operations, efficiency and management by harnessing India’s digital opportunities. Such transformations would be accelerated through government support and careful reading of the data on a regular basis. Local knowledge systems form a critical base for MSMEs, and so are locally embedded technical institutions like universities and laboratories that have to play a very proactive supportive role.

In the age of the internet, distance may not matter and proactive policies to foster learning, experimentation and innovation are key. Unlike in the case of larger industrial/ business units where scale economies matter, in the case of micro and small units’ real difference would come from improving quality standards, and strong market promotion. However, policies are needed to resolve immediate challenges faced by MSMEs and several positive steps taken in the direction of ease of doing business need to be monitored and upgraded.

Also read: Sachetisation of MSME loans: A game-changer for Indian MSMEs?

There are strong elements of common intangible assets in these sectors including skills, local specificities and learning that give rise to clusters and are spread across the country. It is particularly important, that in regions (including the North Eastern states) where large-scale industrialization or urbanisation has not taken place, there has to be a greater focus on MSMEs for creating sustainable economies.

In recent years there has been a strong focus rural non-farm sector, at the same time there are SHG and women-led development processes that are expanding. It is important to look at these as integrated development models. Women-led development means skilling and entrepreneurship of not only women, but as decision-makers their roles are critical for appropriate skilling and well-being of the next generation of the workforce.

As India prepares for the long haul promising higher and equitable prosperity for all, it is commendable that during India’s G20 Presidency, MSMEs, women-led development, digital public infrastructure and startups form critical areas of deliberations and deliverables. Global consensus in some of these areas would help unlock finance and remove restrictions on business. Long-term monitoring of such initiatives, and their impact on economies, particularly the middle-income and low-income groups would be important.

Dr Sabyasachi Saha is the Associate Professor at Research and Information System for Developing Countries (RIS), New Delhi and Dr Savitha K L is the Assistant Professor at CHRIST (deemed to be university), Bengaluru. Views expressed are personal.

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