If large industries are the “face” of the Indian economy as they provide the most visible aspect, then the MSMEs are surely the “firm feet” that provide a stable foundation to it. MSMEs or Micro, Small and Medium Enterprises are entities that are engaged in the manufacturing, production, processing and preservation of goods and commodities, which have relatively smaller operations as compared to their larger counterparts. MSMEs are often referred to as the spine of the Indian economy, because they are one of the major sources of growth, prosperity, innovation, and economic as well as social development in the country.
As per latest available data, over 80 lakh MSMEs are registered on the government’s Udyam portal as of 2022. Out of this, over 76 lakh are micro enterprises, over 3 lakh are small enterprises and over 35,000 are medium enterprises. The State of Maharashtra (20%) has the maximum share in the total number of MSMEs registered on the portal followed by Tamil Nadu (11%) and Gujarat (8%). According to a Forbes report, in India, 96% of all industrial units belong to small companies. They also account for 40% of the nation’s overall industrial production and 42% of all exports. Over the last six years, there has been a 110% yearly increase in the creation of jobs, most of which can be attributed to the proliferation of MSMEs in India, as attested by multiple experts and industry watchers over the last few years.
Despite these great numbers, MSMEs face many challenges in India. These include, but are not restricted to poor infrastructure, lack of adequate skilling (despite the government introducing multiple schemes like the Skill Upgradation and Mahila Coir Yojana under Coir Vikas Yojana), lack of standardised policies and most importantly, a lack of innovation. If MSMEs do not keep up with the times, they cannot thrive and in a financial market that is skewed against them from the beginning as a result of capitalism and corporate monopoly.
What can be done to counter this vacuum created by innovation inertia in MSMEs? Tech-based solutions is the answer here. Whether it is packaging, inventory management, recruitment, customer acquisition or even shipping and logistics, MSMEs should turn to automating each step of the way. Many fintech companies are now coming forward to solve these challenges, and partner with them in their growth journey. From providing easy access to financial markets and banking products, and setting up cash flow management to assisted modules that help businesses become tech-enabled, there are many examples happening right in front of our eyes. This Fintech-MSME partnership allows for greater financial flexibility by allowing the MSME to choose tailored solutions suited to their business life cycles. This lays a path for small businesses, especially in rural areas, to become modern and suited to face the digital ecosystem of today.
An area where MSMEs are currently entering, and can benefit from increased adoption of tech- based solutions is the defence sector. Currently, India exports its defence products to over 85 countries, and its defence exports is reported to have reached an all time high level of 21,083 crore in financial year 2023. However, imports are still high and India is still the world’s largest importer of arms, despite the government’s continued efforts to build a strong and self-sufficient defence-industrial system.
Putting the focus on MSMEs to manufacture defence products and supplies is the way to go. The Indian government has already seen merit in this idea since the introduction of the Micro, Small and Medium Enterprises Development (MSME) Act, 2006 which aimed to boost India’s manufacturing and service sectors. In an effort to reduce dependence on imports, The ‘Make in India’ initiative, which aims to achieve 70% indigenisation has also been a priority for the defence sector.
MSMEs are already involved in supplying parts (as Tier-II, III and IV suppliers) to various government defence agencies (DPSUs, OFB) and private companies (OEMs) that build military equipment. The Indian government’s focus on making more defence equipment domestically creates opportunities for these MSMEs to sell the parts and sub-assemblies that big companies need to meet government requirements. Also, because the government’s defence needs are more transparent now, it’s easier for MSMEs to understand what’s in demand.
The main challenges faced by smaller companies in this sector are mainly competition from larger and established players, financing troubles, and compliance issues. Technology can help transform most of these problems into opportunities and help MSMEs flourish. For example, AI is being increasingly incorporated by smaller defence manufacturers to optimise supply chains and designs, supply materials and and even predict failures to streamline the whole manufacturing process. However, the government should support smaller defence manufacturers with enough financial support so that these technological innovations can be used to further scale up operations.
The future is bright for small enterprises to shine in this field. The recent announcements by the Indian government that restrict foreign defence procurement up to 200 crore, creation of a list for banned weapons and platforms for imports, separate budget for domestic capital procurement, rationalisation of GSQR and testing requirements are a nod in this direction. MSMEs can make themselves better by collaborating with bigger companies, specialising in niche categories like parts assembly, and of course investing more in technology.
Author: Sanjeev Kumar – Co-Founder and CEO, Logic Fruit Technologies
