Empowering MSMEs: Unlocking India’s Trillion-Dollar Manufacturing Potential

India achieved a remarkable milestone: becoming the second-largest smartphone manufacturer in the world. Over the past decade, India has manufactured over 2.5 billion phones, mainly for giants like Apple and Samsung.

Whether in EVs, semiconductors, electronics manufacturing, the electric vehicle ecosystem, renewable energy, or defence, India’s manufacturing sector is dramatically transforming. The sector is becoming a critical pillar of the nation’s economic growth. Currently contributing about 17% to the GDP, the sector aims to increase its share to 25% by 2025 through government initiatives like “Make in India.”

The stage is set for India’s manufacturing market to hit the $1 trillion milestone by 2025-26.

It is noteworthy that the real unsung heroes of the growing manufacturing sector are the MSMEs. These micro, small, and medium enterprises contribute 33% to manufacturing output. They will be crucial to realizing the vision of a trillion-dollar manufacturing output and, ultimately, a $5 trillion economy by 2025.

The Role of MSMEs in India’s Economy

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of India’s economic growth. Often dubbed “the engine of growth,” MSMEs have significantly contributed to the nation’s development by creating employment opportunities (second only to the agriculture sector), enhancing manufacturing capabilities, reducing regional disparities, balancing wealth distribution, and significantly contributing to the GDP. Together, they account for nearly 27% of India’s GDP, underscoring their vital role in driving economic progress and fostering grassroots entrepreneurship.

Employment generation is a crucial strength of MSMEs in India, providing livelihoods to over 111 million people through 63 million enterprises. This vast employment base highlights their crucial role in supporting livelihoods and mitigating unemployment.

On the global stage, MSMEs are pivotal to India’s trade ecosystem, contributing over 49% of the country’s total exports.

MSMEs are known for their versatility and innovation, producing a wide range of products—over 8,000 value-added items, from traditional handicrafts to cutting-edge high-tech goods. This diversity showcases their ability to adapt and meet market demands effectively.

Besides contributing to the macros, MSMEs promote regional development and reduce socio-economic disparities, especially in rural and underserved areas. These enterprises generate employment opportunities for the local population, improving livelihoods and reducing poverty. MSMEs often offer training to local workers, equipping them with valuable skills and increasing their employability. This, in turn, enhances the region’s economic capacity as increased earnings lead to improved living standards and greater purchasing power within the community.

Key Levers for Enabling MSMEs in Sustainable Growth

Despite their significant contribution to the economy and the government’s substantial support, MSMEs continue to encounter challenges such as limited access to finance, infrastructure bottlenecks, skill gaps, low adoption of advanced technology, and logistical limitations for last-mile deliveries. Overcoming these obstacles is crucial to placing MSMEs on a path of sustainable growth. Here are some ways:

Leveraging Technology

Technology is a key lever for enabling MSMEs in India to achieve sustainable growth. By adopting digital tools and platforms, MSMEs can enhance their operational efficiency, reduce costs, and improve product quality. Advanced technologies such as cloud computing, artificial intelligence, and the Internet of Things (IoT) enable better inventory management, streamlined supply chains, and data-driven decision-making. E-commerce platforms expand market reach, allowing MSMEs to access global markets and increase sales. Moreover, digital payment systems and fintech solutions simplify financial transactions and improve access to credit. Overall, technology empowers MSMEs to innovate, compete effectively, and grow sustainably in the dynamic business landscape.

Initiatives like the Credit Linked Capital Subsidy Scheme (CLCSS) and the Technology Upgradation Fund Scheme (TUFS) provide financial assistance to MSMEs. These schemes help businesses upgrade their technology and machinery, enhancing their competitiveness in the market.

Empowering MSMEs Through Accessible Financing

Empowering MSMEs through accessible financing involves a multi-faceted approach that includes simplifying loan processes, leveraging technology, and exploring alternative funding sources.

• Simplifying Loan Application Processes: Reducing bureaucratic red tape and simplifying documentation requirements can make it easier for MSMEs to apply for and receive loans.Implementing online application portals can expedite the loan application and approval process, making it more convenient for MSMEs to access funds.
• Exploring Alternative Financing Options: Those who follow Shark Tank India would remember “JugaduKamlesh” from a village in Maharashtra. He pitched a pesticide spraying device that farmers could use without carrying heavy chemical tanks on their backs. Due to traditional methods’ lack of credit, he turned to Shark Tank and received funding and training to enhance his prototype.

Like Kamlesh, many MSME entrepreneurs are exploring credit options beyond traditional loans. Alternative financing options like venture capital, angel funding, and crowdfunding could be beneficial for helping MSMEs scale their operations and bring new products to market.

• Strengthening Microfinance Institutions (MFIs): Enhancing the capacity and reach of MFIs can provide microloans to small businesses, especially in rural and semi-urban areas where traditional banking services may be limited. Developing loan products tailored to the specific needs of MSMEs, such as short-term working capital loans or equipment financing, can better support their growth.

Supply Chain Resilience

Building resilient supply chains is crucial for Micro, Small, and Medium Enterprises (MSMEs) to sustain and thrive amid disruptions. A robust supply chain ensures businesses can maintain operations during economic shocks, natural disasters, or unforeseen events, mitigating risks and minimizing downtime.

The COVID-19 pandemic highlighted vulnerabilities in global supply chains, particularly for MSMEs dependent on distant suppliers.

Local sourcing by MSMEs shortens supply chains, supports local economies, and reduces carbon footprints (a bonus!). It creates opportunities for local businesses and contributes to national economic stability, reducing vulnerability to external shocks. Initiatives like “Atmanirbhar Bharat” in India support domestic sourcing, enhancing economic self-sufficiency and resilience.

Collaboration and networking are essential for building resilient supply chains. MSMEs can share resources, information, and best practices, enhancing their ability to respond to disruptions effectively. Industry clusters, like those in textiles in Tirupur or auto components in Pune, exemplify successful collaborative efforts.

Final Thoughts: Empowering MSMEs for India’s Economic Future

Micro, Small, and Medium Enterprises (MSMEs) are pivotal to India’s economic growth and the manufacturing sector’s vitality. They significantly contribute to employment, GDP, and exports, playing a crucial role in reducing regional disparities and fostering entrepreneurship.

Reiterating the words of UN chief AntónioGuterres here, “We must create environments that support MSMEs and drive financial inclusion to provide equal access to markets and finance. We need to help strengthen the ability of these businesses to withstand hard times. And we need to work to build sustainable supply chains that benefit workers and respect the environment.”

Thus, by empowering MSMEs, India can realize its vision of a robust trillion-dollar manufacturing sector, fueling economic prosperity and sustainable development.