4 ways how MSMEs can be agents of economic growth and development

The MSME sector fosters lasting economic growth, provides massive jobs and ensures equitable Indian socio-economic development.

The MSME sector is rightly referred to as the 'backbone of the Indian economy’ as it fosters lasting economic growth, provides massive jobs and ensures equitable Indian socio-economic development. We are confronting the reality of the global economic disruption caused by the COVID-19 pandemic as we fight the ongoing healthcare crisis.

At this critical juncture, an ecosystem that empowers the MSME sector to adapt, survive and thrive is required. Let’s look at the four key focus areas concerning MSMEs i.e. financing, supportive reform, recovery and growth.

MSME financing

MSME growth in India faces several issues due to a lack of adequate financing. The obstacles are numerous, ranging from traditionally risk-averse lending channels, lack of easy access to capital, lack of knowledge about available finance products to high operating costs, and so on. Therefore, there’s a need to increase access to various funding options available to MSME.

To get easier access to funds MSMEs can:

  1. Register for GST to create a verifiable credit history
  2. Leverage TReDS that connects MSMEs with buyers and financiers
  3. Alternate channels of funding such as fintech NBFCs, asset-based financing, alternative debt, hybrid instruments, and equity infusions
MSMEs should do a careful analysis and assess the available financial products in the market for potential benefits as well as drawbacks.

MSME reforms

The Indian MSME sector is not only an engine of economic growth, but it is also the key to meeting the goal of building a self-reliant nation. The government of India (GoI) has undertaken several efforts, through the Ministry of MSMEs and other agencies to address the pressing challenges facing the sector, promote ease of doing business, and boost its economic revival.

Some of the critical initiatives undertaken by the government to develop, support, and sustain the MSME sector are:

  1. Timely payment to MSMEs and grievances against delayed payments
  2. Aatmanirbhar Bharat Scheme – Economic package announced by the Government of India, aimed at achieving self-sufficiency with relief measures announced for MSME sector development
  3. MUDRA scheme – One of the world’s biggest small loans programmes, giving working capital to nearly 20 crore people
  4. The government has also launched different schemes to help MSMEs upgrade to more efficient technology and procure various technology-related licenses.
  5. To boost infrastructure development, the Ministry of MSME and the Government of India (GoI) have adopted the cluster development approach as a critical strategy for enhancing productivity, competitiveness, and capacity building of MSMEs, and their collectives in the country.
  6. TReDS, trade loans, and other measures

MSME recovery

While the GoI has introduced a major stimulus package for MSMEs, there are some global credit sources and NGO funding for projects that are available beyond the government stimulus that an MSME can take advantage of, to fund and support its growth.

Many foreign suppliers are offering extended credit terms at lower financing costs. Several countries have expanded the product lists on their trade agreements with India, especially on pharmaceutical and health-related products, which should be beneficial to the export-led MSME sector.

MSME growth

Transforming MSMEs into a stable and financially self-sustaining sector requires small businesses to leverage available growth opportunities and successfully adapt to the changing needs of the market. Here are some ways that can help strengthen MSMEs by creating an ecosystem of innovation and collaboration.

  1. Power of collective focus - Ministry of MSME has adopted the cluster development strategy. This enables MSME to work together and increases the potential for success
  2. Internet as an equalizer - Data shows that online presence helps MSMEs earn higher revenue, higher profit, and increase their customer base than their brick-and-mortar counterparts.
  3. Building on niche helps make the best use of the core capabilities of the business enterprise in combination with an innovative marketing strategy to achieve greater success and a more sustainable business.
  4. Small can be powerful - Successful MSMEs know that their size gives them the advantage of being nimble, agile, and increases their ability to adapt to changing landscapes, and respond faster to evolving customer needs.
  5. Power of collaboration - Indian MSMEs should look at collaboration with other MSMEs as a powerful differentiator and a competitive advantage.
  6. Strong innovation - MSMEs have a huge potential to introduce innovative, out-of-the-box ideas, successfully market them and scale up quickly.

MSMEs now need to look for opportunities that lie beyond COVID-19 and plan to grow their business by innovating and adopting an agile approach. Strategic adoption of technology will be one of the elements to play a vital role in driving MSME growth in India.

During these times, accountants often play the trusted advisor for small businesses by guiding them on how to tap into financial packages and support them with advice on good governance, legal and ethical practices to ensure long-term and profitable growth.

Edited by Kanishk Singh



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