October 5, 2022

Unitranche

Supportive Business Potential

MSME Associations Unsung Efforts -Srinath Sridharan

The Micro, Small and Medium Enterprises (MSME) sector is critically important for the economic and social development of India, as it not only fosters entrepreneurship and nation building, but correspondingly generates large employment opportunities at a comparatively lower capital cost. The lower end of the industry has single-person entrepreneurs like grocers and everything in between from commercial vehicle owners to village craftswomen. Thus, it is a vast spectrum of businesses and employability both.

However not much is known about how many (M)SME units were revived through credit supply. Research has indicated that the Emergency Credit Line Guarantee Scheme (ECLGS) provided the much-needed additional credit to more than 1.3 crore MSMEs and helped them mitigate the adverse impact of the pandemic. As per the MSME ministry’s Udyam registration portal, as on 19 March, 2022, the registered MSME units stood at 73,83,333. Since the total number of MSMEs is 6.34 crore (as per the ministry statistics), this means only 11 per cent MSMEs are registered and have access to formal institutional credit support.

Also, not much is known, with even reasonable accuracy, about what more needs to be done to help the sector, as most MSMEs work in the informal sector, are self-financed, and outside the formal credit system! On 3 February, 2022, the government replied to a parliamentarian’s query about how many MSMEs were closed down temporarily or permanently during the pandemic. The government’s response was, “As MSMEs function in both formal and informal sectors, data regarding temporary and permanent closure of MSMEs are not centrally maintained.”

The MSME industry associations traditionally have been a key policy input force for the industry, as the industry is fragmented and spread across the country. These associations have been functioning for the cause of the sector, despite not having the ability to raise large sums of funding, that other larger industrial associations have been able to. As the government accelerates its efforts to develop the MSME sector, it would benefit from using the network and expertise of these industry associations.

*Value-Add by the Industry Associations

*Show & Tell

Trade shows, if utilised well, are powerful business drivers, revenue-accretive and positive branding reinforcement. Many of these trade associations take the lead in participating in global trade shows; this brings cost efficiency to the industry participants to showcase their products collectively and to pitch to the potential global buyers.

Their efforts can be further supplemented if Indian policy makers enable a world-class ‘India Trade show’ regularly that can showcase Indian prowess across various SME / MSME verticals. This can also be promoted by various Indian consuls around the world. It would also help showcase India as an investment destination in those MSME micro-sectors, and not just as a supplier of products to the world.

*Policy Development Inputs

Since the MSME industry is scattered and to bring in collective knowledge and policy inputs, industry associations are a pivotal force. Unlike the large-scale industry associations where the worry of misuse of lobbying power for specific (large) member companies, the MSME industry associations don’t have that baggage. Their members are small / mid-sized and rightfully need their voices to be heard. The industry associations bring in that grassroots level operational issues and policy impetus needed as inputs to the policy makers.

*Associations can Learn from Their Global Peers

*Academia and R&D depth 

Picking up learnings from China and Germany where SME / MSME contribute a large proportion of economy, “skilling” and “research” capabilities could be useful. While we have had partial success with skilling initiatives in the past few years, it is time that we encourage our universities to work with the MSME sector; to develop new products, especially where our manufacturing verticals are concerned. Some funding in the form of research grants can be provided by the government to support innovation.

Within these university ecosystems, we could think of setting up “SME Industry Skilling Institutes (SISI)” focussed on specific micro segments. Yet again, if we can tweak our current regulatory framework, we can improve interaction and collaborative hands-on efforts between the industry and academia.

A case in point: Can we allow a professor to work with an industry association or even a MSME firm on deputation or private-service secondment? (We need to allow such a deputation, to count for “service continuity” in the university. Else the academic talent won’t move to work with the industry).

*Co-Shared Industry Parks 

There is also an example of state governments allotting land for an industry body to develop and set up a dedicated machine-tool park. Again Taiwan has been a pioneer in this and that’s what’s helped them in being a global exporter of electronics.

Can more state governments grant large tracts of industrial land (with built-infrastructure) to industry associations so that their members ‒ the local state MSME manufacturers ‒ can set up shop and benefit from it?

*Atmanirbharta & Pre-bid Criteria 

In the innovation race that we live in, pre-bidding eligibility of “prior experience” could deter any innovation at all. By its very nature, innovation needs an ecosystem with the ability to experiment! For example, we won’t have a company with a product with the prior three years of usage, if it’s a new innovation! Policy makers can help the industry by taking care of these anomalies in the old rules and regulations. Globally policy makers encourage new innovation with relaxation in rules for initial pilot attempts.

It is imperative that in the entire MSME policy framework, there are more concerted efforts to involve the industry associations. There is much of native intelligence and cumulative sectoral knowledge that resides with industry associations, which need to be harnessed for sectoral progress. By empowering the industry associations, and working with them, policy engagement can be honed with sectoral insights and requirements.

The author is Corporate Advisor & Independent markets commentator

Twitter : @ssmumbai