Make in India is a very ambitious programme launched by the Government of India to transform the country into a global hub for manufacturing. The goal is to raise the share of the manufacturing sector in the economy from the current level of 16% to 25% by 2025. It targets 25 sectors of the economy ranging from automobile and aviation to textiles, tourism and hospitality. The government has taken a number of steps to achieve this goal including promoting foreign direct investment in new sectors such as defence, railways and medical devices and launching a number of sectoral programmes such as Digital India, Startup India, Standup India, Skill India, Smart Cities, etc.
Can the micro, small and medium enterprises (MSMEs) serve as the drivers of this programme? MSMEs have been recognized the world over as the prime drivers of innovation, economic growth and employment generation. In India too, the MSME sector is a vital part of our economy with over 6.30 crore enterprises providing employment to nearly 12 crore people. Over 99% of these units are in the micro sector with investments of less than Rs. 25 lakhs in plant and machinery. The MSMEs in the manufacturing sector, comprising around 1.97 crore units, produce over 7000 products, contribute over 7% to India’s GDP and account for around 45% of the total manufacturing output and over 40% of exports. In some sectors, such as auto components, leather goods, textiles and garments, engineering items and gems and jewellery, Indian MSMEs have acquired global competitiveness. Thus, MSMEs have great potential to enhance the manufacturing sector’s contribution to our economy. How can this potential be realized?
At an operational level, MSMEs face several challenges that need to be addressed to make them more competitive and efficient. These challenges pertain to five main areas: access to finance, availability of skilled labour, access to quality infrastructure and latest technologies, and forward linkages to markets. Access to credit at reasonable interest rates without collateral remains one of the foremost challenges that affect the operational viability of MSMEs. Recent schemes such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGFTMSE) and the Mudra Yojana to provide collateral free loans aim at easing the access to credit for this sector. However, access to collateral free credit remains a major issue for a large number of MSMEs due to non-uniform implementation of the schemes. This needs to be addressed immediately.
Availability of skilled labour is another critical need for this sector. The country can reap the demographic advantage of its young population only when skilling of the working age people is taken up on a massive scale. Programmes such as Skill India aim at addressing this requirement and MSMEs are expected to benefit from this programme in a big way.
Access to quality infrastructure is another major area of concern that needs to be addressed to reduce the cost of operations for the MSMEs and make them more competitive. Internationally, cluster development approach has been shown to be the most effective in providing both soft and hard infrastructure to this sector. These include common facilities such as effluent treatment plants, utilities (water, power, communications, etc.), access to technology, research and development (R&D), testing centers, markets, finance, upgradation of skills, etc. Though we have adopted this approach in a large number of MSME clusters around the country, we need to further enhance our cluster development strategy in line with the international best practices. In addition, specific schemes for encouraging innovation, improving quality, R&D and upgradation of technology by the MSMEs would be very helpful in making them internationally competitive.
Access to markets is another critical area of concern for this sector. Recent initiatives such as the new public procurement policy mandating that all central ministries and PSUs procure at least 20% of their annual purchases of products and services from the micro and small enterprises and the new Defence Procurement Procedure for promoting domestic manufacturing of defence products with a focus on MSMEs are aimed at addressing this concern. However, developing export competitiveness and access to global markets remain formidable challenges for the MSMEs that need to be addressed through specific long term strategies.
Developing a vibrant startup ecosystem in the country is vital to the success of Make in India. We must recognize that holistic success of Make in India depends not only on domestic manufacturing but also on indigenous design and development capabilities. Though India has the third largest startup ecosystem in the world, a large part of it is focused on the emerging technologies space. We need to devise specific strategies to promote innovative startups in design, development and manufacturing.
A number of factors relevant to the success of programmes like Make in India are captured in the overall ‘Ease of Doing Business’ (EoDB) parameters in the country. India has shown a remarkable improvement in the latest EoDB ranking by the World Bank, rising 30 places to be ranked within the top 100 countries. However, more steps need to be taken to address the challenges that the MSMEs face in the country as noted above. The MSMEs are well poised to exploit the huge opportunities that programmes like Make in India have opened up in the country. We need to provide a supporting policy environment to make them realize their potential.
(The above article was published in Deccan Chronicle on April 16, 2018.)
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