Do it yourself

Unfortunately, in the past 10 years, especially in the wake of demonetization, GST implementation and Covid-19 pandemic, India’s MSME sector has faced serious challenges to growth.

The NITI Aayog in a recent report, “Enhancing Competitiveness of MSMEs in India,” prepared in collaboration with the Institute for Competitiveness, has provided a strategic roadmap to strengthen India’s MSME sector. The report identifies key challenges and proposes reforms across financing, skilling, innovation, and market access, with a focus on textiles, chemicals, automotive, and food processing sectors. The report examines the key challenges faced by the MSME sector in India and makes some good recommendations to overcome these challenges.

Among other things, the report emphasizes the importance of integrating into the global value chains (GVC) for India’s MSMEs. Pertinent to note that India is still a fringe player in GVC, representing only 1.5% of global GVC exports or $241 billion as of 2017, with the largest share, about 10%, heading to the United States.

As per the report, “Integration into GVC refers to the extent to which a nation’s exports are embedded within multi-stage international trade processes. This concept refers to the integration of domestic value added into the exports of other nations, as well as the incorporation of foreign value added into a nation’s exports. The proportion of a nation’s total exports that is comprised of GVC participation provides a quantitative assessment of the extent to which its export sector relies on GVCs. GVC metrics also play a crucial role in assessing the extent to which sectors depend on international manufacturing networks.

GVCs are crucial for engaging with the global market, by concentrating on the development of specialised products and specialising in particular segments of the production chain. Furthermore, GVCs serve as critical facilitators of the international exchange of investment, knowledge, and managerial practices that are in line with global standards, thereby significantly bolstering domestic businesses. Gaining access to these globally recognised best practices offers emerging economies unparalleled prospects for growth and the augmentation of their export capabilities.”

Key Challenges faced by India’s MSMEs:

Financing: Only 19% of MSME credit demand was met by FY21, with an ₹80 lakh crore credit gap due to limited formal loan access and high-risk perception.

Skilling: A significant portion of the workforce lacks formal vocational training, hindering productivity and scalability.

Innovation & Technology: Limited R&D investment, outdated technology, and barriers like poor internet connectivity and high costs impede digital adoption.

Market Access: Low product diversification, weak branding, and inadequate marketing facilities limit competitiveness.

Data Gaps: Inadequate data, especially via the UDYAM portal, hinders policymaking.

“Missing Middle”: A lack of medium-sized enterprises (97.92% micro, 1.89% small, 0.01% medium as of 2023) restricts sector growth.

Recommendations to meet challenges

Financing: Revamp the Credit Guarantee Fund Trust, support NBFCs, and ease state-level subsidy norms.

Skilling: Expand vocational training and address the 3.9% drop in knowledge-based hiring.

Technology & Innovation: Promote AI adoption, subsidize technological upgrades, and invest in Industry 4.0 for textiles and chemicals.

Market Access: Provide export incentives, quality certifications, and digital marketing training, with a focus on northeastern and eastern India.

Policy & Data: Enhance state-level policy awareness, improve data integration (e.g., via PLFS and UDYAM), and engage stakeholders like women-owned enterprises.

The report emphasizes cluster-based development, stronger institutional collaborations, and consistent policy monitoring to integrate MSMEs into global value chains (GVC), fostering sustainable economic growth.