Indian MSMEs are adopting technological innovations, letting go of traditional industrial approaches

In India, MSMEs have a pivotal role to play in the overall growth of industrial economy. In recent years, the MSME sector has consistently registered higher growth rate compared to the overall industrial sector. In India MSMEs contribute nearly 45% to manufacturing and about 40% to the Indian export sector. Their contribution to the Indian GDP is 8% and the sector has registered growth rate of 10.8% Indian MSMEs have moved up the value chain from manufacture of simple goods to manufacture of sophisticated products. In line with the overall growth in Indian economy, SMEs have entered the services sector as well. Associated with this high growth rates, MSMEs in India are also facing a number of problems like suboptimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenario. To survive with such issues and compete with large and global enterprises, MSMEs need to adopt innovative approaches in their working. Innovation could be on multiple parameters like business processes, product/ service development, technology, handling external environment to compete with large enterprises globally. With its agility and dynamism, the sector has shown admirable innovativeness and adaptability to survive the recent economic downturn and recession. Clustering and networking approach adopted by Government of India and State Governments for development of MSMEs has helped these enterprises in boosting their competitiveness. Indian SMEs are also implementing new and innovative information and communication technologies on a large scale like Software as a Service (SaaS) and Infrastructure as a Service (IaaS). This publication focuses on changing landscape of MSME in India and the opportunity that the Indian landscape offers for the growth of MSME with the theme Innovation. CII in association with PwC as knowledge partner is proud to release this thought leadership publication “Innovation – changing the MSME landscape”.

 

 

With its growth rate of above 8%, India is expected to be the second largest economy in the world by 2013. Not only has its share in global merchandise exports increased from less than 0.6% in 2000 to 1.6% in 2010, it is also emerging as an important investor in other countries in the manufacturing as well as services sectors. For instance, more than 100 Indian firms have already marked their presence in Africa. However, India’s incredible growth story also contains certain confounding facts. With so much going for the country, it still ranks poorly on many global dimensions. For instance, on the Human Development Index, it ranks 132 out of 179 countries, on the Transparency Index it ranks 85 out of 180 countries, on the Prosperity Index it ranks 70 out of 104, on the Education Index 142 out of 176, and on the Global Hunger Index 66 out of 88.1 With high GDP growth existing alongside poor performance in many metrics, India has graduated to a new problem--growing economic disparity. The solution to India’s challenges lies in providing answers to the question on poverty, from eliminating it to fostering the creation of wealth by many across the nation. A holistic and strategic The solution to India’s challenges lies in providing answers to the question on poverty, from eliminating it to fostering the creation of wealth by many across the nation. approach to developing India’s micro, small and medium enterprises (MSMEs) is the most effective approach to addressing disparity. In India, small business entities are next only to agriculture. With micro businesses traditionally known as village and cottage industries, Indian MSMEs boast of ancient heritage. Uniquely innovated through ‘craft technology’, products like ‘muslin’ enjoyed pride of place in ancient India and fame overseas, till the emergence of factory-made cloth (Agarwala 2001). Today, India’s small sector consists of (i) micro enterprises (village and cottage industrial units) (ii) small enterprises and (iii) medium enterprises. In accordance with the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 the micro, small and medium enterprises (MSMEs) have been classified: Manufacturing enterprises: These are the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951). Manufacturing enterprises are defined in terms of investment in plant and machinery. Service enterprises: These are the enterprises engaged in the provision of services and are defined in terms of investment in equipment. The limit for investment in plant and machinery, equipment for manufacturing, service enterprises, as notified, vide S.O. 1642(E) dtd.29-09- 2006 are as under the following: