Ease of doing business for MSMEs: The central government may consider fiscal and non-fiscal mechanisms to help firms improve their risk appetite in pursuit of innovation such as innovation-linked incentive scheme, the survey said.
Ease of doing business for MSMEs: In order to boost innovation in MSMEs, it is important to enhance state governments’ participation in the innovation exercise, said the National Manufacturing Innovation Survey released by the Department of Science and Technology (DST). “State governments are better connected with MSMEs and are a vital link in the delivery of MSME-oriented policy and incentive schemes. This is true for innovation as well,” the survey report noted.
According to the survey, which comprised 8,074 respondents including 52.24 per cent micro firms, 29.26 per cent small, and 12.63 per cent medium across various manufacturing and service sectors, and only 5.87 per cent large firms, 73.76 per cent of the respondents were non-innovative as they did not introduce product or business process innovations during the survey period — February 2021–May 2022 covering an observation period of the financial year 2017-18 to 2019-20.
“The overarching barriers to innovations observed in the systems of innovations offer strong baselines for updating and orienting various MSMEs schemes. The design of future initiatives to amplify manufacturing productivity and competitiveness may examine existing policy success using manufacturing innovation and SSI lenses,” the survey said suggesting the state government’s participation in innovation among MSMEs.
The frequent barriers to innovation faced by respondents were a lack of funds within the firm or group for over 45 per cent of respondents followed by 40.30 per cent of firms claiming high innovation costs as a challenge to innovation. For 39.52 per cent of firms, lack of external sources was another barrier.
Low demand for innovations in the market according to 71.23 per cent of respondents was among the most critical barriers to innovation in the market followed by organisational rigidities within the firms as per 69.28 per cent of respondents, lack of funds within the firm or group for 68.57 per cent respondents and lack of finance from external sources according to 68.38 per cent respondents.
However, “significant differences exist across states in innovation enablers, barriers and performance. This leaves ample scope for cross-learning and benchmarking,” the survey said.
Further, the central government may consider fiscal and non-fiscal mechanisms to help firms improve their risk appetite in pursuit of innovation such as innovation-linked incentive scheme could be launched to help firms, especially MSMEs, to address the financial risks linked to innovation uncertainty.
To this end, the survey suggested that the government should co-fund all research including research and innovation that fails. “While the benefits of the scheme can be linked to the output and outcome indicators, the purpose is to help firms address internal enablers and barriers, hence it is particularly important to include innovation failure as a potential outcome, and the related learnings are captured.”
Lastly, with respect to private sector support, the survey said the government may redirect some of its innovation expenditure for purposes of crowding in private sector funding and participation in innovation.