By M H Bala Subrahmanya
Technology for MSMEs: Technological obsolescence and sub-optimal scale are two critically distinguishing features of Indian MSMEs, which predominantly consist of micro, informal enterprises. Therefore, policymakers in India have two persistent challenges to the modernization of the MSME sector in the nation, namely, initially how to accelerate technological upgradation and modernization of more and more MSMEs?, and second, how to allow more and more MSMEs to expand their scale of production (for their gradual development)?
While these two challenges hold very good for the whole MSME sector, they are intense in the context of micro-enterprises, each in urban and rural India. In truth, each these challenges are interlinked. If Indian policymakers succeed in inducing a steadily growing quantity of MSMEs to go for modernization and technologies upgradation, it is probably to outcome in their expansion of scale. Alternatively, if more and more MSMEs are encouraged to go for scale expansion, it is probably to lead to their modernization and technologies upgradation. In other words, it is unlikely to reach one devoid of the other.
Technology upgradation and modernization is rather a perennial objective of India’s SSI policy up to 2006, and that of MSME policy due to the fact 2006. However, we have not accomplished a lot accomplishment on this front, either at the national level or at any of the regional levels. Resource deficiency in the MSME sector at significant is largely perceived to be the main accountable issue for this. Given their weak internal sources, they are unlikely to appeal to and win more than external financiers (private or public). Given this, it is important to ponder more than what can foster MSME scaling up and how to finetune our MSME policies accordingly. The scaling up of MSMEs is crucial to enhancing productivity and reach inclusive development. In several nations, enabling MSMEs to seize development possibilities more than time is a policy priority to address low productivity development and widening wage and earnings gaps.
One way of dealing with resource deficiency is to encourage ‘digitalization’ by way of the adoption of ICT tools to help production and marketing and advertising. Recent proof (in the context of OECD nations) shows that the use of digital tools enables even micro enterprises to access international markets. However, even in created nations, relative to significant firms, SMEs’ uptake of ICT is reduced, and they face larger barriers to the adoption of numerous digital technologies in their operational activities. The adoption of ICT tools in Indian MSMEs is restricted, to say the least, although precise statistics are not out there.
Given the educational background of owners and the locational background of Indian microenterprises, the challenge to obtain ICT tools will stay formidable. To realise the complete possible of the digital transformation, which includes to scale up, firms want to upgrade the expertise of workers and management and to invest in complementary expertise-based capital, such as study and development (R&D), information, and new organisational processes. This calls for investment capital, which the MSMEs lack anyway. This boils down to the access and availability of sufficient finance for the sector.
But MSMEs, in basic, lack internal economic strength as a lot as conveniently accessible external sources of capital (for modernization-cum-scale expansion). Even in created nations, issues in accessing finance are extensively recognised as one of the main obstacles to beginning and expanding a organization. Lack of finance prevents MSMEs from investing in revolutionary projects, enhancing their productivity, and seizing possibilities for expanding to enter new markets.
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In truth, the development method of MSMEs can take unique paces and types which includes organic (i.e., internally generated) and non-organic development (i.e., by way of mergers and acquisitions, joint ventures, and alliances). But in all these, the policy can play a part in enabling MSMEs to upgrade technologically and scale up. The policy can help MSME technologies upgradation and scale-up, by fostering a dynamic organization atmosphere that facilitates entrepreneurship and enables firms of all sizes to attain their complete possible, which includes by way of much better integration in worldwide markets and worth chains. Some of the suitable policy initiatives are as follows:
First and foremost, enhanced access to finance is required to increase the widespread technological transformation of MSMEs across the nation. In credit markets, adverse choice and moral hazard are exacerbated in the case of micro-enterprises that are devoid of any loan history or collateral to safe a loan. Due to their larger threat profile, micro enterprises also commonly endure from larger loan rejection prices than the rest. The “financing gap” affecting micro enterprises is in truth generally a “growth capital gap”.
Empirical proof shows that SMEs that are more dependent on external finance develop fairly more quickly in nations with more created economic markets, i.e. exactly where SMEs can access a variety of option financing instruments. Appropriate access to finance also improves the post-entry overall performance of firms, even when controlling for the size of entrants. But in several nations which includes India, there are couple of options to standard debt for MSMEs.
In this context, the case of Austria is noteworthy. Austria’s federal development and financing bank for the promotion and financing of corporations presents guarantees of mezzanine investments in SMEs aimed at modernization, expansion, or acquisition of other corporations. In truth, in India, we want an exclusive MSME Technology Finance Corporation (MSME-TFC) with branches in all MSME clusters, followed by opening branches in all district headquarters in the nation. Such an institution should exclusively focus on the development of new technologies by way of R&D, commercialization of new technologies (from business or larger education institutions), and upgrading of manufacturing processes of MSMEs. At least 10% of their lending must be devoted to technological – solution/method – innovations. They can introduce project-based funding of digitalization of MSMEs as nicely.
Secondly, acquiring and retaining adequately talented human sources is a challenge for MSMEs. To cater to the exclusive talent desires of MSMEs, departments of management in Universities and exclusive management institutions (in metros and cities, to commence with) must introduce integrated MBA applications for diploma holders who emerge from Industrial Training Institutes. Such MBA applications should have an exclusive focus on “small and medium businesses” in terms of internships, projects, case research, and application of principles. These institutions should have tie-ups with MSME associations for their internships, project functions as nicely as direct recruitment following their graduation. This can drastically alleviate the human resource constraints of MSMEs. Finally, if technologies, finance, and human resource challenges are overcome, MSMEs will be capable to conquer regional to national to international markets progressively and steadily.
M H Bala Subrahmanya is the Professor, Department of Management Studies at Indian Institute of Science, Bangalore. Views expressed are the author’s personal.