Ease of Doing Business for MSMEs: The promulgation of the MSMED Act 2006 was historic in India, as it clubbed manufacturing and service enterprises, on the one hand, and medium-sized enterprises, on the other, collectively for promotion, comparable to the globally observed practice. Though the definition of manufacturing MSMEs (MMSMEs) differed from that of the service MSMEs (SMSMEs), a single policy-led institutional infrastructure – from national to state and district levels – bargains with the MSME sector as a complete due to the fact then. However, the challenges and prospects of the MMSMEs are distinctly distinctive from that of the SMSMEs.
More importantly, the prospective for development by means of manufacturing is substantially more than that of services. This is due to the following: First of all, the most important benefit of manufacturing is the possibility of scale economies (either by means of a single firm development or by means of a network of comparable firms) which drive down production fees. Secondly, the scope for carrying out technological innovations and introducing new items/services by firms are distinctly prevalent in manufacturing, thereby enabling them to develop in size. Thirdly, manufacturing sector-led innovation enables the emergence of tech commence-ups, thereby facilitating employment generation and revenue creation top to market development.
Fourthly, the manufacturing sector has the potential to export its items, and as a result expand its marketplace base beyond the country’s borders, and contribute to the foreign exchange reserves of the economy. Fifthly, the manufacturing sector has stronger inter-sector linkages more than agriculture and services, and hence, the former can enhance the development of the latter more than vice versa. Therefore, the manufacturing sector, in common, is viewed as the “engine of growth”. MMSMEs deserve due focus in this regard.
Given the above, it is crucial to “fuel” this “engine of growth” appropriately to advantage the nation. Given their prospective, the MMSMEs need to have to be encouraged and facilitated to: (i) network, (ii) innovate, and (iii) internationalize.
Networks can emerge either vertically (with prospects and suppliers, typically, substantial firms) or horizontally [with similar other MMSMEs, MSME promotion agencies or Higher Education Institutions (particularly engineering institutions)] or each. Such networks, as observed by empirical researchers, enable them to get ‘better access’ to markets (domestic and/or international), inputs, finance, technical help or technologies, and at occasions, education of human sources. Together, they prompt or encourage MMSMEs to undertake Technological Innovations (TI), amongst other individuals.
Innovations (specially, TI), either incremental (in the kind of enhanced items/processes as essential by MMSMEs’ prospects) or radical (in the kind of new items/processes) enable to realize a reduction in fees, improvements in excellent, and penetration of new markets. As an outcome, innovated items account for an increasingly bigger share of total sales and sales development, top to firm development with more employment, investment, and income. There is ample empirical proof to show that revolutionary MMSMEs typically enter the international marketplace by means of exports. Thus, innovation facilitates internationalization.
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Internationalization bestows on MMSMEs several positive aspects. An revolutionary firm as soon as succeeds in penetrating the threshold barriers to internationalization by means of its innovation, learns substantially more: the worth of higher-excellent packaging, adhering to time schedules, professionalism in management, periodic education of its labour, exposure to sophisticated technologies, and additional requirements for innovation, amongst other individuals. These finding out transform an “intermittent exporter” into a “continuous exporter” and a “consistent exporter” into a “more intensive exporter”. The resultant outcome will be firm development top to more employment, more income, and more foreign exchange earnings.
While the prospective to create “networks” and “carry out innovations” does exist in Indian MMSMEs, the extent of networks prevalent and innovations carried out in the MMSME sector is not adequately recorded. However, official information on industrial subcontracting (which represents one kind of networks of MMSMEs) and the National Knowledge Commission carried out a sample survey-based study indicated that each networks and innovations are marginally prevalent in the Indian MMSME sector. Given this, it is crucial to market networks and innovations of MMSMEs, as each would encourage the internationalization of MMSMEs by means of exports. This will collectively give a enhance to the “Make in India” programme, by enhancing the all round contribution of manufacturing to Indian GDP.
MMSMEs are overwhelmingly concentrated in district headquarters in just about all the states, amongst other individuals. District headquarters are probably to comprise “a threshold level of the ecosystem” in the kind of a District Industries Centre (DIC), engineering institutions, banks, especially Small Finance Banks, and minimum simple physical infrastructure. Some district headquarters would have even public/private sector substantial firms. Therefore, they provide scope for advertising networks and innovations of MMSMEs.
Given that a majority of MMSMEs work in “silos”, a pro-active initiative requirements to emerge from the DIC network by bringing MMSMEs and engineering institutions collectively by means of student and faculty-led projects, in the fields of mechanical, electrical, electronics, civil, instrumentation, and laptop or computer engineering. MSME promotion agencies, such as Micro Small and Medium Enterprise Development Institutes wherever prevalent, and banks can join the initiative appropriately. Even if it positive aspects 10 per cent of the 196.65 MMSMEs (pre-Covid-19 pandemic population) for networking and undertaking innovations towards internationalization in the subsequent 5 years, it would be an great upward turn taking place for the advantage of the Indian economy at substantial. Thereafter, incremental increases in networked, revolutionary, and internationalized SMEs would play a decisive function in the development transformation of the Indian economy.
M H Bala Subrahmanya is the Professor, Department of Management Studies at Indian Institute of Science Bangalore. Views expressed are the author’s personal.