On MSME Day, A Reality Check On How India’s Small Businesses Are Coping — And Thriving

There is one field of endeavour today, where two well-settled economic truths see a happy confluence.  

In 1973 German-British thinker E F Schumacher propounded the theory: “Small is Beautiful: Economics as if people mattered”.

Exactly thirty years later, Indian business expert C K Prahalad suggested that there was “A fortune at the bottom of the pyramid: Eradicating Poverty through Profits”.

The two radical theories have seen a sangam in a sector where 90 per cent of the world’s businesses operate: the Micro, Small and Medium Enterprise (MSME).

Every year, 27 June is celebrated as MSME Day. The initiative is steered by the Global Council for the Promotion of International Trade (GCPIT) an organisation based in India, South Africa, United States, United Arab Emirates, Europe, Singapore and the United Kingdom, with its headquarters in Bengaluru.

The theme for this year is “Building a Stronger Future Together.” 

To make this happen, GCPIT has just launched a world-wide #Brand10000MSMEs Network, a platform where MSMEs from around the world can connect, learn, and grow together. (Link for joining this network.)

According to the United Nations, MSMEs account for 60 per cent to 70 per cent of employment, and half of global GDP. Together, they represent a formidable force for business and trade. 

On the world map, Asia is the fastest-growing economic region, as well as the largest continental economy by both Gross Domestic Product (GDP)  and Purchasing Power Parity (PPP) in the world.

The largest economies in Asia in terms of PPP are China, India, Japan, Indonesia, Turkey, South Korea, Saudi Arabia, Iran, Thailand and Taiwan and in terms of GDP are China, Japan, India, South Korea, Indonesia, Saudi Arabia, Turkey, Taiwan, Thailand and Iran.

So clearly, India is a leading MSME engine in the region on both counts. Government data up to March 2022 says India is home to 63 million MSMEs.   

The Confederation of Indian Industry (CII) estimates that by 2024, MSMEs will contribute 50 per cent of India’s GDP. To make this happen this year’s  Union budget (2023-24) upped the allocation for MSME by 42 per cent  to Rs 22,138 crore and set a target of creating 5 million new jobs by 2025.

Union Minister for MSME, Narayan Rane tweeted three days ago to announce a milestone: the government’s online registration and certification platform for MSMEs — Udyam — launched in July 2020 has just achieved two crore registrations. 

Today (27 June), he is scheduled to preside at an “Udyami Bharat-MSME Day” event in Delhi to celebrate this achievement and launch a government initiative for this sector — a portal named Champions 2.0 for hand holding and grievance redressal of MSMEs as well as an app for geo-tagging of cluster projects and tech centres, which does not appear to live as yet.

Ground Truth On MSMEs

All these are numbers and statistics. What is the ground truth about this burgeoning sector?

A new way to define what makes for a micro, small or medium industry has been in force since July 2020: The criteria are net turnover and investment  not just plant and machinery value.

MSM enterprises are classified as micro up to Rs 5 crore, small-Rs 5 crore to Rs 50 crore and Medium-more than Rs 50 crore to Rs 250 crore. (Exact definition here.)

MSMEs tend to cluster for their own good and major clusters are: Maharashtra for IT, textiles and engineering; Andhra Pradesh for textiles, food processing, leather and engineering; Gujarat for textiles, chemicals and pharma; Tamil Nadu for textiles, automobile, electronics and IT; West Bengal for jute, leather, textiles and engineering; UP for leather, agro and food processing and Kerala for tourism, spices and handloom/handicrafts. (Source: India Briefing).

A March 2023 GCPIT Blog provides a succinct summary of the challenges as well as the government initiatives on the touchy topic of MSME financing.

Lack of a credit history, inadequate collateral and high interest rates are the major worries for the smaller enterprises, but new outreaches, like the Pradhan Mantri Mudra Yojana (PMMY) for loans up to Rs 10 lakh and Stand-Up India for loans up to Rs 1 crore for women and SC/ST entrepreneurs, are helping.

Public sector banks are known to have received stern instructions to loosen on the bureaucracy that has endemically plagued loan applicants.

Agricultural financing has its own special challenges and another blog by GCPIT issued in April goes into the details of crop loans actually disbursed  and reports that nearly 20 crore Kisan Credit Cards have been disbursed, with a credit limit of Rs 6.78 lakh.

What is somewhat worrying is the RBI data, that crop loan amounts between 2020 and 2021 and other agricultural term loans have grown only modestly by around 19-20 per cent: Clearly there is a gap between word and deed and the process needs to rise to the commitments made by the government.

Digital Days

One undeniable accelerator for the sector has been the dramatic rise in digital payments and tools like UPI and Aadhaar which MSMEs especially at the smallest level have embraced and adapted. 

A May 2023 survey by branchless banking player PayNearby finds that more than 71 per cent of MSMEs in retail, use some form of digital technology for their day-to-day business operations.

The report found that more than 80 per cent of MSMEs admitted that the adoption of digital technology has had a positive impact on their businesses and personal lives. 

Interestingly, small business owners within the age group of 18-30 years were the most digitally adept, with over 75 per cent owning a smartphone to run their day-to-day business operations and accessing digital content through it.

Nari Shakti

Women are increasingly joining the ranks of MSMEs: Another PayNearby survey finds that more than 10,000 women entrepreneurs have dispensed over Rs 900 crore of financial services in the last financial year alone primarily in the state of Uttar Pradesh, Rajasthan and Madhya Pradesh.

With the mobile phone as the engine, WhatsApp for business is a recent development.

To mark MSME Day today, Meta (formerly Facebook) has  announced a new partnership with the Confederation of All India Traders (CAIT) to upskill one million traders on WhatsApp Business App over the next three years. 

A certification by Meta Small Business Academy will help new entrepreneurs gain critical digital marketing skills to grow on the apps. The course module and the examination are available in seven languages — English, Hindi, Marathi, Bengali, Kannada, Tamil, and Telugu. 

Fuelled by a vast army of so called Jig workers, the Covid pandemic saw micro and small players fill vital gaps in vast consumer chains especially in the last mile.

A survey by UPS highlighted how e-commerce helped many small businesses fuel a national recovery. The government supported ONDC platform is proving increasingly popular with this sector.

With the crisis past, these entrepreneurs continue to strengthen the sector that lies — literally — at the bedrock of Indian business.

Schumacher and Prahalad would have cheered.