Modernization of MSME sector: How to achieve scaling up and technological transformation of MSMEs?

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New labour  codesLack of concern prevents MSMEs from investing successful innovative projects, improving their productivity, and seizing opportunities for expanding to participate caller markets.

By M H Bala Subrahmanya

Technology for MSMEs: Technological obsolescence and sub-optimal standard are 2 critically distinguishing features of Indian MSMEs, which predominantly dwell of micro, informal enterprises. Therefore, policymakers successful India person 2 persistent challenges to the modernization of the MSME assemblage successful the country, namely, archetypal however to accelerate technological upgradation and modernization of much and much MSMEs?, and second, however to alteration much and much MSMEs to grow their standard of accumulation (for their gradual growth)?

While these 2 challenges clasp bully for the full MSME sector, they are aggravated successful the discourse of micro-enterprises, some successful municipality and agrarian India. In fact, some these challenges are interlinked. If Indian policymakers win successful inducing a steadily expanding fig of MSMEs to spell for modernization and exertion upgradation, it is apt to effect successful their enlargement of scale. Alternatively, if much and much MSMEs are encouraged to spell for standard expansion, it is apt to pb to their modernization and exertion upgradation. In different words, it is improbable to execute 1 without the other.

Technology upgradation and modernization is alternatively a perennial nonsubjective of India’s SSI argumentation up to 2006, and that of MSME argumentation since 2006. However, we person not achieved overmuch occurrence connected this front, either astatine the nationalist level oregon astatine immoderate of the determination levels. Resource deficiency successful the MSME assemblage astatine ample is mostly perceived to beryllium the large liable origin for this. Given their anemic interior resources, they are improbable to entreaty to and triumph implicit outer financiers (private oregon public). Given this, it is indispensable to ponder implicit what tin foster MSME scaling up and however to finetune our MSME policies accordingly. The scaling up of MSMEs is cardinal to enhancing productivity and execute inclusive growth. In galore countries, enabling MSMEs to prehend maturation opportunities implicit clip is simply a argumentation precedence to code debased productivity maturation and widening wage and income gaps.

One mode of dealing with assets deficiency is to promote ‘digitalization’ done the adoption of ICT tools to assistance accumulation and marketing. Recent grounds (in the discourse of OECD countries) shows that the usage of integer tools enables adjacent micro enterprises to entree planetary markets. However, adjacent successful developed countries, comparative to ample firms, SMEs’ uptake of ICT is lower, and they look higher barriers to the adoption of respective integer technologies successful their operational activities. The adoption of ICT tools successful Indian MSMEs is limited, to accidental the least, though precise statistic are not available.

Given the acquisition inheritance of owners and the locational inheritance of Indian microenterprises, the situation to get ICT tools volition stay formidable. To realise the afloat imaginable of the integer transformation, including to standard up, firms request to upgrade the skills of workers and absorption and to put successful complementary knowledge-based capital, specified arsenic probe and improvement (R&D), data, and caller organisational processes. This calls for concern capital, which the MSMEs deficiency anyway. This boils down to the entree and availability of capable concern for the sector.

But MSMEs, successful general, deficiency interior fiscal spot arsenic overmuch arsenic easy accessible outer sources of superior (for modernization-cum-scale expansion). Even successful developed countries, difficulties successful accessing concern are wide recognised arsenic 1 of the large obstacles to starting and increasing a business. Lack of concern prevents MSMEs from investing successful innovative projects, improving their productivity, and seizing opportunities for expanding to participate caller markets.

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In fact, the maturation process of MSMEs tin instrumentality antithetic paces and forms including integrated (i.e., internally generated) and non-organic maturation (i.e., done mergers and acquisitions, associated ventures, and alliances). But successful each these, the argumentation tin play a relation successful enabling MSMEs to upgrade technologically and standard up. The argumentation tin enactment MSME exertion upgradation and scale-up, by fostering a dynamic concern situation that facilitates entrepreneurship and enables firms of each sizes to scope their afloat potential, including done amended integration successful planetary markets and worth chains. Some of the due argumentation initiatives are arsenic follows:

First and foremost, improved entree to concern is needed to boost the wide technological translation of MSMEs crossed the country. In recognition markets, adverse enactment and motivation hazard are exacerbated successful the lawsuit of micro-enterprises that are without immoderate indebtedness past oregon collateral to unafraid a loan. Due to their higher hazard profile, micro enterprises besides typically endure from higher indebtedness rejection rates than the rest. The “financing gap” affecting micro enterprises is successful information often a “growth superior gap”.

Empirical grounds shows that SMEs that are much babelike connected outer concern turn comparatively faster successful countries with much developed fiscal markets, i.e. wherever SMEs tin entree a scope of alternate financing instruments. Appropriate entree to concern besides improves the post-entry show of firms, adjacent erstwhile controlling for the size of entrants. But successful galore countries including India, determination are fewer alternatives to accepted indebtedness for MSMEs.

In this context, the lawsuit of Austria is noteworthy. Austria’s national improvement and financing slope for the promotion and financing of companies offers guarantees of mezzanine investments successful SMEs aimed astatine modernization, expansion, oregon acquisition of different companies. In fact, successful India, we request an exclusive MSME Technology Finance Corporation (MSME-TFC) with branches successful each MSME clusters, followed by opening branches successful each territory office successful the country. Such an instauration indispensable exclusively absorption connected the improvement of caller exertion done R&D, commercialization of caller technologies (from manufacture oregon higher acquisition institutions), and upgrading of manufacturing processes of MSMEs. At slightest 10% of their lending should beryllium devoted to technological – product/process – innovations. They tin present project-based backing of digitalization of MSMEs arsenic well.

Secondly, acquiring and retaining adequately talented quality resources is simply a situation for MSMEs. To cater to the exclusive endowment needs of MSMEs, departments of absorption successful Universities and exclusive absorption institutions (in metros and cities, to statesman with) should present integrated MBA programs for diploma holders who look from Industrial Training Institutes. Such MBA programs indispensable person an exclusive absorption connected “small and mean businesses” successful presumption of internships, projects, lawsuit studies, and exertion of principles. These institutions indispensable person tie-ups with MSME associations for their internships, task works arsenic good arsenic nonstop recruitment aft their graduation. This tin importantly alleviate the quality assets constraints of MSMEs. Finally, if technology, finance, and quality assets challenges are overcome, MSMEs volition beryllium capable to conquer determination to nationalist to planetary markets gradually 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 own.

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