Government for Indian businesses: From administrator to a facilitator

India is at the forefront of a startup boom and this has picked up a relentless pace since mid-2018. In the past few years, the government of India has initiated several schemes and programs, with an objective to help startups and give a gentle push to the ‘culture’ of entrepreneurship among Indians.

Upscaling a venture or taking the venture to the next big level for improved growth, success and productivity has always been an aim for the businesses irrespective of the location they operate in. The Micro, Small and Medium Enterprises fragment is relied upon to assume a huge job in the rise of the Indian economy. Further, it can sustain and bolster advancement of new age business people who can possibly make all- inclusive serious organizations from India.

The Indian government realises the role played by MSMEs in the economic and social development of the country because employment potential and the overall growth in the MSME sector is much higher than in the large industries. The government seeks to fulfil its mission by formulating policies, designing and implementing support measures in the field of credit, technological upgradation, marketing, entrepreneurship development, etc. The thrust areas for increasing the competitiveness of MSMEs include technology (including quality), procurement, skills development and finance.

Financial institutions, such as SIDBI, IDBI, ICICI and IFCI are providing financial assistance for supporting innovation and commercialization of indigenously developed technologies. They also assist in the adoption of imported technologies for wider domestic applications through venture capital in the country. Some examples of innovation in MSME financing include the following: Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGSMSE), Credit Link Capital Subsidy Scheme for Technology Upgradation, Pradhan Mantri Mudra Yojana (PMMY) for the easy credit availability system, etc.

Undoubtedly, finance is the life line of any business but various other schemes and areas are also touched upon and worked onerously by the government to support the ventures to scale-up. These are: MSME Ideas Portal- Launched by Mr. Nitin Gadkari, the motive behind MSME Ideas Portal is to facilitate venture capital inventors to connect with businesses. The Micro, Small and Medium Enterprises segment in India needs a multi-pronged heave-ho to increase its share in the gross domestic product to 50% (from around 30% today) as part of the government’s avowed goal of becoming a $5 trillion economy by 2024. As per Ministry of MSME data, the sector comprises of whopping 90% of the total number of enterprises in the country, which account for around 60% of its jobs and almost half of its exports. Small wonder, MSMEs have been the backbone of this economy. As ventures grow, they feel the need for capital to fund their growth aspirations. Companies able to access risk capital at the inflection point in their growth curve are better equipped to make the transition to the next level. Many of these funds have invested in medium-scale enterprises which they believe have the potential to be the stars of tomorrow. India has a long way to go when it
comes to providing alternative sources of capital like angel funds and risk capital to Indian MSMEs. At present, there is almost negligible flow of equity capital into this sector. India needs to develop such programmes to support SMEs to access alternate sources of capital.

The government has taken various measures to support and ensure growth and development of Indian MSMEs, especially to enhance their competitiveness in the present global environment. SIDBI is the principal financial institution for financing related promotional and development work. National Small Industries Corporation Limited (NSIC) facilitates the procurement of raw material and in the marketing of products. In addition, various ministries and departments of the government have promotional policies and developmental schemes for the MSMEs in their respective sectors. It aims to facilitate promotion, development and competitiveness of MSMEs.

MSMEs and other businesses must be incentivised to upgrade their existing capacities. From 2017 till date, 541 MSMEs registered on the digital MSME scheme but only 22 have been approved for subsidy. Digital MSME scheme insists on Udyog Aadhaar, and given that MSME registrations of Udyog Aadhaar is less than 15% of total MSMEs in India, this scheme is yet to pick up pace. Technological advancement, research and development, enhanced awareness about the assisting schemes and knowledge dissemination can work wonders to upscale the level of MSMEs in India. The overall finance gap in the MSME sector is estimated to be Rs 20.9 trillion. So need of the hour is to bridge this gap and equity and venture funding can be game changers here. Also, collaborative efforts of financial institutions and Industry Associations like CII can play a vital role in this direction.

SMEs with business models revolving around import substitution and exporting from India often require funds to set up facilities and scale up operations. Schemes for speedy financial assistance should be formulated, including funding for market access and development. One way to look at upscaling your venture is by taking a domestically available business to multi-national level, i.e., start exporting your products and/ or services across the borders. In exports business, the government has been on the fore-front to support the Indian businesses to be globally available and be competitive. SMEs and various other ventures and businesses in areas like leather, gems and jewellery, textiles, etc. are heavily dependent on exports. Several initiatives are available from institutions like Exim Bank for the benefit of such exporters. For example, Export Lines of Credit (ELC) to overseas financial institutions, regional development banks and foreign governments and their agencies and Buyer’s Credit (BC) to foreign corporates.
Possible hindrances being faced by MSMEs are growing incidence of sickness of the sector apart from non-availability of authentic financial data, vulnerability on account of delayed payments by buyers, technological challenges due to low awareness, absence of single MSME data repository, low awareness about various government initiatives and lack of compliance to statutory, legal, environmental norms.

The Make in India website mentions the Government initiatives and intervention to help MSMEs realise their potential primarily through cluster development, technological upgradation through the National Manufacturing Competitiveness Programme and the Credit Linked Capital Subsidy Scheme. But the ground reality unveils that MSMEs are today surviving mostly on their own. The policy formulators contrive various policies and schemes but the government needs to buckle down to its business friendly implementation.

Additionally, our MSMEs, are still not regarded as a force to reckon within international markets. Studies claim that this is mainly due to their lack of capabilities to innovate and add value to their products in tune with global demands and requirements. It’s high time for government to take necessary corrective measures and create vital infrastructural resources, add adequate skilled manpower, hasten up key regulatory reforms, ensure access to credit and technology and bring in labour reforms, else this crucial micro production unit will take the path opposite to growth in these testing times.

Despite the various challenges plaguing the MSME sector, it has progressively shown innovativeness, adaptability and resilience to survive. This Indian sector deserves to be given that extra push – to throw their hat in the ring and augment pridely in a competitive global marketplace. The government has been making the right noises. Now if we could implement what is on paper, the sector is bound to see better days ahead. Government has kept no stones unturned in getting the international exposure, diverse experiences and support from internationally recognised institutions. The Technology Centre Systems Project (TCSP) Scheme which is a joint initiative of Government of India and World Bank to enhance the productivity of Ministry of Micro, Small and Medium Enterprises, or MSMEs by improving their access to technology and business advisory services as well as skilled workers through systems of financially sustainable Technology Centers.

If we look at many countries that enjoy a similar economic landscape as ours, we would observe that they have been trying to explore many innovative practices to nurture their MSMEs. It’s high time, we draw inspiration from them, and work towards establishing skill development programmes centralizing on MSMEs. A new wave of opportunity systems budding in the areas like Infrastructure, Regulatory compliances, Funding and Performance incentives should be considered with all the accompanying components in a durable and synergistic way. Opportunity systems need to be planned which depends on the development stage and the size of the business.

Augmenting the competitiveness of MSMEs include technology, procurement, skills development and finance, and the Indian Government has been playing its part thoroughly and providing all the support needed to the businesses to scale-up and reach or expand to new heights of growth and success. Most of the businesses growth impetus have faded and are facing miserable stagnancy due to this Covid-19 outbreak. The business ventures which can teach the world “How to live in the new normal?” and not just survive but flourish, too can get into the upscaling process in real terms with the help of various government schemes and incentive policies acting like a ‘helping hand’ and being with them when they are walking up the success ladder.

By Harsh Gupta (Alumni, Batch of 2017-20)