Indian MSMEs and the Post -Pandemic Opportunities

From 'Self Reliant India' to the 'Make in India' campaign, these are some welcome initiatives which are designed to bring back the growth trajectory of the Engines of the economy - the MSME sector. Well, it is important to understand the critical elements of these schemes and programs as Post Pandemic world is ready to get captured. Discussing this and much more, Mr. Kaustubh Sonalkar, MD and CEO of Kontact Global in an exclusive conversation with Faiz Askari, Founder Editor of SMEStreet, explained some key insightful points on Indian MSMEs' readiness for the post-pandemic era.

Here are the edited excerpts: 

Faiz Askari, SMEStreet) How do you think ease of doing business has changed for MSMEs post-pandemic? 

Mr. Kaustubh Sonalkar) When you find yourself at the receiving end of a pandemic and a near 2 year lockdown, the Government knew very well that the best and fastest way for an economic turnaround is by introducing innovative policies for the MSME sector. The ‘Make in India’ initiative and the ‘Atmanirbhar Bharat Abhiyaan’ (Self Reliant India Campaign) have played a key role in promoting business and local manufacturing in the country, giving special thrust to Micro, Small and Medium Enterprises (MSMEs), also referred to as the backbone of Indian economy. The central government has also taken immediate response measures in the form of the Atmanirbhar Bharat package to ensure continuity of businesses during the COVID-19 pandemic. 

Small Industries Development Bank of India (SIDBI) provides collateral free loans (up to INR 1 cr) to individual Micro and Small Enterprises (MSEs): this provided great support to new MSME entrepreneurs supporting the ‘Make in India’ initiative, the aim of the scheme is to inculcate a Zero Defect & Zero Effect (ZED) practices in manufacturing done by Indian MSMEs. Under the scheme, the Government of India (GoI) provides up to 80% subsidy to MSMEs.

It's amazing how quickly the government has moved during these times. The ease of doing business has unquestionably increased, which has assisted in the economy's speedy stabilisation as well as:

• Create new jobs
• Promote entrepreneurship
• Boost economic development at grass root level
• Facilitate innovative business solutions
• Promote innovation

India is now undoubtedly in a comfortable situation, despite the fact that the global economy has suffered.

Faiz) Covid-induced lockdown has impacted the competitiveness locally and globally, how much time do think the sector will take in recovering completely?

MSMEs employ over 114 million people and contribute 30% of India’s GDP.

Mr. Kaustubh Sonalkar) If India has to become a $5 trillion economy by 2024, MSMEs will have to play an aggressive part. MSMEs employ over 114 million people and contribute 30% of India’s GDP. During the pandemic to keep this important sector healthy, the government announced help by way of relief in the corporate tax structure and dividend distribution tax. Banks had done their bit by collectively writing off $39 billion. In India’s envisaged $5 trillion future, MSME alone is expected to contribute

$2 trillion and create about 1.8 Lakh jobs directly and indirectly. The sector is on track to achieving the numbers and with government support, the recovery should happen within the next 2 - 3 years.

Faiz Askari) Technology adoption among MSMEs has seen an upswing but there are few promoters that are unaware, can you talk about the importance of technology for businesses?

Mr. Kaustubh Sonalkar) Technology enables the enterprise to manage in a structured and planned manner. It is one of the major components among MSMEs and helps them in making strategic decisions. A majority of the Indian MSMEs are still in the nascent stage of technology, especially IT adoption. The advancement of technology over the last two years has caused a 'tectonic shift' in the reduction of cost of adoption of digital solutions. Due to this, the percentage of MSMEs adopting digital solutions has increased from 10 percent before Covid to 50 percent in 2020.

However, a lack of awareness among entrepreneurs has led to MSMEs viewing technology as an expense rather than a return on investment. Building awareness and educating the hesitant entrepreneur about the different benefits of technology adoption is urgently needed. 

The competitiveness of MSMEs is essential for supporting inclusive economic growth and development of a country. In a globalized economy, MSMEs face challenges in accessing markets, financing, and technology.  Here are some of the perks of tech-based solutions that can help MSME to grow:

1. Artificial Intelligence- The AI programme can assist in performance evaluation and teaches salesmen how to speak more like savvy business people, scale up their customer engagement and experience via automated chat platforms, freeing up staff for other crucial client engagements.
2. Machine Learning- Machine learning is helping young and growing enterprises with predictive analytics. 
3. Augmented Reality- AR helps the MSMEs to increase their sales and helps the marketing team to promote the products. MSME companies that are engaged in architecture, construction, art, wearables business and more.
4. Internet of Things- IoT can help to automate and streamline tedious, repetitive tasks such as delegation, scheduling, reporting, and more can be taken care of by IoT devices or solutions. I
5. Data Analytics- It helps the MSME to create a data centric approach to business.

Digitisation and tech enablement will see a definite increase in the pace of growth 

Faiz Askari) We are also witnessing the increasing number of women entrepreneurs in India which is a very positive growth factor for the country, please share how it can contribute to the vision?

Mr. Kaustubh Sonalkar) Around 8.59 lakh women-led MSMEs had registered in FY22 (up to March 28, 2022) in comparison to 4.9 lakh registrations in FY21. The Government has encouraged this move and has come up with special benefits for women-led companies. Indian women are playing an important role as being a part of MSMEs now, which means they have a significant role in boosting the economy of the country.  Women are contributing to the economic impact, employment creation, and adding Innovation to the MSME sector. 

The government has been very effective in encouraging women to start their own businesses. They have introduced schemes that will help women entrepreneurship. 

Some of these schemes are:

• Mahila Udham Nidhi Scheme
• TREAD Scheme
• Pradhan Mantri Rozgar Yojana
• Annapurna Yojana 
• Udyogini Scheme
• Dena Shakti Scheme

These schemes are not only for urban Indian women; many rural Indian women have also started their businesses thanks to these programs. Today, women make significant contributions to the $5 trillion ambition.

Faiz Askari) There is a lot of discussions around whether companies shall be promoter-driven or it should be a professionally-run organizations, what's your take on this?

Mr. Kaustubh Sonalkar)  Companies, in my opinion, need both the Visionary and the Executioner to exist concurrently. They must both be pursuing a shared vision and the greater good. Professionals have their limitations, including their inability to take risks, and their tendency to think outside the box and to stick to the rules and procedures, all of which can be severely restricting for any business. To give some structure to their unconventional ideas and a plan, a promoter needs the help of a professional.

Faiz Askari) MSMEs have been hesitant to invest in green financing projects due to a lack of funds, how do you think this outlook can be transformed?

The MSME segment accounts for about 48% of the total energy consumed by India’s industrial sector.

Mr. Kaustubh Sonalkar) The MSME segment accounts for about 48% of the total energy consumed by India’s industrial sector. However, the MSMEs are left with a choice between, whether to invest their scarce working capital on their core business operations (purchase of raw material, machines, etc.) for immediate returns or tie up their funds for a long period of time to realize the potential benefits of their “green” investment.  

The situation is exacerbated by the poor creditworthiness of MSME borrowers which acts as a major challenge for institutional lenders. The sector is usually characterized by the non-availability of historical financial data and payment track record of MSMEs, lack of formal credit ratings, high rates of default, and uncertainty about the sustainability of business operations.

3 pronged approaches can help:

1. A) Building awareness about the benefits of the Green financing projects. Designing and providing financing products which encourage the MSMEs to adopt the green revolution
2. B) Easy financing schemes with tax holidays and attractive interest rates. Also allow entry level startup’s to adopt be part of this with no requirement of past ‘historical financial data 
3. C) Subsidy in building a Green product set up easing entry level criteria’s

Faiz Askari) How do you see future growth prospects for SME and MSME sectors?

Mr. Kaustubh Sonalkar) MSMEs are the future of India’s $5 Trillion dream. With the government taking all the measures to make sure the MSMEs are on track and firing on all cylinders, it is the time for the banking fraternity and the young entrepreneurs to put things into perspective.