The SME sector’s growth is inextricably linked to that of the economy. With a present contribution of 40% to the country’s manufacturing output by value addition and the immense employment opportunity that it presents – the sector’s importance cannot be emphasized enough. In an conversation with SMEStreet, Sumit Bhatia, Senior Vice-President, Business Operations, Power2SME highlighted the movers and shakers of the Indian SME sector.
What are the key trends that you observe in the Indian SME domain?
This year, has been enormously significant for the sector in that it has shown enormous potential to innovate and adapt with the changing times to maintain their competitive edge. In this regard, the following trends have been observed –
Renewed government focus – the government has launched various schemes and campaigns to boost sectoral growth. The most notable among these are –
- Make in India
- Proposed GST Bill
- Skill India
- Digital India
- MUDRA Bank
Increased ICT adoption – The nature of IT deployments among MSMEs has witnessed a dynamic shift over the years, from usage of technology to improvements in internal process, to improve operational efficiency and maintain their competitive edge. SMEs today increasinglyrely on the ease afforded by technological upgradation to empower their business. These include cloud-based services and solutions, mobile technologies, VOIP (voice over internet protocol) and messenger tools.
Ease of doing business – India now ranks 130 out of 189 countries in the ease of doing business, moving up 12 places from last year, as per the World Bank report released last month.
Enterprise Mobility to Propel Enterprise Efficiency – SMEs are using mobile devices in courier companies to update consignment information, in restaurants to take orders and update, in agriculture for weather and crop, market prices information etc.
Power2SME brings an opportunity to control the cost of production at the SME level. What are the key challenges you are facing in this area?
Power2SME help SMEs control cost of raw material procurement. Some challenges faced in past are as below:
Power2SME’s biggest challenge was with regards to the acceptance of its business model. The SMEs function on the traditional supply chain model and it was difficult to convince them about the value proposition of the Power2SME’s business model and how it can affect their bottom line positively. However, with passage of time and our constant endeavor to educate them on benefits that can be reaped through Power2SME platform has reaped us great results.
Since decades manufacturing SMEs have been working solely, in identifying suitable vendors for themselves, negotiating for price of raw material in a traditional manner (mainly on phone calls) with minimal help of internet and third party support. A major challenge faced by SMEs is delayed payments – traditionally, SMEs buy raw material with fixed credit limit from vendors but majority of SMEs find it difficult to receive payment from their customers on time. This situation leaves them with modest capital to operate with. An internal survey done by Power2SME reflected that more than 70% of recurring cost of SME is spent on purchasing raw materials. Another survey by CII suggests that there is a total finance requirement of INR 32.5 trillion (32, 50,000 Cr) in the SME sector, which comprises INR 26 trillion (26,00,000 Cr ) of debt demand but financial institutions consider most part of this debt demand as impractical because of factors like high-risk perception and lack of availability of immovable collateral. The problem becomes critical when SME’s access to financial institutes for credit is squeezed due to unfriendly procedures and formalities that need to be pursued to access loans.
Power2SME was established with vision of empowering these SMEs. The business model of Power2SME offer mix advantages to these SMEs. On one hand we have team of experts who are connected with customer on daily basis, which does not abruptly distance SMEs from their traditional way of doing business and on the other hand Power2SME offers access to modern digital platforms to SMEs to place and source orders. Power2SME also educate SMEs on these platforms and encourages them to leverage them for their own benefit.
In order to address the trouble related to finance, Power2SME expanded its services by partnering with NBFCs. Under these partnerships, Power2SME prepares case study of SME customer with necessary details on payment records and assist them in applying for loan from these NBFCs. Many SMEs have experienced a sense of relief by embracing these services because if we combine these two services of raw materials at best prices plus availability of funds, it helps SMEs focus on their core business, quality of products and expansion plans.
Payment delay is a major challenge ahead of Manufacturing SMEs. Do you help those SMEs who struggle with this crisis?
Finance is the biggest problem for any SME as they struggle to meet their growth and operational requirements. According to CII report working capital demand is estimated to account for approximately 61% of total financial need. Getting unsecured loans from banks is a lengthy process and requires lot of documentation. NBFCs provide timely monetary assistance to SMEs to meet their working capital requirements. In order to support our customers in better way, Power2SME has partnered with leading NBFCs. Power2SME acts a facilitator by bringing together SMEs & NBFCs on a common platform. This initiative has been huge success as more and more SMEs are opting for NBFC financing which provides them an alternate way of financing.
Manufacturing has become an important priority for Indian policy makers. How do you experience this thrust from the policymakers and govt towards this sector?
Given the slow year-on-year growth in the manufacturing sector, the government is aware of the dire need to get factories roaring back to life, and the “Make in India” initiative is a great step towards this objective with an aim to more than double share of manufacturing to 25 percent of GDP by 2022, from the existing 12 percent. MSMEs are critical to making India a manufacturing hub as they represent the “Made in India” section of industrialization. Hence, the development of manufacturing SME sector is necessary since it will play a critical role in nurturing next gen entrepreneurs, creating significant levels of employment and support financial inclusion of the nation. Our current government understands this and in last two years, they have introduced many initiatives to address key issues of SME players. In this year, we also witnessed state governments as well announcing necessary measures in interest of regional SMEs.
The landmark one-page Udyog Aadhaar Memorandum Scheme, that was availed by about 1 lac SMEs to register themselves, highlights how focused and properly implemented schemes can boost the sector by facilitating ease of doing business. Digital India campaign is another such initiative that can help achieve greater ICT adoption among SME players. In order to ease financing among MSMEs, especially micro units, the establishment of MUDRA bank and launch of SIDBI’s SMILE scheme are great moves. The new initiatives to promote ease of doing business for SMEs are steps in right direction that will help the government reach its projected aim for SMEs sector contributing 22% to the country’s GDP by 2020.
How is technology becoming an enabler of better business? Please share your views?
ICT is seen as a clear differentiator among SMEs – both nationally and internationally. Thus, it is a means to boost our global competiveness and SME’s contribution to domestic GDP. The environment seems to be changing slowly and fortunately there is growing awareness among SMEs about the need to embrace technology and change the way they do business. More importantly, a 2014 CII survey shows a clear correlation between ICT adoption and profitability: IT-enabled SMEs increased revenues 15% faster and generated twice as many jobs as compared to those that were slower to adopt ICT.
The primary benefit of ICT adoption is that it boosts productivity by leading to better and more efficient use of existing resources. By allowing for seamless transfer of information through shared electronic files and networked computers documentation, data processing and other internal functions becomes simpler – thus allowing SMEs to concentrate on their core areas of business.
What business prospects you foresee from 2016?
Given the thrust on the manufacturing sector and MSMEs in past, we witnessed many initiatives and fast paced developments to address some of the business challenges and promote growth. For instance, due to Swachch Bharat Abhiyan,the sanitary ware industry currently poised at Rs. 3,000 Cr with 12% growth p.a. has got the much needed boost and the growth is expected to get pushed to 15-16%. Power2SME is associated with many sanitary ware manufacturers and working round the clock, in sourcing quality raw material at right prices, to support the sudden surge in demand which our customers are experiencing.
For the manufacturing SMEs, the need of the hour is to devise a cohesive framework that works in tandem with sectoral goals, which results in the overall industrial growth.In the same light, we expectmore initiatives by the government that will create a conducive environment for young businesses to grow. Some suggestions in this direction are:
There must be proper implementation of:
Public Procurement Policy that was revised and released this year which made it compulsory for government departments and public sector units (PSUs) to source 20% of their procurement needs from MSEs (Micro and Small Ent.)
MSMED Act 2006 to address the issue of delayed payments and help SMEs sustain growth. Additionally, we strongly believe there is a need to set-up an automated portal where in SMEs can feed details of sales made and portal can also send automated reminders to buyers for the payment under stipulated time
Facilitation Centers by MSME Ministry should be given more muscle to legally solve the issues of regional SMEs, suggest policy measures, and monitor progress
What are the main business priorities for Power2SME?
Power2SME will continue to deepen its engagement with SMEs,expand its current pool of raw material suppliers, vendors and NBFC partners across India by strengthening its presence in current 7 states and expanding to more states. Power2SME team will be enhancing our technological platforms both on web and mobile to increase the communication with companystakeholders.
Moving ahead with our vision to make SMEs bankable, Power2SME will also undertake new initiatives for its SME customers to address challenges related to finance, branding and marketing activities as well.