As the world’s fastest growing economy, the Indian business ecosystem has surpassed China to become the 6th largest economy in the financial year 2017-18, and this growth can be accredited to large industries in the country.
The manufacturing industry accounts for 26% of India’s Gross Domestic Product (GDP) and employs 22% of the total workforce. However, contribution from the manufacturing sector to India’s GDP has remained stagnant at around 16% for the past 25 years. As India goes through a multitude of changes in the economy, the aim is set to transform India into a global manufacturing hub. With MSMEs being the largest employers in India, providing employment to 110.9 million people, it is crucial for India to tap the potential of the MSME segment. The MSME segment is in dire need of a level playing field, with not only great policies and campaigns but also with proper implementation of those policies.
Fueled by the backbone of the Indian economy - MSMEs, the Indian manufacturing sector attributes to one-third of the total GDP of the country. Along with that, India is expected to have the youngest demographic in the world with 64% of the population in the working age group by 2020. This demographic, powered with a boost in the economy holds the potential to give the country an unprecedented edge, and could add a significant 2% to the GDP growth rate, making it an extremely fertile environment for entrepreneurship.
Constraints such as high cost of credit, low access to new technology, inadequate infrastructure facilities, and lack of access to international markets have factored in the growth stagnancy. For the Indian ecosystem to push the growth of the MSME sector, the following steps need to be undertaken:
Access To Finance
The present market conditions do not provide enough opportunities for the MSME sector for raising low cost funds. To improve the flow of credit, it is imperative to develop low cost financing solutions. A transparent credit rating system, simplification of processes to access finance and interest rate subvention are some steps that can be taken for this.
Enhancing Market Access For MSMEs
To withstand the onslaught of competition from large enterprises within local and international markets, MSMEs need to be able to respond quickly to evolving innovation and technology advancements. In order to sustain and further amplify the sector’s contribution towards employment generation, exports and manufacturing capabilities, MSMEs need to be provided with better market access.
Access To Infrastructure
MSMEs can benefit from improved infrastructural facilities in terms of economies of scales. Government programs can be introduced for integrated workspaces with the objective of establishing clusters, with facilities such as power plants, training centers and processing units available to all MSME units. Furthermore, as a consequence of expanding markets, advanced technological expertise is required for manufacturing. Provision of proper tools, skilled labour and modern technology support, which require high investments, can be developed on a cluster basis. This development process needs to be supplemented with common effluent treatment plants, proper water supply distribution, design centers and ample captive power.
Conclusively, it is clear that with access to better infrastructure, enhanced markets, and proper financial solutions, along with other factors, the MSME segment has a large scope to grow and boost the GDP of India, thereby making it a true global economic powerhouse in the manufacturing sector.