Innovation best bet to reinvent and invigorate Indian MSMEs

A slew of measures initiated by government has provided the necessary policy environment and lent a sense of priority to bring innovation to the fore. Several initiatives were launched such as Start-up India, Make in India, and Atmanirbhar Bharat to promote innovation and entrepreneurship among MSMEs

In the contemporary industrial vocabulary, the term ‘Jugad’ stands out as a quintessentially Indian contribution. Representing a form of innovation that maximizes resourcefulness through lateral thinking and ingenuity, jugad is emblematic of the resilience and inventiveness inherent in Indian Micro, Small, and Medium Enterprises (MSMEs). These enterprises have thrived despite formidable obstacles—ranging from the lack of an unyielding credit system and limited access to cutting-edge technologies to conservative marketing strategies.

The survival and flourishing of MSMEs can largely be attributed to their remarkable capacity for improvisation and a deep-seated culture of innovation. Innovation thus defines the journey of MSMEs from survival to transformation.

Spearheading innovation:

The past decade has marked a period of significant transformation for MSMEs, recognising and harnessing their innate strength in innovation. This sector has seen substantial advancements driven by innovative practices in recent years. Notably, India maintained its 40th rank among 132 economies in the Global Innovation Index 2023, as published by the World Intellectual Property Organization, ascending impressively from its 81st position in 2015. Innovations have enabled MSMEs to overcome the crises brought forth by unanticipated crises like Covid, displaying a rare resilience.

Thriving start-up ecosystem:

As of 2023, India boasts over 112,718 government-recognized start-ups, a significant rise from around 50,000 in 2018. This surge highlights India as the third-largest start-up ecosystem globally, with a substantial portion of these start-ups emerging from the MSME sector. These start-ups spread across 763 districts, clearly underline this spatial significance.

Dimensions of innovation in MSMEs:

The sector's pivot towards innovation is characterized by several strategic shifts, They include:

Technology adoption: MSMEs have embraced cutting-edge technologies like AI, IoT, automation, and data analytics to enhance efficiency and product quality. Cloud computing has been particularly transformative, providing scalable solutions that drive cost efficiency and business agility.

Digital transformation: The digital revolution has opened new avenues for MSMEs, allowing them to expand their reach through e-commerce and digital marketing while streamlining transactions via digital payment systems.

Product innovation: Adjusting to changing consumer preferences, MSMEs have focused on eco-friendly products, personalized services, and niche market solutions. Collaborations with research institutions have further spurred innovative developments.

Process optimization: Adoption of lean manufacturing and Six Sigma methodologies has refined production processes reducing waste and enhancing productivity, while innovations in supply chain management have improved transparency and security.

Market expansion: Innovation has also enabled MSMEs to explore new markets both domestically and internationally, enhancing their global competitiveness through customized products and strategic partnerships.

Skill development: By investing in workforce training and development, MSMEs are building a foundation for sustained innovation and adapting to emerging market demands.

Sustainable practices: A focus on sustainability has led to innovations in renewable energy and waste management, contributing to environmental preservation and improved operational efficiency.

Government initiatives

A slew of measures initiated by government has provided the necessary policy environment and lent a sense of priority to bring innovation to the fore. Several initiatives were launched such as Start-up India, Make in India, and Atmanirbhar Bharat to promote innovation and entrepreneurship among MSMEs. They were further strengthened with the establishment of National Innovation Foundation India, an autonomous body of the Department of Science and Technology, based on the Honeybee Network philosophy, which provides institutional support to grassroots innovators and outstanding traditional knowledge holders from the unorganised sector of the society. Private initiatives like India Innovation Fund promoted by NASSCOM and IKP Knowledge Park began to make impact. The efforts have yielded rich dividends. Financial incentives, tax benefits, and easier access to credit encouraged MSMEs to invest in innovation and scale their businesses. This is one area where the impetus provided by the government merits both recognition and commendation.

Challenges and opportunities:

Despite the progress, MSMEs face challenges such as limited access to capital, regulatory complexities, and skill shortages. However, these challenges also present opportunities for innovation in financial technologies, regulatory compliance tools, and talent development solutions.

Collaboration with larger corporations, venture capitalists, and incubators can provide MSMEs with the resources and expertise needed to accelerate innovation.

Innovation has become a driving force in the Indian MSME sector, empowering businesses to stay competitive, create value, and contribute to economic growth. Continued focus on fostering a culture of innovation, leveraging emerging technologies, and addressing industry challenges will further propel the growth and success of Indian MSMEs in the coming years. Predictably, MSMEs are experiencing growth rates that far surpass the overall economic expansion.

A Bright Future Ahead

Today, Indian MSMEs are shedding their traditional image of small-scale, labour-intensive operations to emerge as dynamic, technology-driven enterprises. Venturing into high-tech sectors such as drones, AI, and precision engineering, MSMEs are being led by a new generation of visionary entrepreneurs. This shift, although still progressing, promises a robust future for India’s economic landscape, characterised by innovation and vigorous growth.

Innovation remains at the core of the very nature of Indian MSMEs. It helped them survive in difficult times; it spurs them on to a glorious transformation. If jugad once epitomised the fierce spirit without the benefit of resources, today with sophistication and support it will make MSMEs scale unprecedented growth and diversification in frontier areas of technology, and fuel India’s rise to the third largest economy.

(The writer is a former MSME secretary, Government of India)