MSMEs needs support to become future ready

June 27 is now celebrated as the Micro, Small and Medium Sized Enterprises (MSME) Day. The move aims at recognising the importance of the MSME sector in the economic growth and also to foster and boost the growth of this key sector of the economy. Mind you that it is expected that India will thrive as one of the leading economies in the world over the next decade in light of a positive political and economic scenario. The Micro, Small & Medium Enterprises (MSME) segment has been playing a remarkable role in the emergence of the Indian economy. The development of MSME segment is extremely critical to fulfill the national mission of financial inclusion and generation of significant levels of employment across all geographical areas across the country. Moreover, it can accelerate and assist development of new age entrepreneurs who have the potential to create extensively competitive businesses from India. However, the current scenario with regard to MSMEs in the country is nothing to write home about. More than a quarter of India's micro, small and medium enterprises (MSMEs) lost market share of over 3 per cent due to the Covid-19 pandemic, and half of them suffered a contraction in their earnings before interest, tax, depreciation and amortisation (Ebitda) margins because of a sharp rise in commodity prices last fiscal, compared with the pre-pandemic (fiscal 2020) level.

Going by the latest Crisil Research study, SMEs in several sectors saw market share loss of over 3 and per cent Ebitda margin erosion compared with fiscal 2020 last fiscal. For instance, the pandemic-induced supply chain disruptions impacted small pesticides manufacturers more. On the other hand, large ones leveraged their global presence to procure raw materials, so could eat up a huge chunk of the SME pie. Edible oil SMEs lost market share because an increase in hygiene quotient because of the pandemic meant less buyers for oil sold loose.

All these assume significance in the wake of the fact that India's GDP is expected to touch 8.5 per cent, with the country likely to be a $5 trillion economy by 2025. Industry leaders suggest that MSME is that one segment that has been majorly contributing in the economy and has the potential to emerge as a backbone for this economy. MSMEs would potentially act as a driver for growth if given the right set of assistance and enabling framework.

Internationally, the MSME segment expansion has shown mixed feedbacks the basis on various policies and initiatives undertaken by developing and developed economies during their critical economic span. Many developed and developing economies have agreed upon the fact that the MSME segment constitutes the backbone for maintaining growth rates as well as employment generation rate and provides stability during economic downturns.

One will also have to keep in mind that assessing the impact on MSMEs has been a real challenge because of information asymmetry and lack of high-frequency data points in this space. Mind you that the world is currently undergoing a fourth revolution or the 4.0 revolution era. It's being anticipated that the transition will lead to reduced role of human power as an operator and pave way for more interaction opportunities between machines and machines. MSME sector should also be made an active and vibrant part of this 4.0 revolution.