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This is where it all begins.
The MSME sector is the nursery of a country's industrialization. This is where tomorrow's large enterprises are born as fledgling units, find their feet as they build momentum with customers and rise to their full potential as they grow into larger companies with well-established footprints. While this may sound easy, however, it is important to realize that like in any natural process, there are no guarantees that every entrepreneur's dream venture will see fruition.
What makes this sector even more special is that for any economy the fresh shoots of growth arise here. The vitality of an economy is indicated by the number of firms in the MSME sector. More vibrant the economy, headier will be the spirit of adventure and explorations in this sector.
Schumpeter's vision of the capitalist economy speaks of the cycle of creative destruction. If there is one place where this principle comes alive it is in the MSME sector of the economy where there is always a new firm getting created, while simultaneously there will be another firm struggling to grow and perhaps yet another who has given up the battle and folds up under bankruptcy - or if lucky, gets reincarnated as part of a merged or acquired larger entity.
The sheer spread & size of this sector makes it distinct. Consider this: official estimates are that with a footprint spanning across the country, there are over 100 million employed in this sector covering 4 million units. Effectively, this means that with its 38% share of India's GDP, and a share estimated to be over 40% of exports, this sector can be the driver that transforms the country, both economically (the breadth of firms is varied, be it pharmaceuticals, engineering, electronics, chemicals, leather, foods, etc.), technologically (the sector is the home for both traditional skills & high technology products) and socially (from a nation of job seekers to meaningful job-creators). What more can one seek for inclusive and fast-paced development of the country?
What are tailwinds that make players in this sector succeed? A key one is the current government's flagship program, "Make in India". While the government's propaganda machinery has been on full blast in the last few weeks to celebrate 2 years' of it ascendance to office, for once there are somethings to be pleased about. Speaking to some of the players in this sector, one notes a new excitement as there is a bigger playing field than ever before. In the words of one of the MSME entrepreneur, 'In the Prime Minister, our industry has now found a world-class Business Development Manager who is going around the globe showcasing India's ability & welcoming investment in the Manufacturing sector.'
Three sectors of particular focus are Defense production, Aerospace & Infrastructure. For instance, as the government has insisted on 30% localization of foreign investment in defense production ('the offset clause'), there is a world of opportunity for the MSMEs like never before. Besides, there is an impetus to raise their manufacturing standards to best-in-class and thereby participate in creating value added products both for the Indian market and for exports.
Two recent successes need a special mention. On June 17th, Hindustan Aeronautics Ltd. (HAL) exhibited its capabilities with the inaugural flight of the HTT-40 (Hindustan Turbo Trainer- 40). The defense aspect apart, what is noteworthy is that the indigenous element of the aircraft is about 80%, and further, of this, nearly 50% of the components are manufactured by the private sector, of which the MSME share was significant.
The second example of the remarkable capabilities of the MSME sector is the unheralded role of small firms in India's space programs. If you have wondered how ISRO is able to shine as the rising star of the global space business (point to note, ISRO has won numerous accolades for being the most cost effective space program in the world and is a partner of choice to various countries for launching satellites now), a lot of credit also is to be given to its vendor development program where they have partnered and nurtured MSMEs to create cost effective solutions of the highest quality. Case in point is the story of Sure Safety, the Vadodara firm that has supplied space suits to ISRO, making it one of the few firms in the world to have gained the capability (see later segment for more on this).
Likewise, what are the headwinds that make this sector a challenging one for most businesses? There are many hurdles to the success of a small firm in this sector. The chief impediments are access to finance, lack of consistent quality, availability of appropriate talent and ability to penetrate markets. While there are a host of new initiatives from the government to assist this sector through finance, to crack the marketing barrier perhaps the lessons from the Chinese MSME sector would be useful here: they found Alibaba the perfect platform for showcasing their products to global customers. Innovative MSME firms can find that the Digital India initiative can serve as a vehicle to enhance productivity and reach new markets.
In sum, there is a new wind blowing through the MSME sector in India, energizing manufacturers. At a time when Information Technology firms are the cynosure of the Indian start-up world, there are new prospects for those who dare to choose the old-fashioned option of nuts-and-bolts production process. Will the new generation graduating from Engineering Schools grab these opportunities?
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