Panel Discussion: Not just financial nuances, managerial capabilities of MSMEs also matter

MSMEs are the growth engine fuelling the Indian economy. As per an industry survey, it was estimated that MSME firms created up to 14.9 million new jobs per annum over the past four years.

However, despite it being a crucial contributor to GDP and churning out several jobs, the sector has not had it easy. Enabling a conducive business environment that fosters MSME growth has become even more imperative in the present scenario to steer the economy forward.

On the occasion of the World MSME Day, an exclusive ET Rise panel discussion centered on ‘Kick-Starting the MSME Growth Engine,’ juggled a multitude of issues between the various panelists from leading industry organisations such as United Nations Industrial Development Org. (UNIDO), Confederation of Indian Industry (CII) and Carpet Export Promotion Council (CEPC).


Moderating the session, Pranbihanga Borpuzari - Associate Editor, ET Rise asked the panelists to decode the current dynamics encircling the MSME sector. The unanimous view was that although it has been a difficult time, the momentum has now picked up and is more upbeat.


Regarding the ever pervading issue of access to finance, Mahavir Sharma, immediate past Chairman, CEPC said that the banking sector has gone through turmoil in the last couple of years and with big enterprises not paying up, funding small and medium enterprises has also come in question. “They have cut down on the funding. The interest rates have not trickled down to being on the lower side for the commercial sector. So it is a huge challenge. The incoming government has to strengthen and put funds on the side for this sector. The delinquencies are not so much in rupee terms. I think the banks have to put some money aside and support this system because there are cash flow issues and liquidity crunch,” he said.

Drawing attention to the last economic survey which found that only 17% of total bank credit offtake was for MSMEs, Ashok Saigal, Member, CII National MSME Council said that the banks seem to have retreated in an over cautious mode. “Priority sector lending target for banks is much higher than 17%. Although the statistics show very clearly and the banks are aware of it that the amount of delinquency in the MSME sector is lower than that in the larger sector. But at the same time, because of the sheer number of loans that were involved, they stopped processing credit and found it convenient to pass on the buck to NBFCs,” highlighted Saigal.

Saigal reiterated his point with the example of the 59 minute loan scheme announced last year, which sanctioned loan in 59 minutes, but when it came to disbursement, it did not happen even in 59 days!

Rating SMEs on a national level through a transparent process to disburse funds as per their credit profile was one of the suggestions made by Sharma of CEPC. This, he said, would incentivise SMEs to improve their ratings as well as allow the fund flow to be easier.

However, panelists also agreed that it is not just the financial nuances, but also the capability of the enterprises to be productive that makes a difference. Rene Van Berkel, India Representative at UNIDO emphasised the need to look for productivity and profitability of the enterprise and how the enterprise capabilities can be driven so that the ease to financing and capital becomes easier.

Agreeing with Berkel, Saigal and Sharma also urged the need for better compliances and discipline in the system to bring forth more responsible SMEs in the country.

Regards the global turmoil and its impact on MSMEs back home, Berkel sounded optimistic, saying that this is more likely to be a short term upheaval and India will move forward with some mega trends which could change the entire dynamics.

Sharma too was positive, stating that India is a huge market and is the driving force for the MSME sector. “While global turmoil in trade wars does have an impact on the larger enterprises and India at large is an economy with oil and inflation kicking in which trickles down to the middle and lower income class. So I think India is being challenged on the growth sector. However, I also feel this is a sentimental thing. I think there is a state of suspension. We are waiting for other countries to sort their issues out. We are poised to grow between 3 -15 months and I think the domestic market will play a very important role,” he said.

As far as being prepared for Industry 4.0 is concerned, the panelists were of the view that a lot more education was needed to make this a reality in the deeper pockets as well in smaller towns. The mood is bullish, but a lot more needs to be done to commit to manufacturing in a structured manner which can, in turn, elevate the stature of MSMEs in the country.

Saigal added that Industry 4.0 is not just about the hardware aspects, but also bringing in the softer side to enhance customer experience, the effects of which will trickle down to MSMEs as well.

There was consensus across the panel members on technological upgradation acting as a key force to move forward and incentivise growth in the times to come. “Investing in technology and building economies of scale is the path ahead. For an improvement in technology as well as reduction in costs, both of these factors will translate into growth,” summed up Berkel.