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Industrials
In a recent address, NITI Aayog CEO BVR Subrahmanyam highlighted a critical issue plaguing India's economic landscape: the absence of sufficient medium-sized companies. Subrahmanyam emphasized that this deficiency is not merely a statistical anomaly but an "institutional, structural problem" that impacts the nation's growth trajectory. This article delves into the challenges faced by Micro, Small, and Medium Enterprises (MSMEs) in India, exploring how these issues hinder the transformation of small businesses into larger entities.
India is home to a vast number of MSMEs, with approximately 6.18 crore enterprises registered on the Udyam portal. These include 6.09 crore micro, 7.44 lakh small, and 70,000 medium enterprises. Despite their numerical strength, MSMEs struggle to scale up due to regulatory hurdles and technological gaps. The transition from micro to small, and from small to medium, is particularly challenging, with only a few enterprises successfully making this leap. For instance, in the 2023-24 fiscal year, just 1,835 micro enterprises expanded into medium-sized ones, while 15,918 small enterprises made the transition to medium[1].
MSMEs are crucial for India's economic progress, serving as significant employment generators and contributors to the nation's GDP. However, their growth is stunted by structural issues. Subrahmanyam noted that large companies often dominate specific sectors, leaving little room for medium-sized businesses to emerge as future leaders. This limitation hampers India's ambition to become a $30 trillion to $50 trillion economy, as envisioned by policymakers[2][3].
MSMEs are disproportionately affected by regulatory requirements compared to large corporations. While big companies can afford legal and compliance teams, MSMEs struggle under the weight of bureaucratic red tape. The Prime Minister has initiated deregulation efforts, with a task force working under the Cabinet Secretary to simplify land, electricity, and water-related regulations[1][4].
Technological advancements are crucial for MSMEs to remain competitive. However, technology adoption and digital transformation pose significant challenges due to limited resources and investment in research and development (R&D). Initiatives like Dx-EDGE, which aim to empower MSMEs with digital tools and knowledge, are seen as vital in bridging this gap[2][5].
Skilling of the workforce is another major challenge faced by MSMEs. Unlike large corporations that can afford extensive training programs, MSMEs often lack the resources to upskill their employees. This results in a shortage of skilled labor, further hindering growth[3][4].
The process of obtaining quality certifications is complex and often out of reach for many MSMEs, which is essential for competing in global markets—especially for export-oriented businesses[1].
NITI Aayog is working on a program to increase India's participation in global value chains, focusing on developing intermediate goods produced by MSMEs. This initiative aims to create a robust domestic ecosystem for manufacturing essential components currently imported, such as those used in mobile phone production[2].
India has seen significant success in mobile phone manufacturing, thanks to initiatives like the Production Linked Incentive (PLI) scheme. However, despite this progress, about 95% of components used in mobile phone manufacturing are imported, highlighting the need for a self-sufficient ecosystem[2][3].
In conclusion, the lack of medium-sized companies in India is a structural issue that requires immediate attention. Addressing regulatory hurdles, enhancing technology adoption, and investing in education and skilling are crucial for the growth of MSMEs. By fostering these medium-sized businesses, India can unlock future economic growth and achieve its ambitious economic goals.
A cluster-based approach, where MSMEs are grouped geographically to leverage shared resources and expertise, could help address their unique challenges. This strategy allows for targeted support, enabling MSMEs to become more competitive[4][5].
Initiatives like Dx-EDGE, which involves public-private-academia partnerships, are essential for providing MSMEs with technological and managerial skills. These partnerships can also offer real-world learning experiences for students while helping MSMEs become more resilient[1].
By focusing on these strategies, India can build a more vibrant ecosystem for MSMEs, ultimately paving the way for medium-sized companies to evolve into large, globally competitive enterprises.
