Confederation of Indian Industry Confederation of Indian Industry

Making Indian MSMEs

Globally Competitive
Innovation | Growth | Partnerships
September 2019
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Preface
The Indian economy has been acknowledged as one of the fastest growing economies and third largest
start up base in the world. The constant efforts of the Government of India have resulted in improved
ranking in the World Bank’s Ease of Doing Business 2019 survey. India jumped to 77th position amongst 190
countries which has been a landmark achievement.

The contribution of MSMEs has been central to India’s growth. Over the last year, numerous significant
steps have been taken by the Government and regulators for strengthening the MSME ecosystem. The
sector contributes 29% to the GDP and accounts for 49% of exports. Through notable initiatives such as
Make in India, the Government has promoted the Indian manufacturing brand and attracted global compa-
nies to invest in India and engage with MSMEs. The sector has the potential to create 10 million new jobs in
the next four to five years and significantly add to the USD 5 trillion economy in making.

With 63.4 million units spread across the geographical expanse of the country of which more than half
are in rural areas, the key to parallel growth of the sector and the overall economy is through boosting the
rural economy. Revival of cottage industries and incentivising entrepreneurs at the rural and semi- urban
areas would cater to the dual purpose of creating more employment opportunities and adding positive
numbers to economic growth.

In the current trade paradigm, staying ahead in the technology race has become fundamental for sustain-
able engagement in the global value chains. However, there is also a need to address the underlying factors
necessary to adapt contemporary technology into the production process by the SMEs which entails pro-
visioning components such as infrastructure requirements, availability of skilled workforce and others into
the schemes directed for technology adoption by MSMEs.

The response to the various initiatives taken up by the Government has been overwhelming. Recent initia-
tives towards overhauling the MSME ecosystem to create a more robust, efficient, and productive sector
are widely expected to foster further progress. The correct mix of legislative changes in terms of launching
new policies and revamping existing ones backed by responsible action will aid in propelling the growth
of MSMEs as also in increasing avenues of employment generation and higher contribution to the national
GDP.

CII has been playing a strong role in the MSME sector by channelizing industry voices and concerns to
policymakers and engaging in continuous deliberations for the development of the sector. With more than
60% of its membership base belonging to this sector, CII believes that progress of MSMEs would translate
into inclusive growth of the economy.

3
4
Contents
1 Introduction 6

1.1 Statistical overview 6

1.2 Institutional framework for MSMEs in India 10

1.3 Cluster development initiatives 11

1.4 List of the schemes of the Ministry of MSME 11

2 Competitiveness of MSMEs 12

2.1 What does ‘Competitiveness’ mean? 12

2.2 Key challenges faced by MSMEs 14

3 Competitiveness of Indian MSMEs vis-à-vis other emerging nations 16

3.1 Comparison across parameters 16

3.2 Case studies of a competitive ecosystem 19

3.3 Observations and relevant learnings for India 21

4 Key enablers for enhancing competitiveness/ 22

shaping up the MSME Ecosystem

4.1 New partnerships and collaboration 22

4.2 Nurturing innovation and skill development 23

4.3 Leveraging data and new technologies 23

4.4 Trade facilitation infrastructure and policies 23

4.5 Quality of physical infrastructure 24

4.6 Investment facilitation 24

5 Key emerging sectors 26

6 Conclusion and key take-aways 28

5
1. Introduction
1.1 Statistical overview
The Micro, Small and Medium Enterprises (MSME) sector is a key pillar of Indian economy as, with a size-
able network of ~63 million units, the sector contributes immensely to its growth. The MSME sector gener-
ates employment for around 111 million people and manufactures more than 7,5001 products, with a share
of around 48 percent2 in the country’s total exports.

Contribution of MSMEs to India’s economy at current price (2017-18)

30 30.4 30.2
29.7 29.2
30
28.9

25

20

15

10

05

2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Source: Central Statistics Office (CSO), Ministry of Statistics & Programme Implementation

Development Commissioner (MSME) Ministry of Micro, Small & Medium Enterprises – accessed on 11 September 2019
1

MSME Sector Contributes Significantly to Indian Economy, Press Information Bureau, 22 July 2019
2

6
MSMEs are classified into two categories3

1 2
Manufacturing Service
Enterprises Enterprises
Enterprises engaged in the manufacture These enterprises are engaged in
or production of goods pertaining to any providing or rendering services and
industry specified in the first schedule are defined in terms of investment in
to the industries (Development and equipment5.
regulation) Act, 1951) or employing plant
and machinery in the process of value
addition to the final product having a It is important to note that the criterion for classification
distinct name or character or use. These of MSMEs is being reviewed for a change from the
enterprises are defined in terms of in- existing based on ‘investment in plant and machinery or
vestment in Plant & Machinery.4 equipment’ to ‘annual turnover’ of the enterprise.

The present ceiling on investment to be classified as micro, small or medium enterprises

is given in the chart below.

ENTERPRISES

MANUFACTURING SERVICES
ENTERPRISES ENTERPRISES
(Investment in (Investment in
plant & machinery) equipments)

Does not exceed Does not exceed

MICRO
INR 25 lakh INR 10 lakh

More than INR 25 lakh More than INR 10 lakh

but does not exceed SMALL but does not exceed
INR 5 crore INR 2 crore

More than INR 5 crore More than INR 2 crore

but does not exceed MEDIUM but does not exceed
INR 10 crore INR 5 crore

3
In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006
4
Ministry of MSME, GoI – accessed on 9 September 2019
5
Ministry of MSME, GoI – accessed on 9 September 2019

7
MSME exports
The share of MSME-related products in the country’s exports was about 48.10 percent of exports during
2017-186. It is clear on analysis of data from Udyog Aadhaar7, an online self-certification based registration
portal for MSMEs, that a significant share of the MSME categorized enterprises engaged in both manufac-
turing and services belong to micro entrepreneurs.

Distribution of registered MSMEs in Manufacturing and Services as per UAM data

0.6 0.3
9.9
14.4

Manufacturing Services
Enterprises Enterprises

84.9 89.8

Micro Small Medium

While some of these enterprises are directly engaged in exports, majority of the MSMEs are engaged
indirectly through manufacturing intermediate goods for larger export-oriented industries.

Employment opportunities
Of the 110.9 million jobs generated in the sector, micro sector accounts for around 97 percent while small
and medium sector constitute 2.88 percent and 0.16 percent of total employment respectively (As shown
in figure below). Being one of the key drivers of India’s transition from an agrarian to an industrialised
economy, the sector can provide comparatively larger employment opportunities at relatively lower capital
cost especially in the rural and remote areas, by becoming part of the industrial ecosystem and acting as
ancillary unit for large enterprises.

MSME Sector Contributes Significantly to Indian Economy, Press Information Bureau, 22 July 2019
Udyog Aadhaar Memorandum (UAM) is a one-page online registration system for MSMEs based on self – certification no
supporting documents are required at the time of online filing of UAM. As an initiative to promote ease-of-doing-business
for MSMEs, UAM replaces the filing of Entrepreneurs’ Memorandum (EM part-I & II).

8
Distribution of Employment in Micro, Small Employment in MSME sector
and Medium enterprises (nature of activity-wise)

Trade Manufacturing
360.41
387.18 32%
35%

Other Services
362.22
33%

107.62 3.19 0.18 110.98

Source: MSME Annual Report, 2018-19, Ministry
Micro Small Medium Total
of MSME, GoI
*Non-captive electricity generation and
Source: MSME Annual Report, 2018-19, Ministry of MSME, GoI transmission

Both Uttar Pradesh and West Bengal, currently lead among all states with around 14 percent (each) of
total MSMEs in the country. Between them, UP has a slight lead over West Bengal by over 0.13 million.
The top 10 states together account for a share of 74 percent of the total estimated number of MSMEs in
the country.

16.45

Number of estimated MSMEs (in million)

9.00 8.87

4.95 4.78
3.83 3.45 3.39 3.32 2.69 2.67

UP WB TN MH KA BH AP GJ RJ MP OTHERS

Source: MSME Annual Report, 2018-19, Ministry of MSME, GoI

Note: UP-Uttar Pradesh, WB-West Bengal, TN-Tamil Nadu, KA-Karnataka, BH-Bihar, AP-Andhra Pradesh, GJ-Gujarat,
RJ-Rajasthan, MP-Madhya Pradesh

9
1.2 Institutional framework for MSMEs in India
At the central level, the Ministry of Micro, Small and Medium Enterprises (MoMSME) is the Nodal Ministry
for policy matters and for providing focused attention to the promotion and development of the MSME
sector. Both central and state governments are involved in promoting MSMEs through various ministries
and departments.

Apart from these ministries and departments, there are other institutions that play a critical role at
different levels in providing services and support - banks and financial institutions, refinancing institutions,
technology developers, skill building institutes, marketing agencies, etc.

INSTITUTIONAL FRAMEWORK FOR MSMES

DEVELOPMENT INSTITUTIONS FINANCIAL INSTITUTIONS SUPPORT INSTITUTIONS

Credit Information Companies

Advisory Set-ups National Level (CICs), SME Rating Agency
of India Ltd. (SMERA), Credit
Examples include Commercial Banks, Guarantee Fund Trust for
Prime Minister’s Office Regional Rural Banks, Micro & Small Enterprises
(PMO), National Board & Cooperative Banks, (CGTMSE), Donor Support
Advisory Committee for Refinancing Institutions. Institutions such as World
MSMEs - DC-MSME, etc Small Industries Bank, UNIDO, etc
Development Bank of
India (SIDBI), National
Policy Set-ups Bank for
Agriculture and Rural
Examples include Office Development (NABARD),
of the Development National Small Industries
Commissioner (MSME), Corporation (NSIC), Khadi
major R&D programmes, and Village Industries
etc. Commission (KVIC), etc.

State Level

State Financial
Corporations (SFCs), State
Industrial Development
Corporations (SIDCs),
The State Small
Industries Development
Corporations (SSIDCs) etc.

Source: MSME Annual Report, 2018-19,

Ministry of MSME, GoI

10
1.3 Cluster development initiatives
While the Indian MSME sector as a whole is highly varied at a National level, at certain geographical
locations there are concentrations of common skill sets or types of Industries. These can be clubbed into
Clusters with common characteristics.

The Ministry of MSME initiated selected interventions in industrial clusters first in 1998, and then later
broad-basing its MSE Cluster Development Programme through interventions, such as, capacity building,
marketing development, export promotion, skill development, technology upgradation, exposure visits and
setting up of common facilities centers, etc.

The ministry’s cluster-based approach aims to

• Support the sustainability and growth of MSMEs by addressing common issues, such as, improvement of
technology, skills and quality, market access, access to capital, etc.
• Build capacity of MSEs for common supportive action through formation of self-help groups, consortia,
upgradation of associations, etc.
• Create/upgrade infrastructural facilities in the new/existing industrial areas/ clusters of MSMEs.
• Set up common facility centers (for testing, training centre, raw material depot, effluent treatment,
complementing production processes, etc).
• Facilitate network development among cluster stakeholders.
• Development ‘service ecosystem’ in the clusters.

1.4 List of the schemes of the Ministry of MSME

The Ministry of MSME runs numerous schemes targeted at providing credit and financial assistances,
skill development training, infrastructure development, marketing assistance, technological and quality
upgradation and other services for the MSMEs across the country. Amongst others, some of the important
schemes by the Ministry of MSME are provided below8:

Credit and Financial assistance to MSMEs

1. Prime Minister’s Employment Generation Programme
2. Credit Linked Capital Subsidy Scheme (CLCSS)
3. Credit Guarantee Trust Fund for MSEs (CGTMSE) - Provision of collateral free credit for MSMEs

Skill Development and Training

1. A Scheme for Promotion of Innovation, Rural Industry & Entrepreneurship (ASPIRE)
2. Entrepreneurship and Skill Development Programmes (ESDP)

Infrastructure
1. Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
2. Scheme for Micro & Small Enterprises Cluster Development Programme (MSE-CDP)

Marketing Assistance
1. Scheme for providing financial assistance to Khadi institutions under MPDA

Technology Upgradation and Competitiveness

1. Financial Support to MSMEs in ZED certification
2. Support for Entrepreneurial and Managerial Development of SMEs through Incubators

Other Services
1. National Scheduled Caste and Scheduled Tribe Hub
2. Building Awareness on Intellectual Property Rights (IPR) for MSMEs

Note: This list is indicative and not exhaustive

MSME Annual Report, 2018-19, Ministry of MSME, GoI
8

11
2. Competitiveness
of MSMEs
2.1 What does ‘Competitiveness’ India’s Mangalyaan (Mars Mission) were sourced
from MSME Tool Rooms9
mean?
Competitiveness is defined as the ‘ability of a Factors that enhance competitiveness:
firm or a nation to offer products and services Competitiveness of a firm can be evaluated by its
that meet the quality standards of the local and capacity to compete, capacity to connect, and
world markets at prices that are viable and provide capacity to change. Each of these forms the pillars
adequate returns on the resources employed or of the Competitiveness matrix10 shown below.
consumed in producing them’. While the Capacity to Compete centers on present
While MSMEs in India continue to remain one of operations of firms and their efficiency in terms
our highest employment-generating sectors, their of cost, time, quality and quantity, the Capacity to
performance in international markets has much Change refers to firms’ capacity to execute change
scope for improvement. In most specialized sectors in response to, or in anticipation of, dynamic market
that call for technology-readiness and R&D intensity forces. The Capacity to Connect, on the other
such as telecom, IT hardware, electronics, etc; hand, refers to the capacity to gather and exploit
India remains a net importer of goods. While in all business relevant information and knowledge. Each
other sectors, the relative competitiveness of MSME pillar of competitiveness is determined at three
units in India in the global supply chain continues levels -- firm capacities, business ecosystem, and
to remain in a nascent stage. As described above, national environment -- to determine whether
there is a need to better integrate into global supply competitiveness weaknesses or strengths are
chains, either directly or through larger companies. at the firm level, within the immediate business
And yet, there is great diversity, robustness and environment or at the macro level. Various
technology-centricity found in some MSME units. parameters have been enlisted under each pillar
The greatest example of their resilience will be under these three levels.
found in the fact that at least 10 components in

9
MakeinIndia.com
Based on the ranking methodology adopted by International Trade Centre
10

12
Competitiveness matrix
Across ↓ Competitiveness assessed on the ability to…

Compete Connect Change

Firm • International quality • E-mail • Audited financial

certificate • Firm website statement
Capabilities • Bank account • Investment financed
• Capacity utilization by banks
• Managerial experience • Formal training
programme
• Foreign technology
licenses

Business • Power reliability • State of cluster • Access to finance

• Domestic shipping development • Access to educated
Ecosystem reliability • Extent of workforce
• Dealing with regulations marketing • Business licensing
• Customs clearance • Local supplier and permits
efficiency quality
• University-industry
collaboration in
R&D

National • Getting electricity • ICT access • Ease of getting

• Ease of trading across • ICT use credit
Environment borders • Government’s • Interest rate spread
• Applied tariff, trade- online service • School life
weighted average expectancy
• Prevalence of technical • Ease of starting a
regulations business
• Faced tariff, trade- • Patent applications
weighted average • Trademark
• Logistics performance registrations
index
• ISO 9001 quality
certificates
• ISO 14001 environmental
certificates
• Governance index

Source: International Trade Centre

Note: The list of parameters is only indicative and not exhaustive

13
2.2 Key challenges faced by MSMEs
While MSMEs have shown remarkable resilience by virtue of adapting to the changing face of global
economy and maintaining a stable growth rate, it has continued to suffer on the competitiveness index
due to significant challenges, which have remained more or less unchanging.11

2
Limited awareness /
know-how w.r.t increasing
competitiveness 3 Lack of access to
markets
• Limited information about • Limited adoption of
products and services in Standards
demand • Logistics related
• Inadequate access and challenges
marketing linkages • Presence of Trade and
• Lack of understanding of Non-Trade Barriers
the Working of the foreign • Limited information

1 Lack of access to adequate

and timely credit
• High cost of available
markets, and in particular
difficulties in accessing
export distribution
on potential markets
based on market
intelligence
channels and in connecting

4
credit and term loans with overseas customers Limited access or
• Complex collaterals • Lack of awareness on knowledge of appropriate
required by banks export promotion and technology
• Cumbersome loan assistance programmes
sanction procedures • Lack of innovation,
offered by the government
• Delay in disbursement low-value addition and
• Unfamiliarity with legal and
of funds poor packaging due to
regulatory frameworks of
low level of technology
the exporting and importing
adoption
countries
• Unable to meet

8 Documentation
• Lengthy and
cumbersome
• Limited awareness on
IPR issues and various
International Trade
importer’s quality
standards and
establishing suitable
Agreements (ITAs)
documentation process design and image for
required to comply with the export market
foreign and domestic
market regulations

5 Lack of availability of suitable skilled human resources

• Lack of skilled manpower for manufacturing, services,

7 Insufficient infrastructure
• Deficiencies in basic
marketing, etc.
• Inability to afford quality managerial and entrepreneurial
expertise
infrastructure facilities, • Lack of managerial competence, absence of proper training
including power, water, on resource planning and capital management
roads, etc. for non-
cluster based MSMEs

6 Poor procurement
• Procurement for raw materials at a competitive cost is a
challenge as these are carried out within local territory due
to their financial constraints and procurements are much
smaller in scale as compared to industry at large.

Notwithstanding a significant share in overall exports and a fairly decent growth story, MSMEs are repeatedly faced
with challenges that impede their access into global markets. It is imperative to create an eco-system that enables
them to enhance growth prospects, integrate with the global value chain either through directly engaging with the
global players or being a part of the supply chain by producing for the bigger firms which are linked to the global
vendors, generate more and better-quality jobs, experience improved productivity and innovation while seizing new
opportunities in the digital age.

Development Commissioner Ministry of Micro, Small & Medium Enterprises

11

14
15
3. Competitiveness of
Indian MSMEs
vis-à-vis other
emerging nations
3.1 Comparison across parameters forces, enhance their innovative capacities by way
MSMEs play an important role in the global of increasing investment in human capital, and
economy and are a key player in global trade. be capable of processing available information
They contribute significantly to the exports of any and knowledge to benefit their business. In sum,
economy. In developing countries, their export an MSME that has the capacity to compete,
share stands at around 35 percent of the economy change, and connect will stand to benefit,
and 50 percent in developed countries12. Due to irrespective of the order of global trade any day.
such high export intensiveness, the current global Also, India has already signed many free trade
trade scenario, shaped by rapid development of agreements (FTAs) and has been engaging in
digital technologies and high-tech manufacturing, regional trade negotiations such as RCEP (Regional
poses many challenges to the sector; boosting Comprehensive Economic Partnership). Free trade
competitiveness is thus one of the best ways to deals essentially increase pressure on MSMEs
enable MSMEs to transform those challenges into by giving privileged access to firms in our trading
opportunities. partners, so enhancing their competitiveness is one
of the best ways to overcome this challenge
The low-cost manufacturing is no longer a
dominant theme in global trade, which is being Indian MSMEs’ competitiveness has been compared
gradually replaced by increased emphasis on with other Asian nations such as Thailand, China
value addition. In this environment, it is essential and Vietnam through a comprehensive SME
for small and medium enterprises to rethink the competitiveness grid prepared by ITC. This has been
way they do business, improve their ability to detailed in the previous section.
change themselves as required by dynamic market

SME competitiveness outlook –

12

SIDBI, https://sidbi.in/en/articles/opti-
mism-article-page/128 - accessed on
13 September 2019
16
SME COMPETITIVENESS GRID SUMMARY

INDIA

Average scores (0-100) Compete Connect Change

FIRM CAPABILITIES Small 37.5 26.8 41.3
Medium 41.9 48.4 52.2
Large 59.7 73.1 66.2
All 42.6 40.8 51.1
BUSINESS ECOSYSTEM 61.5 69.8 58.6
NATIONAL ENVIRONMENT 54.5 43.7 45.1
Reference level: 41.9 (a function of GDP per capita)
Weaknesses are scores below: 21.0 Strengths are scores above: 62.9

THAILAND

Average scores (0-100) Compete Connect Change

FIRM CAPABILITIES Small 54.0 26.7 26.3

Medium 53.5 28.7 33.2
Large 69.4 51.7 52.7
All 56.1 29.2 32.8
BUSINESS ECOSYSTEM 64.6 64.3 90.8
NATIONAL ENVIRONMENT 65.7 61.0 58.0
Reference level: 51.9 (a function of GDP per capita)
Weaknesses are scores below: 25.9 Strengths are scores above: 77.8

CHINA

Average scores (0-100) Compete Connect Change

FIRM CAPABILITIES Small 56.5 45.5 41.8

Medium 63.7 64.9 61.4
Large 70.9 71.4 67.2
All 60.7 54.2 54.8
BUSINESS ECOSYSTEM 75.0 69.8 88.2
NATIONAL ENVIRONMENT 60.6 70.4 69.5
Reference level: 55.0 (a function of GDP per capita)
Weaknesses are scores below: 27.5 Strengths are scores above: 82.5

VIETNAM

Average scores (0-100) Compete Connect Change

FIRM CAPABILITIES Small 29.3 42.7 27.3

Medium 39.6 66.2 34.1
Large 52.4 75.3 55.0
All 36.6 51.8 34.8
BUSINESS ECOSYSTEM 63.1 49.7 73.0
NATIONAL ENVIRONMENT 58.8 54.3 55.8
Reference level: 43.8 (a function of GDP per capita)
Weaknesses are scores below: 21.9 Strengths are scores above: 65.7

17
 While performing well in capacity utilization In Thailand, both small and medium enterprises
and dealing with regulations13, Indian MSMEs performed reasonably well in ‘Compete’ parameter,
underperform in managerial experience and in primarily helped by their relatively good score on
owning foreign technology licenses. The gap between capacity utilization and managerial experience.
small and large firms lies in having business websites, However, they did underperform on ‘Connect’ and
which affected the score of small enterprises on ‘Change’ parameters under firm capabilities level.
‘Connect’ parameter. While medium sized enterprises The country maintains a relatively high score in
fared relatively well when it comes to formal training ‘getting electricity’, meaning that a simple but efficient
program14, small enterprises should improve on this process of procuring an electricity connection
indicator, underlining the need to create awareness positively contribute to Thailand’s competitiveness.
about tax incentives available to expenditure on
skill development15. In Vietnam, there is a gap between small and large
enterprises but that is relatively low, which led to its
China’s high score on access to finance enabled it good performance in ‘Connect’ parameter under firm
to perform well on ‘Change’ parameter, buoyed by a capabilities level. At a national level, Vietnam displays
good score on access to educated workforce. China strong position in quality as well as environmental
has also performed well in quality and environmental certificates indicators.
certificates and logistics performance index.

At a firm level
The presence of a large gap
between large and small enterprises
when it comes to international quality
At a business
certificate requires immediate attention
Many small enterprises lag behind large firms in environment level
having e-mails or websites. Thus, small firms should India’s low score on power reliability
be encouraged to increase their communication on indicator acts as a major obstacle
digital media, especially as connecting with key players from immediate business environment
in the firm’s business environment at ease is essential perspective. This essentially means that firms
to gather and exploit business relevant information and in India may have incurred higher losses due to
knowledge, as well as improve customer satisfaction. electrical outages.
There is a need for Indian small enterprises While India’s score on access to finance indicator
to increase their spending on formal skill is higher than that of Bangladesh, it is lower than
development programs, which will go a long way that of China, Vietnam, and Thailand, suggesting
in helping improve their innovative capacity there is scope for further improvement on
this parameter.

At a macro level
The issue of prevalence
of technical regulations could
restrain Indian firms’ ability to be a part of
global value chains
Although India’s performance at a national
level on ‘Connect’ parameter is much lower
than its potential, it is however believed that
the digital drive that the country has been
witnessing would enable it to make further
progress on this parameter in the coming years Key findings for India
India needs to make progress on trademark
registrations. The national IP policy launched
in 2016, which among others gives more
importance to enhancing the IP stock of MSME
and startups. This should be complemented
with a functional mechanism for funding for
protecting IP startups and a dedicated
scheme to incentivize MSMEs to
engage in R&D and new
knowledge

13
Among the list of indicators used to get scores for ‘Compete’ pillar under firm capabilities and business ecosystem levels, respectively
14
One among the list of indicators used to get scores for ‘Change’ pillar under firm capabilities
15
Weighted deduction of 150% on expenditure incurred on a notified skill development project by a company

18
3.2 Case studies of a competitive ecosystem
While MSMEs have shown remarkable resilience by virtue of adapting to the changing face of global
economy and maintaining a stable growth rate, it has continued to suffer on the competitiveness index
due to significant challenges, which have remained more or less unchanging.

Albania – collaboration among MSMEs leads to more opportunities

MSMEs and farmers constitute a majority of Other activities performed as part of this
Albanian businesses, but they lack knowledge, approach include: group counselling,
know-how and experience regarding national identifying the entrepreneurs’ subjectively
and international markets, competition and perceived problems and looking for solutions
product standards, which leaves them in a within the group and starting common
disadvantageous position when it comes activities to tackle problems. These actions
to tapping opportunities. Also, they do not are believed to fuel organizational change
receive any institutional support from both in the hosting business association or
public and private sectors. Since Albanian chamber. Five Albanian private business
entrepreneurs usually act in isolation within associations representing tourism/hotels,
their enterprises, they do not get the chance olive oil production, horticulture, livestock,
to improve their skills systematically and and professional business women founded an
also see other entrepreneurs even from the NGO called “Nucleus Albania” in September
same sector as competitors and personal 2014.
enemies. As a result, they are reluctant to The main objective of this NGO is to support
exchange know-how and experience, as well MSMEs by way of nourishing their cooperation,
as cooperate with them. They do not trust the putting the MSME Nucleus approach into
government, promoting institutions, suppliers, action, and upgrading MSME business services
customers and even colleagues. through a national network and information
sharing platform.
To overcome these challenges and stimulate
change at firm level, an integral approach, Benefits
the Nucleus Approach, is introduced. This • 15 olive oil producers and 10 olive farmers
addresses the MSMEs of a sector by creating organized a joint promotion in commercial
a working group called “nucleus” that is chain stores and together acquired new
facilitated by a Nucleus business counsellor technical equipment
and hosted by an association or chamber. • 10 hotel owners in Tirana gained international
expertise on how to improve their services
The Nucleus Approach forms an organizational by participating at the Pristine Tourism
platform that allows entrepreneurs to perform Fair. In order to share experiences among
various activities, ranging from identifying themselves, they also organized a B2B
individual and common problems, comparing meeting in Vlora
their performance with others (benchmarking),
and defining their own demand for services, to
developing self-confidence as well improving
their enterprises.

19
China – economies of scale through the concentration of production
Speedy growth of industrial clusters along the An enabling environment needed for the formation of
principles of socialization, specialization and market- such clusters such as appropriate policies, regulations
orientation was noted in China. Key features of these and vital infrastructure was given by local government
clusters include: small products but big markets; units. Several financial incentives to attract talented
small enterprises but large-scale cooperation and people with overseas education background and
small clusters but great achievements. incentivize teams with deep tech talent offered by
Shenzhen’s Municipal Government played a crucial
Professional towns and villages functioning as role in making the city a leading technology hub in
production hubs and achieving economies of China. The city enjoys a high concentration of high-
scale by having one or two towns focus on one tech talent, owing to a large presence of hardware
product are the key component of the cluster manufacturing industry and the fact that it spends
economy in China. This has led to large-scale over 4 percent of its GDP on Research and
specialized production and marketing with great Development.
potential for success being set up in some areas.
This basically elaborates the concept of - one
village, one product or ­– one town,
one industry.

Italy – Cooperation among competing firms gives the country a competitive edge
Italy is known as the leader of cluster development. Notwithstanding a stiff
competition among them, Italian firms do foster a high degree of cooperation, an act
which is famously known as ‘Competition by cooperation’. Under this system, the
production processes are disintegrated into distinct phases and separate firms take
control over different phases.

SMEs part of these clusters attain competitive advantages through three aspects:
‘specialization, cooperation and flexibility’. This model also allows for flexibility, as this
facilitates the grouping of different contractors according to the specialties required
in the product.

20
3.3 Observations and relevant learnings for India
• Since most of our MSME units are micro to have access to increased selection and MSMEs
in nature, and fragmented in approach, we to tap into new opportunities. So it is truly a win-
are unable to bring economies of scale into win deal. In this context, the government’s plan to
production. The benefits of a united approach to introduce an e-marketplace for MSMEs, similar to
production and marketing can be harnessed by Alibaba, is a step in the right direction and could
adopting a city or cluster focus to manufacturing open up enormous opportunities for the sector.
one particular product and bringing it to world- • The approach towards MSMEs have been to
standard of specialization. transact with them by offering one-time support
• Collaboration among MSME units is one of the through different schemes. However, the needs of
best ways to identify their genuine on-ground the sector are different. MSMEs require sustained
problems and find innovative solutions to tackle on ground support which is what should be the
the issues. focus.
• Online marketplaces such as Amazon play an • Global competitiveness shall also stem from
important role in helping MSMEs expand their actionable market intelligence delivered in a
market. In 2018, Amazon India entered into a timely manner. Very few players in the Indian
partnership with the Federation of Indian Micro MSME sector have that visibility
and Small & Medium Enterprises (FISME) to • Awareness, as always, has been a challenge. Our
conduct various events and workshops across the competitiveness will not increase if the sector is
country. This collaboration will allow consumers not actively reached out to.

21
4. Key enablers
for enhancing
competitiveness/
shaping up the
MSME Ecosystem
4.1 New partnerships and collaboration
• Encouraging the sharing of information, ideas incentivizes creative endeavor could fuel MSME
and research among MSMEs would go a long collaboration. The recent announcement on
way in helping themselves integrate in global reducing the patent costs for MSMEs is a
value chains. Developing and implementing welcome step, However, to ensure adequate
schemes that promote joint action and offer uptake, the importance of generating patents will
incentivize based on number of participating need to be communicated effectively.
units can be looked at. For example, within the • Indian MSMEs should be open to forging joint
Cluster Development Programme, the quantum ventures with foreign players, which will not
of assistance from the government should be only allow them to tap technologies but also
determined by the number of units in a cluster create more quality jobs in India. Collaboration
participating in the initiative. with foreign firms is one of the best ways for
• Public-private and inter-firm partnerships, Indian MSME to expand their footprints in foreign
research and development opportunities, start up lands. Moreover, India offers a great market for
or accelerator hubs and entrepreneurial ventures foreign players to introduce their products and
are some forms that collaboration models can services. Therefore, an ecosystem of ‘Connect,
be based on. Linkages with CSIR labs can be Collaborate and Conduct’ can be established
a starting point to introduce MSMEs to new wherein the platforms enables a Connect or a
indigenously developed technologies leading to a first level introduction, the ecosystem facilitates
win-win for both parties. collaboration through a formal engagement and
• Establishing an intellectual property framework the environment leads to the conducting of
that both promotes the sharing of ideas and business.

22
4.2 Nurturing innovation and skill development
• India needs to focus on skill development for risk associated with entrepreneurs trying out new
both labor and entrepreneurs. More importantly, things.
the skill development initiatives are required • While few mentors are ready to offer
to be outcome oriented in terms of creating mentorship services as pro-bona others look
an employable workforce rather than output for compensation. Creating a dedicated portal
oriented which focuses on the number of to provide mentoring services would be good
trainees. While having more ITIs and skill support to startups as well as existing MSMEs
development centers will provide quality formal who struggle with relatively easily addressable
training to employees, encouraging the formation challenges.
of incubators in every major city would go a long • Most incubators in India are not experimenting
way in developing entrepreneurs. with virtual training program, mostly due to the
• Utilizing underutilized industrial estates of absence of a centralized tool to facilitate it. If the
government, both central as well as state, for government creates such a tool, they might be
building incubation centers may be considered. encouraged to try that.
Besides, increasing the seed funds available for
incubation activities would give an impetus to the

4.3 Leveraging data and new technologies

• New technological developments open up market insights would give firms an unparalleled
enormous opportunities for SMEs, which not only edge. This information also helps them invent
made access to market-relevant information easy new ways of analyzing markets and facilitating
but also opened up new ways of accessing finance interaction between buyers and sellers. Platforms
such as peer-to-peer lending, crowdfunding, such as TReDS, GeM are a step in the right
cryptocurrency-based securities etc. direction and more needs to be done to ensure
• In the digital world, each and every transaction greater uptake.
creates data. Having a robust platform to process
such information in order to produce valuable

4.4 Trade facilitation infrastructure and policies

• Customs administrations should strengthen its more effective. Design of trade facilitation
governance capabilities by giving more emphasis processes should give more importance to
to information and communication technology compliance than business size as a qualifying
(ICT). Effective trade facilitation also requires criterion, which could benefit MSMEs, especially
better communication strategies and a properly as they are often denied access to these
designed information content. Smart portals, user processes due to their size
experience-based interfaces, advanced analytics • While introducing measures to improve trade
are some of the features that may provide facilitation processes, it is important that the
superior user experiences. In addition, actionable current status of MSME capacity is taken into
market intelligence with respect to Most Favoured consideration. Their concerns should be heard
Nations (MFN), Basic customs duty, Preferential through surveys; they need to be given support
tariffs, Rules of origin, Duty Drawbacks, etc. can to better manage records and skills, which
be extremely beneficial. is important if they are to benefit from trade
• Compliance measurement makes trade agreements
facilitation salient and risk management systems

23
4.5 Quality of physical infrastructure
• To strengthen the competitiveness of MSMEs and help them access to international markets and
integrate into value global chains, building a well-developed infrastructure (roads, railways, seaports,
airports and telecommunications) is essential

4.6 Investment facilitation

• Investors and MSMEs often fail to find each other, information about MSME finances makes this task
irrespective of the latter’s efforts to find investors more challenging for them.
and policymakers’ initiatives to create an enabling • Efforts should be focused on improving investor
environment. There is a need for an agency perception that otherwise proves to be a
that could play the role of matching / directing bottleneck for investments in MSME space.
investors to MSMEs. Mostly, financial institutions • Enabling financing mechanisms and easier access
serving SMEs, investment promotion agencies, to credit will augur well for the MSME sector
online investment platforms and investment
accelerators perform this role. However, lack of

24
25
5. Key emerging sectors
Considering the expected growth trends in the top industry sectors and certain opportunity
areas, MSME share in these growth sectors can be increased significantly, if they can aspire to
become a strong backbone to industry sectors by serving as quality suppliers and vendors as
well as customers to large companies.

Automotive
• Automotive electronics
• Manufacture of automotive components,
Tier 1 and Tier 2 suppliers to OEMs
• Electric vehicle manufacturing
• Applied electronics
• Defence sector
• Rubber and chemicals supply for tyres

Biotechnology
• Domestic manufacturing of diagnostic kits, reagents
and consumables used in testing
• Focus on vaccine exports to developed countries
• Providing bio-informatics related solutions
• Leveraging the biosimilar opportunity
• Recombinant products
• Agri produce
• Hybrid seeds also represent new business
opportunities in India based on yield improvement

Chemicals
• Bio-based raw materials to reduce
dependence on oil
• Support supplies and services for
Integrated petroleum, chemicals and
petrochemicals investment regions
(PCPIINR)

Electronics
• Electronic Systems Design and Manufacturing
including semiconductor design, electronic
components design and hi-tech manufacturing
• Electronic components with focus on making
components for electronic products customised for
the Indian market
• Strategic electronics, with the Government of India
keen to encourage domestic manufacturing of
products needed by the armed forces
• Low-cost consumer electronics, consumer durables
• Nanoelectronics and microelectronics

26
Engineering &
Process Equipment
• Engineering solutions segments
like chemicals and petrochemicals,
pharmaceuticals and automotive for a
growing demand for process equipment
• Next generation automation tools like
smart robotics in high precision industries
• Green Engineering

Food and Agriculture

• Processed food, ready to eat packaged food, premixes,
milk & dairy, bakery and processed meat
• Backend infrastructure such as cold chain storage, farm
collection center, etc.
• Health food, health beverages, food additives such as
vitamin additives, etc
• Food packaging, innovative packaging for processed food
• Contract manufacturing for crop protection chemicals,
crop nutrients
• Poultry, feed and farm additives

Industrial Mfg.
• Design, equipment and supplies
• Processing and toll manufacturing
• Sustainability and pollution treatment services
• Facilities management services

IT/ITEs
• Cloud computing
• Social media and mobility
• Data analytics services
• E-governance
• Mobile apps and software development
• Software automation

Pharmaceuticals
• Generics and API manufacturing
• Contract research
• Nutraceuticals and nutricosmetics

Renewable Energy
• Personal protective equipment and safety gear
• Drilling and mining chemicals

Textile
• Raw fabric and dye production
• Processing & Packaging
Source: The new wave Indian MSME: An
action agenda for growth: KPMG in India,
Indian Exports - The Next Trajectory -
27 Mapping Products and Destinations, CII
6. Conclusion and key
take-aways
Globalization has created significant economic India’s cultural diversity provides significant number
opportunities for nations and companies of regional village industries manufacturing typically
around the world to access the global market. traditional and heritage-based products across the
Consequently, India, like other countries, has country ranging from traditional textile weaving to
strived to keep up with the global market emerging pottery and art and even medicine. It is important
dynamics by constantly revisiting its various to recognise and reward MSME for initiatives
policies. towards skill development and employment
generation by means of direct incentives, weighted
MSMEs constitute almost 95 percent of the Indian deductions and reliefs in indirect taxes combined
economy16. Thus, development of the MSME sector with low cost funding and credit access for
is vital to meet the national objectives of financial stakeholders. This would greatly promote rural
inclusion and employment generation across urban, economy and create jobs.
rurban and rural areas. Further, it can foster and
support development of new age entrepreneurs Additionally, MSMEs have the potential to
who have the potential to create globally become the backbone for future high growth
competitive businesses from India. businesses with both domestic and foreign
companies investing in the ‘Make in India’ initiative;
Initiatives such as National Manufacturing thus, making significant impact in the area of
Competitiveness Programme (NMCP) have indigenisation. ‘The ‘Digital India’ revolution also
been launched to support MSMEs in improving provides a great opportunity to promote MSME
their competitiveness. Schemes to promote lean participation in the Information, Communication
manufacturing, design improvement, ‘Zero and Telecommunication (ICT) sector, in line with the
Defect Zero Effect’ certification, support for government vision.
incubators, awareness of Intellectual Property
Rights and digital empowerment to MSMEs have In sum, it is important that the MSME sector
been put in place to achieve the related objectives. develops in all areas of agriculture, manufacturing
In order to support MSMEs in their technology and services sectors because each of these sectors
up-gradation endeavors, Credit Linked Capital will continue to be very relevant to the overall GDP
Subsidy-Technological Up-gradation Scheme growth as well as employment generation, thereby,
(CLCS-TUS) has been announced17. All these catalysing a robust integration of the regional
programmes and policies are aimed at plugging the market with the global market.
gaps and addressing the challenges (described in
section above)

MSME Annual Report, 2018-19, Ministry of MSME, GoI

16

Global Competitiveness of Indian MSMEs Sector, Press Information Bureau, 1 July 2019
17

28
Ministry of Micro, Small & Medium Enterprises (M/o MSME) envisions a progressive MSME sector by
promoting growth and development of the Sector, including Khadi, Village and Coir Industries, in
cooperation with concerned Ministries/Departments, State Governments and other Stakeholders, through
providing support to existing enterprises, adopting cutting edge technologies and encouraging creation of
new enterprises. Several statutory and non-statutory bodies work under the aegis of the Ministry of MSME.
These include the Khadi Village Industries Commission (KVIC) and the Coir Board, besides National Small
Industries Corporation (NSIC), National Institute for Micro, Small and Medium Enterprises (NIMSME) and
Mahatma Gandhi Institute for Rural Industrialization (MGIRI).

The Ministry of MSME runs various schemes aimed at financial assistance, technology assistance and
upgradation, infrastructure development, skill development and training, enhancing competitiveness and
market assistance of MSMEs. The Ministry is committed towards an agenda of inclusive development and
has taken various initiatives and measures to ensure that demographically as well as geographically weaker
sections benefit from its work.

Through consistent efforts during 2014-2018 (till date) the MoMSME has been able to create 1,40,67,000
jobs in the Khadi and Village Industries Sector. Also, through the Prime Minister’s employment generation
programme, approximately 2,31,543 units have been set up providing employment to 17,77,688 people. The
MSME Technology centre has trained 7,56,894 people. In addition, it has also been able to train almost
2,07,367 people through its ATI Assistance to Training Institutions helping them with livelihood generation.
MoMSME has also been keen towards adoption of digitization to instill transparency and accountability
to its vast MSME members. Schemes such as SAMADHAN, SAMBANDH, UAM and others has been
instrumental in meeting the agenda.

Also, the Ministry has been endeavoring in improving the standards of production making it at par with
the global standards such that MSMEs can participate in the global market. For the purpose, the ministry
has initiated various schemes for affordability and ease of access to testing centres. Also, schemes such
as Zero Defect Zero Effect Scheme has been pivotal in promoting adaptation of quality tools/systems and
energy efficient manufacturing. The MoMSME has also initiated schemes for improving access to formal
credit of the MSMEs. Schemes such as CLCSS, CGTMSE and others has been helping the MSMEs to avail
easy credit from the banks registered under the scheme.

These and many others has aided in the development and growth of the MSMEs throughout the
geographic expanse of the country helping in bridging the gap towards inclusive and sustainable
development of the country.

30
 Confederation of Indian Industry Confederation of Ind

Confederation of Indian Industry Confederation of Ind

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the
development of India, partnering industry, Government, and civil society, through advisory and consultative
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India is now set to become a US$ 5 trillion economy in the next five years and Indian industry will remain the
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