The ongoing COVID-19 pandemic has affected more than 150 countries, destroying lives, stalling economic growth and disrupting international trade & business. The Micro, Small and Medium Enterprises (MSME) sector in India has been one of the worst-hit in this calamity. This sector is ~64 Mn strong, many of which are in semi-rural or rural areas and employs close to 120 million people.
With the Government’s ‘Atmanirbhar Bharat’ initiative and support to the MSME sector with manufacturing and import substitution sops, opportunities are galore for businesses of all sizes to flourish.
Reducing import dependency on China
The call for a self-reliant Bharat and the stress on being “vocal for local” has opened up the possibilities for a larger demand for locally manufactured goods. The intention to reduce import dependency on China and the need to diversify our supply chains, coupled with the recent trend of going into manufacturing rather than largely services by MSMEs, signals a sizeable opportunity for seize here, especially in sectors like auto components, iron & steel, pharmaceuticals, textiles, plastic, furniture and toys, where the potential market size for domestic demand is significant. It will likely take a few years to gain the right competencies and for the results to show, but now is the time to make a start!
Renewed focus on solar manufacturing
India’s heavy dependence on China in solar energy, with 80% of the domestic demand for solar cells and modules being met by Chinese imports, received a rude jolt due to the pandemic, when installations were severely disrupted. This has led to renewed focus by the Government on expanding domestic solar manufacturing capacity to ensure energy security for the country. We have so far been manufacturing cells, modules, ingots and wafer, but now we need to go beyond that and also start manufacturing other ancillary equipment like backsheets, glass, inverters, transformers and cables, among others. This will enable us to cater to an entire ecosystem of renewable energy. Exports could form another pillar of this enterprise. GoI is considering setting-up new export hubs focused on renewable energy equipment opening huge opportunities for scale in this segment.
States setting up Manufacturing SEZs
Most states have plans in place to develop new manufacturing SEZs to give the sector a boost. Karnataka, for example, has identified industrially backward districts and tier 2 and 3 towns to develop MSMEs. Relaxations similar to the IT/ITeS industry are being provided to Manufacturing SEZs, to encourage manufacturing exports.
Digitization of MSMEs – Cloud and SaaS-based business processes
Adoption of technology will be a key factor in ensuring MSMEs’ future success and open up new vistas of growth for them. The pandemic has accelerated the adoption of digital sales channels and the digitization of MSMEs is a welcome trend that is here to stay. In almost every area of operation, be it book keeping and accounting, taxes, payment receivables and payables, Cloud and SaaS technologies can be leveraged to improve efficiencies and productivity. This is already happening, with many home-grown tech players using SaaS models to ease the business service pains of MSMEs. India was already a leading adopter of FinTech globally; the COVID-19 pandemic is now pushing larger numbers on to this bandwagon and helping them become future-ready.
Adoption of cloud-based technologies will help MSMEs reduce costs, increase information visibility and therefore improve decision making, and enhance worker safety – a critical area for compliance & governance in future especially in context of social distancing, contact tracing and ensuing timely interventions.
Advent of e-marketplaces for MSMEs
B2B e-marketplaces for MSMEs are gaining wider acceptance among buyers and sellers, which have also prompted the Government and the largest bank in India, SBI to enter the space. . It is a watershed moment in India’s B2B e-commerce, similar to the likes of Alibaba’s success story when China went into its manufacturing spree and internet penetration was at historical highs . Many forward-thinking MSMEs are integrating with such e-marketplaces, preferring to have an omni-channel presence in these times of social distancing and contactless, digital transactions.
The benefits that MSMEs reap from using these e-marketplaces are diverse –connecting with large networks of customers and suppliers, financing and business processes automation, and establishing a credible digital footprint; enablers for MSMEs to become future-ready.
Developing partnerships and local networks
There is a strong need to develop localized services and local networks across the country to enable the Government to expand economic hubs beyond tier 1 cities. MSMEs have an opportunity to actively shape this through forging partnerships with big players – including foreign entities looking to set-up low-cost manufacturing bases and pay a premium for hyperlocal data and specific knowledge of micro markets that MSMEs possess.
The next phase of growth for India will clearly be defined by MSMEs that stay abreast of trends and are willing to reimagine their businesses and evolve.