The year 2023 has been a pivotal period for Micro, Small, and Medium Enterprises (MSMEs) in India, marked by a dynamic economic scenario and crucial government interventions.
Small Enterprise India aims to provide an overview of the best and worst aspects experienced by Indian MSMEs in 2023, shedding light on both the benefits and challenges they encountered amid the evolving landscape.
Benefits for Indian MSMEs in 2023:
Government Support and Initiatives:
The Indian government has continued its commitment to supporting MSMEs through various schemes and initiatives. Programs like the Atmanirbhar Bharat Abhiyan and the Emergency Credit Line Guarantee Scheme (ECLGS) have provided much-needed financial assistance to small businesses, enabling them to navigate economic uncertainties.
- Atmanirbhar Bharat Abhiyan:
Launched in May 2020, the Atmanirbhar Bharat Abhiyan (Self-Reliant India Mission) aimed to promote economic self-sufficiency and resilience in various sectors, including MSMEs. The government allocated financial packages to provide relief and support for businesses affected by the COVID-19 pandemic.
- Emergency Credit Line Guarantee Scheme (ECLGS):
ECLGS was introduced as part of the Atmanirbhar Bharat Abhiyan to provide guaranteed emergency credit to MSMEs, helping them meet their operational liabilities and restart their businesses. Under this scheme, businesses were eligible for collateral-free loans with a government-backed guarantee.
- Pradhan Mantri Mudra Yojana (PMMY):
Launched in 2015, PMMY focuses on providing financial support to micro-enterprises through a variety of loan products. It categorizes loans into three categories – Shishu, Kishor, and Tarun – catering to different stages of business development.
- GST (Goods and Services Tax) Relief Measures:
The government has implemented various GST-related reforms to simplify compliance for MSMEs. This includes reducing the GST rates on specific goods and services, easing filing procedures, and introducing a composition scheme for small businesses.
- Technology Upgradation Support under Credit Linked Capital Subsidy Scheme (CLCSS):
CLCSS aims to facilitate technology upgradation in MSMEs by providing capital subsidies for the modernization of their plant and machinery. This encourages small businesses to adopt the latest technologies, thereby enhancing their competitiveness.
- Udyog Aadhaar Registration:
The Udyog Aadhaar is a government registration that provides MSMEs with a unique identity. This simplifies the registration process and helps businesses avail themselves of various government schemes and benefits.
- Cluster Development Programs:
The government supports the formation and growth of industry clusters, where groups of MSMEs in similar sectors come together. This helps in sharing resources, accessing common facilities, and enhancing overall productivity.
- National SC-ST Hub:
National SC-ST Hub was launched to support entrepreneurs from the Scheduled Castes (SC) and Scheduled Tribes (ST) categories, this initiative aims to promote the participation of these communities in MSMEs by providing various support measures, including financial assistance and capacity building.
Digital Transformation:
The digital revolution has played a significant role in transforming the operations of MSMEs. With increased internet penetration and the government’s push towards a digital economy, small businesses have embraced technology, leading to improved efficiency, expanded market reach, and enhanced competitiveness.
The Indian government has played a significant role in facilitating the digital transformation of Micro, Small, and Medium Enterprises (MSMEs) through various initiatives. Digitalisation is seen as a key driver for enhancing the competitiveness, efficiency, and overall growth of these businesses. Here are some of the key ways in which the Indian government has been involved in promoting digital transformation for MSMEs:
- Digital India Campaign:
Launched in 2015, the Digital India campaign is a flagship initiative that aims to transform India into a digitally empowered society and knowledge economy. The campaign has various components, including the development of digital infrastructure, the promotion of digital literacy, and the encouragement of e-governance. These elements are crucial for creating an environment conducive to the digital transformation of MSMEs.
- MSME Sambandh:
MSME Sambandh is an online portal launched by the Ministry of Micro, Small, and Medium Enterprises to facilitate the registration and tracking of various activities related to MSMEs. The portal streamlines processes and enhances transparency, making it easier for businesses to interact with government agencies.
- Udyam Registration:
The government has introduced Udyam Registration, a simplified online registration process for MSMEs. This digital platform allows businesses to register themselves and obtain a unique Udyam Registration Number, simplifying the process of availing of government schemes and benefits.
- Digital MSME Scheme:
The Digital MSME Scheme, launched by the Ministry of Micro, Small, and Medium Enterprises, focuses on enhancing the competitiveness of MSMEs through the adoption of information and communication technology (ICT) tools. The scheme provides financial assistance to MSMEs for the adoption of cloud computing, digital marketing, and other digital technologies.
- Credit Linked Capital Subsidy Scheme (CLCSS):
While not exclusively focused on digital transformation, the CLCSS includes provisions for technology upgradation. MSMEs can avail themselves of subsidies for upgrading their plant and machinery, which may include investments in digital technologies.
- Technology and Quality Upgradation Support:
Various state governments and industry bodies collaborate to provide support to MSMEs for technology upgradation. This includes organizing workshops, training programs, and awareness campaigns to encourage the adoption of digital tools and technologies.
- Open Network for Digital Commerce (ONDC)
The Open Network for Digital Commerce (ONDC) is an initiative by the Indian government aimed at fostering a competitive digital commerce ecosystem. ONDC is expected to provide a framework for digital marketplaces, making it easier for buyers and sellers, including Micro, Small, and Medium Enterprises (MSMEs), to conduct business online. Here are key points regarding ONDC and its potential impact on the MSME marketplace:
- The objective of ONDC:
The primary objective of ONDC is to create an open, transparent, and interoperable digital commerce network in India. It is designed to empower various players in the ecosystem, including small businesses and entrepreneurs, by providing them with a level playing field and equal opportunities.
- Interoperability and Data Sharing:
ONDC aims to establish a standardized protocol for interoperability among different digital commerce platforms. This means that MSMEs can potentially list their products on multiple platforms without facing technical barriers. Additionally, the initiative emphasizes data sharing, enabling businesses to access a broader customer base.
- Reducing Entry Barriers for MSMEs:
By promoting interoperability and open standards, ONDC seeks to reduce entry barriers for MSMEs, allowing them to participate in digital commerce more seamlessly. This can be particularly beneficial for small businesses looking to leverage online platforms to reach a larger audience.
- Inclusive and Competitive Marketplace:
The initiative is designed to promote fair competition and prevent any undue concentration of market power. This inclusivity is expected to benefit MSMEs, as they can operate in a competitive environment where innovation and efficiency are key drivers of success.
- Consumer Choice and Protection:
ONDC aims to enhance consumer choice by providing a more diverse and competitive marketplace. The initiative also includes provisions for consumer protection, ensuring that buyers, including those purchasing from MSMEs, have a secure and transparent online shopping experience.
- Government Support for MSME Adoption:
The government has expressed its commitment to supporting MSMEs in adopting and benefiting from the ONDC framework. This may include providing guidance, resources, and incentives for MSMEs to integrate with the digital commerce network.
- Digital Payments Integration:
ONDC is expected to integrate digital payment solutions, making transactions more secure and efficient. For MSMEs, this can translate to smoother payment processes and financial transactions within the digital marketplace.
- The Fintech Disruption
The Indian government has been actively supporting the growth of the fintech sector, recognising its potential to drive financial inclusion, innovation, and economic growth. Here are several ways in which the Indian government has been fostering fintech disruption:
- Regulatory Framework:
The Reserve Bank of India (RBI), India’s central bank, has been proactive in creating a conducive regulatory environment for fintech companies. Initiatives such as the regulatory sandbox allow fintech firms to test innovative products in a controlled environment, fostering experimentation while ensuring consumer protection.
- Unified Payments Interface (UPI):
The government-backed UPI has been a game-changer in the fintech space. UPI enables seamless peer-to-peer and peer-to-merchant transactions through mobile devices. Its widespread adoption has facilitated digital payments, financial inclusion, and the growth of fintech firms in the payment space.
- Financial Inclusion Initiatives:
The government has launched several financial inclusion initiatives, such as the Pradhan Mantri Jan Dhan Yojana (PMJDY), which aims to provide financial services to the unbanked and underbanked populations. Fintech companies play a crucial role in supporting these initiatives by leveraging technology to extend financial services to previously underserved segments.
- Aadhaar-based Authentication:
Aadhaar, India’s biometric identification system, has been integrated into various fintech services, enabling secure and efficient customer authentication. This has facilitated the development of innovative fintech solutions, including digital identity verification and e-KYC processes.
- Digital Lending Platforms:
The government has recognized the importance of digital lending platforms in providing quick and accessible credit to businesses and individuals. The use of technology in credit assessment, disbursement, and repayment has been supported, while regulations are in place to ensure responsible lending practices.
- Insurance Technology (Insurtech):
The government has encouraged innovation in the insurance sector through technology. Digital platforms offering insurance solutions, known as insurtech, have been supported to enhance efficiency, reach, and affordability in the insurance market.
- Government e-Marketplace (GeM):
GeM is an online platform initiated by the government to facilitate procurement by government agencies. Fintech solutions integrated into GeM streamline payment processes, making it easier for businesses, including MSMEs, to participate in government procurement.
- Fintech Challenges and Competitions:
The government, through various departments and institutions, has organised challenges and competitions to encourage fintech innovation. These initiatives often come with financial support, mentorship, and opportunities for fintech startups to showcase their solutions.
- Export Promotion through E-commerce:
Recognising the importance of e-commerce in expanding market reach, the government has been promoting MSME participation in digital platforms for export promotion. Initiatives have been taken to connect MSMEs with e-commerce platforms, facilitating access to a broader customer base. The Indian government has implemented several policies and initiatives to facilitate export promotion through e-commerce, particularly with a focus on supporting small businesses, including Micro, Small, and Medium Enterprises (MSMEs). These policies aim to enhance the global reach of Indian businesses by leveraging digital platforms. Here are some ways in which the Indian government supports small businesses in export promotion through e-commerce:
- E-commerce Export Promotion Schemes:
The government has introduced schemes and incentives to promote exports through e-commerce platforms. These schemes may include financial incentives, subsidies, or other forms of support to encourage small businesses to participate in online export activities.
- Marketplaces for Global Exposure:
The government encourages small businesses to leverage e-commerce marketplaces to showcase their products globally. Platforms such as Amazon, Flipkart, and others provide a channel for MSMEs to reach international customers, and the government supports initiatives that facilitate this exposure.
- Financial Assistance for E-commerce Adoption:
Financial support and incentives may be provided to MSMEs to adopt and integrate e-commerce into their export strategies. This can include assistance in setting up online storefronts, digital marketing, and participation in e-commerce platforms.
- Training and Capacity Building:
The government initiates training programs and capacity-building efforts to enhance the digital skills of MSMEs. This includes educating businesses on the benefits of e-commerce, providing guidance on platform utilization, and offering training on digital marketing strategies for international markets.
- Reduced Regulatory Hurdles:
Efforts are made to simplify regulatory procedures and reduce bureaucratic hurdles associated with international trade through e-commerce. Streamlining processes, including customs clearance and documentation, helps small businesses engage in cross-border e-commerce more efficiently.
- Export Facilitation Centers:
The government may establish export facilitation centers or digital trade hubs to provide support services for MSMEs engaged in e-commerce exports. These centers can offer resources, information, and assistance in navigating the complexities of international trade.
- E-commerce Policy Framework:
The government works on developing a comprehensive e-commerce policy framework that takes into account the needs of small businesses. This framework may include guidelines for fair business practices, consumer protection, and data security, creating a more conducive environment for MSMEs to thrive in the e-commerce space.
- Partnerships with E-commerce Platforms:
Collaborations between the government and leading e-commerce platforms may result in special programs or initiatives designed to promote the export activities of small businesses. These partnerships can provide additional resources, visibility, and support for MSMEs.
- Ease of Doing Business Reforms:
The government’s continuous efforts to simplify regulatory processes and reduce bureaucratic hurdles have contributed to an improved business environment. MSMEs have benefited from streamlined compliance procedures, making it easier for them to focus on business growth. The Indian government has been actively working on improving the ease of doing business for small businesses, including Micro, Small, and Medium Enterprises (MSMEs). These reforms are aimed at simplifying regulatory processes, reducing bureaucratic hurdles, and creating a more favourable business environment. Here are some of the key initiatives and reforms undertaken by the Indian government to enhance the ease of doing business for small businesses:
- Simplification of Company Registration Process:
The government has taken steps to simplify the process of registering new companies and incorporating businesses. Initiatives like the introduction of the SPICe (Simplified Proforma for Incorporating Company Electronically) form have streamlined the company registration process, making it more efficient for entrepreneurs.
- Online Single Window Systems:
Several states in India have implemented online single-window systems, allowing businesses to submit various regulatory applications and approvals through a single online portal. This reduces the need for businesses to navigate multiple government departments for approvals and clearances.
- Decriminalization of Minor Offences:
The government has decriminalised certain minor offences under the Companies Act to ease the compliance burden on businesses. This move aims to promote a more business-friendly environment by reducing the penal provisions for procedural lapses.
- Digital Payment Initiatives:
The promotion of digital payments and transactions has been a key focus area. Initiatives like the Digital India campaign and the push for digital payment platforms have not only facilitated smoother financial transactions for businesses but have also contributed to a reduction in the informal economy.
- MCA21 Version 3.0:
The Ministry of Corporate Affairs (MCA) launched MCA21 Version 3.0, an updated and more user-friendly version of the MCA21 system. This online portal is a key platform for various corporate filings and compliances, and the updated version aims to enhance user experience and efficiency for businesses.
- Fast-Track Insolvency Resolution Process:
The Insolvency and Bankruptcy Code (IBC) has been instrumental in providing a time-bound and efficient process for resolving insolvency. The fast-track insolvency resolution process is particularly beneficial for small businesses, allowing them to navigate insolvency proceedings more quickly.
These reforms collectively contribute to creating a more conducive environment for small businesses in India. However, it’s important to note that the business landscape is dynamic, and continuous efforts are needed to further enhance the ease of doing business for MSMEs. Businesses should stay informed about the latest reforms and leverage the available platforms for easier compliance and growth.
- Global Opportunities:
With a renewed emphasis on exports and global trade, MSMEs have found new opportunities to expand their markets beyond domestic borders. Trade agreements and diplomatic efforts have opened doors for small businesses to explore international markets, potentially boosting their growth prospects. The Indian government has taken several initiatives to enhance global opportunities for businesses, including Micro, Small, and Medium Enterprises (MSMEs). These initiatives are designed to promote international trade, attract foreign investments, and create a favourable environment for businesses seeking global expansion. Here are some key initiatives:
- Make in India:
Launched in 2014, the Make in India initiative aims to transform India into a global manufacturing hub. The initiative encourages both domestic and international companies to invest in and manufacture products in India. For MSMEs, this initiative provides opportunities to be part of the global supply chain and leverage India’s manufacturing capabilities.
- Export Promotion Initiatives:
Various schemes and initiatives have been introduced to promote exports and enhance the competitiveness of Indian businesses in the global market. Programs such as the Merchandise Exports from India Scheme (MEIS) and the Export Credit Guarantee Corporation (ECGC) support MSMEs in expanding their reach to international markets.
- Trade Facilitation Measures:
The government has been working on simplifying trade procedures and reducing logistical bottlenecks. Initiatives such as the Single Window Interface for Trade (SWIFT) and the Trade Infrastructure for Export Scheme (TIES) aim to streamline processes and reduce the time and cost involved in exporting goods.
- Foreign Direct Investment (FDI) Reforms:
The government has periodically revised FDI policies to attract more foreign investments across various sectors. These reforms are intended to create a more investor-friendly environment and provide opportunities for foreign investors to partner with Indian businesses.
- Bilateral and Multilateral Trade Agreements:
India has been actively engaging in negotiations for bilateral and multilateral trade agreements. These agreements aim to open up new markets for Indian businesses, reduce trade barriers, and enhance economic cooperation with other countries. MSMEs can benefit from increased market access resulting from these agreements.
- Startup India Initiative:
The Startup India initiative focuses on promoting entrepreneurship and innovation. Startups, including many MSMEs, have opportunities to participate in global markets through initiatives such as international collaborations, networking events, and participation in global startup ecosystems.
- Technology Collaboration and Innovation:
The government has encouraged technology collaboration and innovation through programs such as the National Initiative for Developing and Harnessing Innovations (NIDHI) and the Technology Development Board (TDB). These initiatives support MSMEs in developing innovative products and technologies with global relevance.
- Digital Platforms for Global Trade:
The government has promoted the use of digital platforms for international trade. Initiatives like the Trade Electronic Agri Marketing (e-NAM) and the Digital India campaign facilitate online trade transactions, making it easier for businesses, including MSMEs, to participate in global trade.
Challenges Faced by Indian MSMEs in 2023:
Supply Chain Disruptions:
The ongoing global challenges, including the aftermath of the COVID-19 pandemic, have led to persistent disruptions in supply chains. MSMEs, particularly those heavily reliant on imports, have faced challenges in securing raw materials and maintaining consistent production. Here is a general overview of the potential challenges and factors that have contributed to supply chain disruptions for Indian MSMEs in 2023. These are based on various factors such as global economic conditions, geopolitical events, and the evolving nature of the business environment.
Global Economic Conditions:
Fluctuations in the global economy have impacted the demand for goods and services, affecting the supply chain for Indian MSMEs. Economic downturns, trade tensions, or geopolitical conflicts in key markets ( (U.S.-China Trade Tensions / Russia-Ukraine Conflict / North Korea Nuclear Issue / Turkey’s Military Involvement / South China Sea Disputes / India-Pakistan Tensions / Iran Nuclear Deal and Regional Influence / Venezuela Political Crisis / Israel-Palestine Conflict / Myanmar Political Crisis ), have disrupted the flow of raw materials and finished products, leading to supply chain challenges.
- Geopolitical Factors:
Geopolitical tensions and trade disputes between nations can have a direct impact on international trade and supply chains. Changes in trade policies, tariffs, or diplomatic issues may result in delays, increased costs, or disruptions in the supply chain for MSMEs involved in cross-border trade.
- Pandemic-related Challenges:
While the COVID-19 pandemic may have eased by 2023, the aftereffects can still linger. Ongoing concerns related to public health, new variants, or sporadic lockdowns can disrupt supply chains, impacting the production and distribution capabilities of MSMEs.
- Transportation and Logistics Issues:
MSMEs heavily rely on efficient transportation and logistics for the movement of goods. Challenges such as port congestion, disruptions in shipping routes, or shortages of transport infrastructure can lead to delays and increased costs in the supply chain.
- Raw Material Shortages:
MSMEs may face challenges in securing a stable supply of raw materials due to factors like global shortages, increased demand, or disruptions in the production of key inputs. This can lead to production delays and increased costs for MSMEs.
- Climate-Related Disruptions:
Extreme weather events and climate-related disruptions can impact the supply chain, particularly for industries sensitive to weather conditions. For example, disruptions in agricultural supply chains due to adverse weather can affect MSMEs relying on agricultural inputs.
- Cybersecurity Threats:
With increased reliance on digital technologies for supply chain management, cybersecurity threats pose a significant risk. Cyberattacks on IT systems or ransomware attacks can disrupt operations, leading to delays and potential data breaches.
- Regulatory Changes:
Changes in regulations related to trade, customs procedures, or industry-specific compliance can impact the supply chain for MSMEs. Adaptation to new regulatory requirements may require time and resources, potentially causing disruptions.
- Labour Shortages:
MSMEs may face challenges in recruiting and retaining skilled labour. Labour shortages can impact production capacities, leading to delays and disruptions in the supply chain.
- Financial Constraints:
Financial constraints, including difficulties in accessing credit or fluctuations in currency values, can affect the financial stability of MSMEs. This, in turn, can impact their ability to manage inventory and navigate supply chain challenges effectively.
Inflationary Pressures:
Rising inflation has impacted the cost of inputs, affecting the profitability of MSMEs. Fluctuations in fuel prices and other essential commodities have added to the operational costs, putting pressure on the profit margins of small businesses.
Skill Shortages and Labor Issues:
Despite efforts to upskill the workforce, MSMEs have encountered challenges in finding skilled labor. Additionally, labor disputes and issues related to workforce management have posed obstacles for some businesses, affecting productivity and operational efficiency.
Digital Divide:
While digital transformation has been a boon for many, there remains a digital divide among MSMEs. Some smaller enterprises, especially in rural areas, continue to struggle with limited access to technology, hindering their ability to fully leverage the benefits of a digital economy.
Outlook for 2024:
As we look ahead to 2024, the trajectory for Indian MSMEs is likely to be influenced by the continued commitment of the government to support small businesses, the global economic landscape, and the ability of MSMEs to adapt to evolving challenges. Strengthening resilience, fostering innovation, and addressing the identified challenges will be crucial for the sustained growth of MSMEs in the coming year. With a proactive approach and strategic planning, Indian MSMEs have the potential to capitalise on emerging opportunities and navigate the complexities of the evolving economic landscape.
Factors Influencing the MSME Outlook in 2024:
- Economic Recovery: The economic recovery post-pandemic will be a crucial factor. MSMEs are likely to benefit from a robust economic rebound, increased consumer spending, and improved market conditions.
- Digital Transformation: The ongoing digital transformation is expected to continue, presenting opportunities for MSMEs to leverage technology for efficiency, online presence, and innovation.
- Global Trade Dynamics: The outlook will be influenced by global trade dynamics, including trade agreements, geopolitical factors, and the ability of Indian MSMEs to tap into international markets.
- Government Policies: Policy support and initiatives for MSMEs will play a vital role. Reforms, ease of doing business measures, and financial incentives can significantly impact the growth and competitiveness of MSMEs.
- Access to Finance: The availability of credit and financial support for MSMEs will be crucial. Initiatives that facilitate easier access to finance, including government-backed credit schemes, can positively impact MSMEs.
- Infrastructure Development: Infrastructure development and connectivity improvements can enhance the supply chain and logistics capabilities of MSMEs.
As we stand on the threshold of a new year, let’s embrace the limitless possibilities that await Indian MSMEs in 2024. The journey ahead is filled with challenges, but within those challenges lie unparalleled opportunities for growth, innovation, and success. The resilience and adaptability displayed by MSMEs in the face of adversity have been nothing short of remarkable. As the engines of economic dynamism, you have weathered storms, navigated uncertainties, and emerged stronger. Now, as we set our sights on 2024, let optimism be our guiding light.
In the coming year, envision your business not just as it is but as it can be—a beacon of innovation, a hub of creativity, and a testament to the unwavering spirit of entrepreneurship. Embrace the digital revolution, seize the power of technology, and let it propel you to new heights. The government’s initiatives, coupled with your tenacity, are laying the foundation for a transformative era in the MSME landscape. Atmanirbhar Bharat is not just a vision; it’s a call to action. The path to a $5 trillion economy is paved with the endeavours of businesses like yours—enterprises that dream big, innovate fearlessly, and contribute significantly to our nation’s economic tapestry.
Let 2024 be a year of strategic partnerships, where collaboration becomes the cornerstone of your success. Forge connections, explore new markets, and dare to dream beyond borders. Remember, every challenge is an invitation to innovate, every setback a prelude to a spectacular comeback. As you chart your course for 2024, believe in your potential, invest in your people, and stay attuned to the pulse of the market. The canvas is blank, and you hold the brush—paint a masterpiece that not only elevates your business but also contributes to the larger narrative of India’s economic resurgence.
In the words of Mahatma Gandhi, “Be the change that you wish to see in the world.” As MSMEs, you are the architects of change, the drivers of progress. Let 2024 be the year when your visions turn into realities, your aspirations into achievements, and your resilience into triumphs. Here’s to a transformative and triumphant 2024 for Indian MSMEs—a year where challenges are opportunities, where dreams take flight, and where each step forward brings you closer to the zenith of success. Embrace the future with enthusiasm, for it holds the promise of greatness that awaits those who dare to dream and do.
Cheers to a remarkable journey ahead!