Enhancing Competitiveness of MSMEs in India

The NITI Aayog has recently published a report titled “Enhancing MSMEs Competitiveness in India”. This document aims to unlock the potential of Micro, Small and Medium Enterprises (MSMEs) through comprehensive reforms. It focuses on financing, skilling, innovation, and market access. The report marks critical challenges faced by MSMEs and offers a detailed blueprint for improvement.

Key Challenges Faced by MSMEs

MSMEs encounter numerous obstacles that hinder their growth. These include limited access to formal credit, skill shortages, and inadequate technological adoption. The report indicates that only a small fraction of MSME credit demand is met through formal channels. Additionally, many MSMEs lack the skilled workforce necessary for productivity enhancement.

Access to Credit

Access to formal credit has improved between 2020 and 2024. The percentage of micro and small enterprises accessing credit from scheduled banks rose from 14% to 20%. Medium enterprises saw an increase from 4% to 9%. However, credit gap persists, with only 19% of MSME credit demand being met formally. An estimated ₹80 lakh crore remains unmet.

Revamping Credit Support

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has expanded but still faces challenges. The report recommends revamping CGTMSE to bridge the credit gap. This can be achieved through institutional collaboration and targeted services that cater to the unique needs of MSMEs.

Skill Development and Training

A major issue brought into light is the skill shortage within the MSME sector. Many workers lack formal vocational training, which limits productivity. The report stresses the importance of investing in training programmes to enhance skills and improve competitiveness.

Innovation and Research Development

MSMEs often underinvest in research and development (R&D). This lack of investment hampers their ability to innovate and stay competitive in both national and global markets. The report encourages MSMEs to prioritise R&D and quality improvement initiatives.

Technological Barriers

Technological adoption is crucial for MSME competitiveness. However, many enterprises struggle due to unreliable electricity supply, weak internet connectivity, and high implementation costs. The report suggests that state government schemes need better awareness and accessibility to support technological advancements.

Market Access and Branding

Improving marketing and branding capabilities is essential for MSMEs. Upgrading outdated technologies and developing strong market linkages can enhance their competitiveness. The report calls for targeted interventions to assist MSMEs in these areas, especially in high-growth regions.

Policy Recommendations

To enhance the effectiveness of MSME support policies, the report recommends stronger state-level implementation. It emphasises the need for consistent monitoring, better data integration, and improved stakeholder engagement in policy development. A robust policy framework can encourage innovation and drive inclusive economic transformation.

Questions for UPSC:

1. Examine the role of Micro, Small and Medium Enterprises in India’s economic growth.
2. Discuss the impact of skill shortages on the productivity of Micro, Small and Medium Enterprises.
3. Analyse the significance of technological advancements for the competitiveness of Micro, Small and Medium Enterprises.
4. Critically discuss the effectiveness of current government policies in supporting Micro, Small and Medium Enterprises in India.

Answer Hints:

1. Examine the role of Micro, Small and Medium Enterprises in India’s economic growth.

1. MSMEs contribute to GDP, accounting for approximately 30% of India’s economic output.
2. They provide employment to over 110 million people, making them important part of job creation.
3. MSMEs play a vital role in promoting entrepreneurship and innovation at the grassroots level.
4. They enhance regional development by promoting balanced economic growth across urban and rural areas.
5. MSMEs facilitate exports, contributing to foreign exchange earnings and improving trade balance.

2. Discuss the impact of skill shortages on the productivity of Micro, Small and Medium Enterprises.

1. Skill shortages lead to lower productivity levels as workers lack essential vocational training.
2. Inadequate skills hinder the ability of MSMEs to adopt modern technologies and improve processes.
3. Firms may struggle with high employee turnover due to lack of training and development opportunities.
4. Skill gaps restrict innovation, limiting the potential for product and service enhancements.
5. Addressing skill shortages can increase workforce efficiency and overall competitiveness of MSMEs.

3. Analyse the significance of technological advancements for the competitiveness of Micro, Small and Medium Enterprises.

1. Technological advancements enable MSMEs to enhance production efficiency and reduce operational costs.
2. Adopting modern technologies improves product quality and innovation capabilities.
3. Technology facilitates better market access through e-commerce and digital marketing strategies.
4. It enhances data management and decision-making processes, leading to more informed business strategies.
5. Investments in technology can open new growth avenues, helping MSMEs to scale operations effectively.

4. Critically discuss the effectiveness of current government policies in supporting Micro, Small and Medium Enterprises in India.

1. Government policies have increased access to credit, but gaps remain in meeting MSME demand.
2. Many MSME support schemes lack awareness and accessibility, limiting their impact on businesses.
3. Policies often face implementation challenges at the state level, reducing their effectiveness.
4. There is a need for better data integration and stakeholder engagement in policy formulation.
5. Strengthening state-level frameworks and monitoring can enhance the overall effectiveness of MSME support initiatives.