Making MSMEs Globally Competitive During COVID Times And Beyond

08 Sep 2020

In a post-COVID world, economies across the globe would be judged on a new parameter, i.e., the way they handled the crisis. It has changed the way of doing business, thereby changing economic developments all over the world.

Pre-Corona, the Micro, Small, and Medium (MSME) sector, considered as the growth engine of the nation, accounted for 33.4% of India’s manufacturing output, employing about 111 million and generating 48% of India’s export.

The pandemic has changed that equation and has severely impacted the MSME sector. In such a scenario, it is pertinent to support the ailing sector, and above all, make it globally competitive.

Competitiveness is defined as the ability of a firm or a nation to offer products and services that meet the quality standards of the local and world markets at prices that are viable and provide adequate returns on the resources employed or consumed producing them. For Indian MSMEs to compete globally, basic challenges must be addressed. These include: 

Lack of access to adequate and timely credit
Limited awareness
Lack of access to markets
Limited access to appropriate knowledge or technology
Lack of availability of sustainable skilled human resources
Poor procurement
Insufficient infrastructure
Documentation is lengthy and cumbersome

These challenges disrupt the access into global markets, and hence it is imperative to help them to enhance growth prospects by directly engaging with global players or by being a part of the supply chain.

Taking into consideration the widespread chaos caused by the COVID-19, the government has come up with immediate relief measures required to re-energise the Indian economy. 

CII is also working relentlessly with the government, industry, and society to tide over the pandemic and keep socio-economic conditions as ideal as possible under these circumstances. It has drafted recommendations for MSMEs in two key areas, viz. cash flow & working capital, and welfare measures, that could safeguard the sector.

CII has organised the Money Mobility Week (MMW), from 10 August to 10 September 2020, to provide a thrust to the MSMEs by bringing together both the demand and supply sides of credit. 

In addition, it is empowering MSMEs economically and making all the financial solution providers feasible to MSMEs through a common platform which not only provides solutions in the form of product or service but also enlightens them through their knowledge sharing and stimulates innovation. 

MMW is utilising the Government’s Emergency Credit Line Guarantee Scheme (ECLGS) under which 100 percent cover will be provided by the National Credit Guarantee Trustee Company (NCGTC) for additional funding of up to Rs 3 lakh crore to eligible MSMEs and interested MUDRA borrowers, in the form of a guaranteed emergency credit line (GECL) facility. 

It is provided along with the Union Cabinet’s additional provisioning of Rs 20,000 crore as subordinate debt to provide equity support to stressed MSMEs and equity infusion of Rs 50,000 crore for MSMEs through a fund of funds (the 2nd Package under Aatmanirbhar Bharat package). 

For the MSME sector, which is a major livelihood provider and an important body across supply chains, the following measures may be considered over the short and medium-term for their survival and growth:

Debt Fund Resolution
Working Capital Funding
Equity Funding 

Considering the current situation, it is also important that the financial relief not just provides temporary relief by infusing short-term liquidity, rather it addresses medium to long-term requirements. It is critical to introduce a policy framework, keeping various scenarios in mind and foster a holistic approach toward building MSMEs’ resilience to the pandemic outbreak, as once the pandemic fades out, the nation will require its growth engine to start building the economy. 

To strengthen the MSME supply chain, CII has also come out with a report on ‘Promoting Sustainable Procurement Practices in India’s Manufacturing Sector.’ Through the report, CII has envisaged a capacity building program for MSME supply chains to improve GHG accounting, reporting, and management practices with the support of their corporate buyers to incentivize participation of MSMEs in their respective supply chains in the program.

While solving the current economic distress in MSMEs is one aspect to revive the country’s growth, it is equally important to utilise the current shift in the economic outlook of the world. Strengthening MSMEs would attract investors and help in making India the global manufacturing hub. 

With corrective measures in place and a positive outlook, the impact of Coronavirus-related shutdown on small enterprises could be mitigated, and MSMEs can be supported with technologies and essential skills to help them gain scale and enhance their competitiveness in the global ecosystem.

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