Why are Indian Micro Industries Not Growing?

Kapish Singh Sanga

Indian Micro industries constitute nearly 94 % of MSME industries in India, which employs 97% of the workforce involved in the MSME sector. Over the past few years despite a growth potential of 96% in the Micro Segment till 2020, the share of credit growth has reduced to 28.7% from 76.7 % in 2019. Moreover, the credit to medium enterprises grew by 47.81% between 2019-2020, but credit to micro and small enterprises grew only by 2.48%. In absolute terms, micro and small enterprises contributed 76.7% to the growth of total credit to MSMEs between 2019 and 2020, compared to 23.3% for medium enterprises. Between 2020-2021, this pattern reversed as medium enterprises got 71.3% of the total credit compared to 28.7% for micro and small enterprises. This suggests a slowdown in credit expansion to the micro and small enterprises.

Lack of capital leads to a series of problems for Micro Industries that traps them into a vicious cycle of capital and financial lending. While access to finance helps facilitate the start-up and scale-up of MSMEs, a smooth working capital cycle enables business continuity and brings down costs of the goods and services provided by an MSME. Different estimates from several studies indicate that the total outstanding payment by buyers to registered MSMEs in India could be about 15 lakh crores (CMIE Prowess Data Analysis, assuming at least 10% of registered MSMEs face delays in payments and at most 50% of them face delay in payments). The average payment period for MSMEs ranges between 3 months and 6 months and is inversely proportional to the enterprise’s size (GAME MSME report 2021), which enterprise(essure on enterprises to take borrowing from informal sector thereby creating a direct impact on the price range of the products.

Growth of Micro Industries to a medium enterprise requires an ecosystem of support that can act as a platform for upliftment and simultaneously prepare itself to provide a cushion to the enterprise when things go south, SMEs generally lack the financial capacity and staff to undertake structured and sophisticated R&D that leads an organization which lacks defined structures and goals for growth and hence are more likely to engage in non-R&D innovation that reduces the scope of creativity and innovation in product and management. It becomes difficult for Small and micro-industry to scale up and compete with big players in the market.

For India to become a leading global player, it is incredibly important that the MSME sector supports the growth of Small and Micro Industries provides employment and creates avenues of growth for rural and semi-urban areas. Access to capital is just a part of the problem, the major future challenges that any enterprise as to face eventually such as the acquisition of modern technology, knowledge partnership, registration of MSME, and market innovation also need to be dealt with and planned at yearly age itself.

Kapish Singh Sanga – Strategy and Research Specialist | State Spokesperson – IYC

Leave a Reply

Your email address will not be published. Required fields are marked *