Ease of Doing Business for MSMEs: Covid proved to be the watershed moment over the past two years for Indian micro, small and medium enterprises (MSMEs). How much it would impact small businesses or how long it would continue was anyone’s guess back in 2020. However, Covid-induced lockdown hurt many units with reduced productivity and efficiency, squeezed credit lines, labour crisis, uncertainty in demand, etc., which also impacted their competitiveness locally and globally.
This coupled with challenges Indian and global economies have been facing — including the Russia-Ukraine war, price rise of raw materials, global trade disruption, etc — had a cascading impact on the already fragile post-Covid recovery of our MSME community. Despite the beating it took, the MSME sector stood strong and resilient, determined to fight and get back on the growth track. To recognise MSMEs’ efforts, celebrate the sector’s growing significance in India’s vision of a $5 trillion economy, and to commemorate the UN-designated MSME Day this year, FinancialExpress.com organised its biggest MSME event MSME Business Conclave spread over four days from June 27 till June 30.
Day 1 – Digital
The event opened with a virtual programme on day 1. The opening session discussed the reasons for lower technology adoption by small businesses and how it can be accelerated. According to experts, the key areas to be addressed are reluctance on the part of promoters, their lack of awareness of adopting the right technology tools, and cost.
“You cannot be successful if you cannot reach your customers in a cost-effective way. Hence a cost-benefit analysis at every step of digitization is a must as each enterprise has different needs and a one-size-fits-all approach for digital solutions doesn’t work,” said Subhash Goyal, Founder Chairman, STIC Travel & Air Charter Group.
Nonetheless, the technology adoption among MSMEs has seen an upswing over the past few years and particularly post Covid as the cost of adoption of digital solutions reduced, said Bhushan Parekh, Director – SME, CRISIL. “Due to this, the percentage of MSMEs adopting digital solutions has increased from 10 per cent before Covid to 50 per cent in 2020,” he added.
Customer relationship management (CRM) software, accounting and collection software, operations management tools, integration tools to connect with B2B enterprises such as payment gateways, and collaboration tools such as Zoom are some of the critical technology solutions witnessing adoption, according to Parekh.
Day 1 also hosted a fireside chat on ‘cloud adoption by MSMEs’ with Geeta Gurnani, Country Head, Modern Work, Microsoft India. In her current role, Gurnani works with businesses to develop operating models that harness collaborative technologies and invest in employee engagement and growth at every stage. Echoing discussions in the previous panel discussion, Gurnani noted initial technology investments by MSMEs should go into CRM solutions and productivity/collaboration tools to interact with customers and employees better digitally.
While the cloud gives MSMEs flexibility to use digital tools as per their requirement and on the move, it is critical for businesses to ensure that they are able to manage their costs effectively. Hence, choosing the right platform is important for MSMEs. “Small businesses should very carefully plan their cloud investment so that they are in control of their cashflows,” added Gurnani. The session underscored the significance of the right time to adopt cloud technology instead of deciding whether to adopt it or not.
Day 2 — Celebration of MSME Sector
The second day of the event was organised on-ground with the Chief Guest address by MSME Ministry Secretary B.B. Swain. The secretary noted that the government has taken both fiscal and monetary measures to put the economy in general and MSMEs in particular back on the growth trajectory.
Swain stressed on the MSME Ministry’s ambition to identify existing MSMEs in the informal sector and bring them under a formal structure. “Formalization is our primary target and the biggest ambition,” he said.
The secretary also touched upon multiple initiatives by the ministry including the Udyam portal, which is nearing 1 crore registrations, the Champions portal addressing MSME queries largely related to credit and technology, and credit facilitation through schemes such as PMEGP, ECLGS, and Self-Reliant India Fund. Swain also noted the ministry has been in continuous touch with the state governments to address the delayed payment issue for MSMEs through ways such as increasing the number of facilitation centres in every state to support MSMEs in recovering their dues.
Swain also announced the upcoming dedicated news portal for India’s MSME sector — FE Aspire by Financial Express Online.
The following session was a Guest of Honour session by Prashant Kumar Singh, Chief Executive Officer, Government e-Marketplace (GeM). Launched in August 2016 to increase transparency and efficiency in the public procurement process, the GeM portal currently boasts over 46 lakh sellers including nearly 8 lakh micro and small sellers. According to GeM statistics, over 1 crore orders with a transaction value of 2.63 lakh crore from over 60,000 government buyers have been processed on the portal.
However, in order to discipline the buyers to reach a reasonable level of satisfaction among sellers in payments, Singh said GeM in collaboration with the Ministry of Finance is coming up with the ‘Penal Interest’ rule in which any buyer who delays payment by more than 10 days will be charged 1 per cent interest per month.
Singh also noted multiple measures taken for better functionalities and customer experience including custom bids to forward action, regular training sessions for buyers and sellers, and a customer helpdesk system. The portal is also looking to register gram panchayats to enable them to sell to the government directly. GeM is also collaborating with the India Post and Common Service Centers for the last-mile delivery of products.
The on-ground event also had a keynote fireside chat with SIDBI Chairman and Managing Director Sivasubramanian Ramann who cautioned against the stress in the MSME portfolio of banks. “While it is good to see that SMEs have shown tremendous resilience during Covid, a lot of entities are still in the special mention account (SMA) 2 category…Statistics show that it (stressed accounts) is gradually declining but we are still not entirely sure,” Ramann said.
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SMA-1 loan accounts are those where repayments remain overdue for between 31 and 60 days while SMA-2 accounts are ones with delay from 61 to 90 days. The account turns into a non-performing asset (NPA) after 90 days of being overdue.
“The intervention (like Emergency Credit Line Guarantee Scheme) ECLGS was very timely and powerful and hopefully recovery curve will allow us to see maybe upwards of 80 per cent of MSMEs coming out fairly strong, but I would still add a bit of caution,” Ramann noted.
The Reserve Bank of India (RBI) in its June 2022 Financial Stability Report launched last week had also noted that while aggregate gross NPA Ratio (public and private banks) in the MSME sector moderated from 11.3 per cent in September 2021 to 9.3 per cent in March 2022, it remains relatively high.
Apart from SIDBI, India’s largest public sector lender State Bank of India was also part of the event. Rana Ashutosh Kumar Singh, Deputy MD (Transaction Banking & New Initiatives), State Bank of India noted that the government’s ambitious Open Network for Digital Commerce (ONDC) project, which seems to replicate what UPI did to banking transactions to commerce now, is very important in the MSME ecosystem for promoting businesses, which have quality products and with cost in control, but do not have a marketplace (to sell).
Day 2 also had a masterclass on how can MSMEs manage the delay in payments from their buyers by Mukesh Mohan Gupta, President, Chamber of Indian Micro, Small and Medium Enterprises (CIMSME) and CEO, Nodefaulters.com. According to the government’s delayed payment monitoring portal MSME Samadhaan, since October 2017, over 1.15 lakh delayed payment applications involving around Rs 30,000 crore have been filed so far by small businesses against government departments and PSUs, of which only around 17,000 cases involving about Rs 3,200 have been disposed.
The second half of the on-ground programme also had two panel discussions. The first panel focused on enabling women entrepreneurs in the country. The number of MSMEs led by women entrepreneurs in India has jumped from a mere 2.15 lakh, as per the MSME Ministry’s FY11 annual report, to 1.23 crore in FY22. Panellists at the session discussed the reasons for the low share of women MSMEs in the overall MSME base in the country and how can India further promote women entrepreneurship.
The second panel discussion was on how MSMEs can transform their business from a promoter-driven to a professionally-run organisation. The delegation of roles and responsibilities is among the most critical components for promoters to take a step back from their role of being omnipresent in every business function., according to panellists.
Moreover, to drive professionalism into businesses, panellists believed professional courses offered in India don’t align with the structure of small businesses.
“One of our nephews was taught about the importance of morning meetings during his management course at one of India’s premier management colleges in India. When he returned to business, he used to sit with all HODs at 11 am for an hour meeting which is actually the prime time for our business. Over the period, it started impacting our business and we had to undo those meetings to get back to our growth track,” said H S Cheema, Founder, Cheema Boilers, a prominent engineering solutions company manufacturing boilers.
Day 3 — Credit and Finance
The remaining two days of the conclave were organised virtually with a panel discussion and a masterclass. Day 3 opened with a panel session on the role of invoice discounting in enabling credit access for MSMEs. The invoice discounting, factoring, or trade financing is an overwhelmingly big market globally – over $3 trillion and is likely to be worth around $6-9 trillion in the coming four-seven years, according to multiple studies.
On the other hand, the Indian market is of a paltry around $6 billion or 0.2 per cent of the country’s GDP, according to a report by the Standing Committee on Finance laid in Rajya Sabha in February last year on the factoring bill. In fact, the factoring credit has only a 2.6 per cent share in the overall formal credit to India’s MSMEs. Hence, the opportunity is massive for the government to leverage trade financing for MSME exporters and importers.
The panellists for the session were Aditya Dash, Managing Director, Ram’s Assorted Cold Storage; Prakash Sankaran, Managing Director and CEO, A. TReDS Ltd; Rajesh Dubey, Founder, SME Bots; and Ravi Modani, Founder and CEO, 121 Finance.
The masterclass on Day 3 was by Ravindra Kumar Singh, CGM, Small Industries Development Bank of India (SIDBI) to highlight the significance of supporting sustainability in MSMEs with investments in green MSME projects including renewable energy, waste management projects, and more.
In February this year, SIDBI had announced a dedicated vertical to enhance the resilience of the MSME sector to combat climate change and become more sustainable in line with India’s commitments at the Conference of Parties at Glasgow in November last year.
However, MSMEs have been hesitant to invest in green financing projects due to a lack of funds. “To kindle energy investments, businesses need substantial investments but most green finance projects have higher transaction costs and longer gestation period, for example, the cost of capital and its availability for low carbon technologies is a challenge for MSMEs. Businesses require a factor of incentive or subsidy for green investment,” Singh said.
Day 4 — Branding and Logistics
The last day of the conclave began with a masterclass on how creating a ‘lovemark’ can help MSMEs connect with their customers emotionally that goes beyond traditional branding strategies. Dr Rajendra Prasad Sharma, Professor of Marketing, Indian Institute of Foreign Trade (IIFT) during his session noted that lovemark cannot be created through market share or mind share but through heart share with creation, communication, and delivery of value. The brand must shift from self-centricity to customer-centricity. It must think of consumers first and products second, he said.
Sharing the example of Nestle’s Milkmaid Condensed Milk, which publishes recipes of their consumers on the packaging of their product, Sharma said although this does not cost an extra penny, it makes consumers feel special.
The day concluded with a panel discussion on how to bridge supply chain gaps for MSMEs. Amar Sapra, Professor, Production and Operations Management, IIM Bangalore; Kalyan Korimerla, Managing Director, E-Trio Automobiles; and Makrand Appalwar, Chairman & Managing Director, Emmbi Industries shared thoughts on why digitisation is the prime factor to address supply chain problems faced by small businesses. However, there are challenges to supply chain digitisation as well.
“The challenges have largely to do with the size and capacity of an enterprise. Digitisation and technology adoption requires scale but most small businesses don’t have the scale to justify investments in technology,” said Sapra. There are other bottlenecks too such as the lack of know-how in selecting the right technology tools, right vendors, and right talent available at the right salary levels to lead digitisation in business.
According to Appalwar, there are problems related to infrastructure as well. For instance, there are villages without pin codes in India. How a new generation software will operate at such locations? If you have to deliver a packet in a small village where the address is, let’s say, in a lane behind a temple, how would you input that in a computerised system? So, logistics friendly country’s mapping needs to be done along with hub and spoke arrangement for MSMEs to adopt digitisation,” he suggested.
The successful four-day event concluded with insights from over 30 speakers from various branches of the MSME ecosystem including promoters, associations, banks, technology firms, fintech companies, payment solution providers, financial services firms, regulatory authorities, and more. Lenovo was is the title partner and CIMSME was the knowledge partner for the conclave.