Focus on Manufacturing Companies in the MSME Sector: A Must for Indian Economic Growth

Krunal Saha

By Krunal Shah, Co-founder, and Consultant, of The Proxperts

In the bustling landscape of India’s economic development, the Micro, Small, and Medium Enterprises (MSME) sector stands as a powerful engine driving growth and innovation.

Among the diverse array of enterprises within this sector, manufacturing companies hold a pivotal role in shaping the country’s economic destiny. These unassuming businesses, often tucked away in industrial clusters, wield immense potential to fuel India’s journey toward becoming a global economic powerhouse.

The Backbone of Employment

Manufacturing companies in the MSME sector serve as a crucial source of employment generation. With a labor-intensive approach, these enterprises can absorb the burgeoning workforce of the nation, especially skilled and semi-skilled workers.

In fact, as per the data from the aforementioned fourth round (January-March 2022) of the Quarterly Employment Survey (QES), a part of the All India Quarterly Establishment-based Employment Survey (AQEES), manufacturing remains the largest institutional employer in the country, providing jobs for approximately 38.5% of the workers.

The survey estimated that during this period, around 3.18 crore workers were employed in about 5.31 lakh establishments, reflecting an increase of about four lakh workers compared with the preceding QES conducted for the last three months of 2021.

This scenario underscores the vital role that the manufacturing sector, particularly within the MSME framework, plays in addressing the pressing need for gainful employment in India.

By fostering a conducive environment for these manufacturing MSMEs, the government can effectively address the issue of unemployment while enhancing the livelihoods of millions.

Value Addition and Export Boost

A robust manufacturing sector plays a pivotal role in enhancing the nation’s GDP through significant value addition to raw materials. When it comes to manufacturing within the MSME sector, these enterprises excel in creating products that carry a higher value than the mere sum of their parts.

This phenomenon not only provides a substantial boost to the domestic economy but also paves the way for expanded exports. By leveraging India’s manufacturing capabilities, the nation can carve out a formidable presence in the global trade landscape.

To achieve this, nurturing and supporting MSMEs in the manufacturing sector is paramount, as it holds the potential to curtail the trade deficit while fortifying India’s position within the intricate global value chain.

Looking closely at the contribution of manufacturing companies to exports, the growth trajectory has been remarkable. Traditionally, India’s manufacturing exports experienced a steady growth rate ranging between 5% and 10% in the years preceding the Covid-19 pandemic.

However, the landscape shifted drastically in recent times, witnessing an exceptional surge over the past two years. This surge is reflected in a noteworthy compound annual growth rate (CAGR) of 15%. As of the fiscal year 2022 (FY22), India has achieved a commendable milestone by recording manufacturing exports amounting to a substantial $418 billion.

This accomplishment underlines the potency of India’s manufacturing prowess and its potential impact on the global trade arena.

Innovation and Technology Upliftment

Manufacturing companies in the MSME sector are not merely producers; they are also incubators of innovation. These enterprises often work in constrained environments, leading them to devise creative solutions to operational challenges.

A concerted focus on such businesses can catalyze the development of indigenous technologies and processes. Furthermore, through collaboration with research institutions and academia, these enterprises can act as conduits for the transfer of cutting-edge technologies.

By nurturing innovation within the MSME manufacturing realm, India can propel itself to the forefront of technological advancements.

With reference to the case of China, in accordance with a report published by the World Economic Forum, the nation introduced the “Made in China 2025” initiative as a domestic strategy aimed at the transformation and advancement of its manufacturing sectors.

This initiative is centered around the promotion of original innovations, the integration of the “Internet plus” concept, and the advancement of technologically-driven manufacturing practices encompassing areas such as 3D printing, digitalized design and manufacturing, as well as automated robotic systems. It is noteworthy that numerous countries source spare components from China due to its robust manufacturing capabilities.

Similarly, India’s MSMEs can innovate to reduce import dependency and establish technological self-sufficiency, thus fostering economic growth and competitiveness.

India’s Make in India Initiative:

India is actively pursuing its Make in India initiative to fortify the manufacturing sector. The annual growth rate of the manufacturing sector, standing at 11.8% as per the Index of Industrial Production (IIP) for 2021-22, underscores its commitment. The government aspires to elevate India into a global manufacturing hub. The Indices of Industrial Production for Manufacturing sectors for May 2023 stand at 142.3.

In line with this vision, the Ministry of Commerce & Industry has launched several schemes to promote manufacturing, foster domestic and foreign investments, and enhance ease of doing business. The Make in India initiative, launched in 2014, aims to attract investments, encourage innovation, build world-class infrastructure, and position India as a hub for manufacturing and innovation. It complements the country’s goal of becoming ‘aatmanirbhar’ (self-reliant) across sectors.

Initiatives such as the Production Linked Incentive Scheme (PLI) and the Public Procurement (Preference to Make in India) Order 2017 highlight the government’s commitment to supporting local manufacturing. These steps aim to boost local industries, reduce compliance burdens, and enhance competitiveness.

As India progresses with its Make in India initiative, it reinforces its determination to nurture a self-sustaining manufacturing sector, fostering economic growth and technological advancement.

Regional Development and Inclusive Growth

The growth of manufacturing companies in the MSME sector has the potential to drive regional development and ensure inclusive growth. These enterprises are frequently established in rural and semi-urban areas, where economic opportunities are limited.

By nurturing such businesses, these regions can experience an economic upliftment that has a cascading effect on various aspects of development, including education, healthcare, and infrastructure. This approach not only reduces regional disparities but also aligns with the vision of a balanced and equitable nation.

In Tier-2 cities, this trend towards manufacturing growth is even more pronounced. Recent reports indicate a significant propensity for hiring in the manufacturing sector, particularly at the junior levels.

In fact, approximately 78.81% of hiring in Tier-2 cities’ manufacturing sector was at the junior level, with 17.8% at the middle level, and 3.39% at the senior level. This distribution of hiring highlights the growing importance of manufacturing hubs in Tier-2 cities.

Furthermore, many of these Tier-2 cities also boast a strong presence of engineering and management institutes. This advantageous combination of manufacturing growth and educational institutions creates a win-win situation.

Not only can the demand for employment in the manufacturing sector be met locally, but it also reduces the need for migration to Tier-1 cities in search of job opportunities.

This shift towards decentralization not only benefits these cities but also contributes to a more balanced distribution of economic activity across the nation.

Challenges and the Way Forward

While the potential of manufacturing companies in the MSME sector is undeniable, there are challenges that must be addressed to harness this potential effectively. Limited access to finance, lack of skilled labor, outdated technology, and cumbersome regulations often hinder the growth of these enterprises.

To overcome these barriers, a multi-faceted approach is required. Simplified regulatory frameworks, targeted financial support, skill development initiatives, and technology upgradation schemes can collectively create an enabling environment for the growth of manufacturing MSMEs.

To sum it up

The spotlight on manufacturing companies within the MSME sector is not a mere economic choice; it’s a strategic imperative for India’s growth story. By nurturing these enterprises, the nation can secure its employment landscape, boost exports, drive innovation, ensure equitable growth, and elevate its status on the global stage.

The journey ahead involves collaborative efforts between the government, industry stakeholders, financial institutions, and society at large. The growth of manufacturing MSMEs is not just a must; it’s a collective responsibility toward shaping a brighter and more prosperous India.

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