Union Budget 2021-22 Expectations for MSMEs: India has close to 6.8 million Udyog Aadhar registered MSMEs and another 63 million MSMEs. As per an estimate, currently, there are close to 30 unicorn Indian startups, and 18 out of the 30 unicorns have significant foreign direct investments. These bold statistics constituting almost 45 per cent of the manufacturing output, 95 per cent of the number of industrial units, 40 per cent of exports, and employing nearly 110 million people make MSMEs the largest source of employment after the agriculture sector. MSMEs lead to entrepreneurial development and the diversification of the industrial sector. They also provide depth to the industrial base of the economy. Employment opportunities are generated, and the capital cost per employee is low. With the services sector dominating the MSME and with MNCs outsourcing their requirements to Indian service providers, MSME finance’s scope has increased.
The Covid-19 pandemic has drastically ravaged economies across the globe. And of all, it’s the MSMEs that have borne the maximum brunt of this devastation. Some of them had to shut shop on account of lockdown measures, and the labor returning to their respective homes further compounded the problem. Despite emphasizing innovation from time-to-time, several startups tend to fail due to funding crunch, colossal tax burden, rigid compliances, and lack of technological advancements. While keeping this in mind, Budget 2021 should make efforts to enable the development of MSMEs by providing them access to the required credit and adopting the latest technologies. Startups and enterprises in the MSME sector can reap enormous benefits from automation and tech interventions in this ever-evolving digital world.
Tech Interventions Expected from Budget 2021
MSME is an aspirational sector with a constant hunger for growth. Adopting technologies such as artificial intelligence (AI) and machine learning can be enablers. Despite the benefits of adopting digital solutions like cloud computing, RPA, Internet of Things (IoT), penetration of technology solutions in the MSME sector has been relatively low. One of the most significant barriers to adopting IT by MSMEs is the huge upfront cost associated with setting up a fully integrated application to support the firm’s processes. MSMEs find it difficult to justify spending money on digital solutions when their core businesses can do with improvement.
One of the most significant barriers to the adoption of IT by MSMEs is the huge upfront cost associated with setting up a fully integrated application to support the firm’s processes. MSMEs find it difficult to justify spending money on IT when their core businesses can do with improvement.MSMEs face stiff competition from more prominent players and imports in their areas of business. A strong technology-enabled sector levels the playing field, to a great extent, between MSMEs and their established counterparts.
Hence, the government must facilitate technological solutions at a considerably lower total cost of MSMEs’ operations and include the same in the upcoming budget. This has paved the way for IT solution providers to create products and services that are relevant, affordable, and address the real-life challenges of the MSMEs.
Also read: Smart manufacturing for MSMEs: How small businesses can overcome barriers to Industry 4.0 adoption
Last year, India jumped 14 places to be ranked 63rd among the 190 nations listed in the World Bank’s ease of doing business. This is a testimony that India has made it significantly easy and convenient for startups to set up their operations. With technological disruption gradually becoming a catalyst for the rise of MSMEs and startups today, it is expected that the government will make the necessary investments in technology hubs, which in turn will help in strengthening emerging technologies like AI, machine learning, and the Internet of Things (IoT). As the country is amidst a boom in digital technology adoption, this year’s Union Budget needs to make way for relevant measures to ensure that the right amount of thrust is given to tech build-up, favorable tax policies, and other opportunities will spell progress for the MSMEs.
The government also needs to make substantial efforts to set up a robust digital ecosystem for encouraging budding entrepreneurs and introduce measures that make it even easier to conduct business in India. This will be highly beneficial for startups and SMEs. It will further attract more companies and organizations to set up their offices or invest in India. To put things into perspective, compliance regulation in India has too many requirements (Labour Law, Company Law, etc.) yet, there is no single comprehensive list that lays out all compliances that companies need to adhere to. This proves to be a deterrent for anyone looking forward to starting a business in India.
Often, in the operation of MSMEs, customer service tends to suffer from functional discrepancies. The government needs to make provisions to leverage those technologies to create such tools and platforms that automate customer service operations—for instance, using virtual assistants to disseminate knowledge and context-driven support via Natural Language Processing (NLP) to serve customers consistently at a much lower cost.
The government should pay attention to employing technologies that can be used to upskill or reskill the workforce employed by India’s MSME sector. The rural workforce makes up nearly 20 per cent of the total workforce in this segment, and they are primarily involved in performing mundane activities. The correct application of AI and similar technologies can automate risky and repetitive activities. It can further help upskill 20 million of the staff for higher value-added activities. Specialized tech centers can be set up and operated by the government and industry groups to equip the workforce with the required skills and perform AI-empowered hybrid jobs. Such interventions by the government have numerous upsides to them, starting with increased earning potential that will pave the way towards the strong economic growth of the MSME sector.
The ‘Digital India’ initiative has provided an adequate impetus for technological adoption. MSMEs will have to continue surviving with the impact of the pandemic for some more time to come. The way ahead for them is to transform how they operate and function. For this, it is quintessential that the MSMEs must embrace digital technologies to stay in business and remain competitive in the post-pandemic world. The government, thus, needs to wake up to this call and take adequate measures to empower the MSMEs to go for more extensive technological adoption.
Alok Bansal is MD and Country Head of Visionet. Views expressed are the author’s own.