Context:
India’s Micro, Small, and Medium Enterprises (MSMEs) are key to its economic growth, contributing to employment and innovation. NITI Aayog’s report on “Enhancing MSMEs Competitiveness in India”, in collaboration with the Institute for Competitiveness (IFC), outlines reforms in financing, skill development, innovation, and market access to unlock the sector’s potential.
Key Challenges Affecting MSME Competitiveness
The report identifies key challenges based on firm-level data and the Periodic Labour Force Survey (PLFS):
1. Access to Credit
Despite improvements in credit access, a substantial gap remains. Between 2020 and 2024, micro and small enterprises increased credit access from 14% to 20%, while medium enterprises rose from 4% to 9%. However, only 19% of MSME credit demand was met formally in FY21, leaving ₹80 lakh crore unmet. The report recommends restructuring the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to bridge this gap.
2. Skill Shortages and Technological Gaps
Many MSME workers lack formal vocational training, limiting productivity. MSMEs also struggle with outdated technologies and face barriers to adopting modern tech due to poor infrastructure, such as unreliable electricity and weak internet connectivity.
3. Sector-Specific Challenges
The report highlights challenges in textiles, chemicals, automotive, and food processing, such as outdated technologies and weak marketing capabilities. It emphasizes the need for targeted interventions to improve competitiveness in these sectors.
Recommendations for Enhancing MSME Competitiveness
The report suggests several reforms to improve MSME competitiveness:
1. Financing Reforms
It calls for restructuring the CGTMSE with institutional collaboration to help MSMEs access inclusive finance and integrate into global value chains.
2. Skill Development and Technological Advancements
Promoting vocational training and fostering R&D are essential for MSME growth. Addressing infrastructure issues like electricity and internet connectivity is also key to facilitating technological adoption.
3. Sector-Specific Strategies
For textiles, chemicals, automotive, and food processing, the report recommends upgrading technologies, improving quality, and enhancing marketing. Building international market linkages is crucial for MSMEs to integrate into global supply chains.
4. Policy Framework and State-Level Implementation
The report advocates a cluster-based policy framework at the state level, focusing on consistent policy implementation, data integration, and stakeholder engagement.
Conclusion
India’s MSMEs are vital for economic growth. By addressing financing gaps, skill shortages, technological barriers, and market access issues, MSMEs can become globally competitive. Implementing these recommendations will drive sustainable economic growth and improve the sector’s integration into global value chains.
