India’s MSME hold the key to an economic restart at the grassroots - NRI Consulting Report

Kolkata : The outbreak of COVID-19 pandemic has drastically changed the global economic landscape. World Trade Organisation estimates that global merchandise trade will reduce by 13% to 32% in 2020 due to COVID-19 pandemic. This global phenomenon is going to make countries think about strengthening their local supply chains.

With this backdrop, India has already announced its vision of ‘Atmanirbhar Bharat’ - A Self-Reliant India which will push for strengthening local industries and give them a boost to compete at a global stage.

The latest report by Nomura Research Institute (NRI) Consulting & Solutions India endorses this view by stating that MSMEs can play a significant role in achieving this vision, however, a lot more needs to be done for MSMEs to become a growth driver for India. Three key parameters for the success of MSMEs are Financial Stability, Availability of Skilled Labour in MSME clusters, and Market Competitiveness of their products to both achieve import substitution as well as exports.

The report identifies some of the key areas that need to be focused:

1) Capability of Supply – It is essential to improve the capability of Indian MSMEs to supply quality products especially with new norms of operations being introduced due to COVID 19. Maintaining social distancing, running on reduced capacity, etc. would further aggravate the situation for the cash stripped MSMEs. Hence, it is imperative to provide immediate support for ensuring they keep up their capability of supply

2) Capability of demand - Indian MSMEs need to be adaptable with changing market trends. Recent global developments have also reduced the planning horizons in global supply chains making it crucial for the sector to be able to adapt to a variable demand scenario

3) Capacity - Ensuring capacity and availability of raw materials is also crucial. The disruption in global logistics has broken the chain for some key raw materials.

4) Cost competitiveness – The impact of COVID 19 on business operations will require innovative methods to reduce cost. MSMEs could be introduced to low-cost automation techniques which work in tandem with the human workforce while implementing distancing and also for quality control.

5) Customer perception – Branding and advocacy will also be needed to leverage the positive connotations associated with certain Indian products and assess negative connotations that can be removed

Ashim Sharma, Principal & Division Head – Business Performance Improvement (Auto, Engineering & Logistics), NRI (Nomura Research Institute) Consulting & Solutions, said, “The Indian MSMEs have traditionally been catering to the domestic market either through directly selling to the consumers (B2C) or are a part of the value chain driven by large organised private players (B2B). Factors like evolving consumption and increasing competition have led to the increasing relevance of integrating customers’ voice in product design for MSMEs to stay relevant. Therefore, it becomes extremely important for the MSMEs to design, manufacture and sell products which the customers need. They need to be connected to a demand led environment, where their business strategy and processes are aligned to the changing market dynamics through a market-oriented strategy.”

With the manufacturing ecosystem is constantly evolving under the influence of several trends around changing consumer behaviour and technological shifts happening across the globe, NRI Consulting & Solutions has put forward a set of recommendations. These are:

The report also highlighted multiple manufacturing clusters across India to help create a conducive environment for development of small and medium enterprises, as identified by the United Nations Industrial Development Organisation (UNIDO). Clusters across India hold the key for developing a self-reliant ecosystem based on local skills and expertise. The cluster approach becomes all the more important with the localised nature of lockdown opening policies. Measures for development of MSME clusters can be aligned with the strategy to fight the impact of COVID 19.  “E.g. The state of Punjab has multiple MSME clusters with majority of them located around Jalandhar and Ludhiana. These MSME clusters provides an opportunity to significantly upgrade the overall manufacturing economy of the state. Jalandhar for example has clusters for sports good, agricultural implements, hand tools, leather works, etc. Similarly, Ludhiana has clusters for bicycle parts, hosiery, forging, hand and machine tools, etc. All these MSMEs, if developed in a collaborative approach while keeping a market oriented strategy, can provide significant boost to the economy as well as employment in the state of Punjab. “added Mr. Sharma

The report further emphasizes on the fact that clusters can also be used for identifying synergies between various stressed MSMEs which can then be used to create collaborating firms. MSMEs that cannot stand alone might be able to succeed as combined firms by utilising various synergies. These synergies can be across various areas such as demand synergies, geographic synergies, logistics synergies, etc.

“Using a cluster approach will help in upgrading the MSMEs to suit the changing global landscape. Financially it might not be feasible for an individual MSME to develop all the capabilities but at the cluster level it can be achieved by sharing resources and realising cluster level synergies. A good example will be the Jalandhar cluster for sports good. Through focussed efforts, this cluster can combine resources for tracking the latest trends and demand requirements across the globe and manufacturing market-oriented products that can easily adapt to the changes in consumer preferences.” Mr. Sharma concluded.