Small and Medium Enterprises or SME. The generic name might evoke an image of business limited in its scale and scope, of conventional operational methods and entrepreneurs either lacking the vision to grow or running woefully short of the funds required. While these assumptions might be true to some extent, it is also important to note that for over 5 decades, SMEs have been amongst the primary drivers of growth in the Indian economy.
Currently, there are 63 Mn SMEs in the country, employing nearly 10 crore individuals. However, it contributes only 8-9% of the total GDP of the country. The situation becomes all the more baffling when we realise that SMEs are a significant part of India’s unorganized sector, which contributes 45% to India’s GDP and employs 93% of its workforce.
What is hindering the segment’s progress?
Some of the major roadblocks for the SME sector are poorly planned infrastructure due to a lack of funds, gaps in technical know-how for non-implementation of new and innovative solutions and skill-gaps amongst employees.
This troika of obstacles has comprehensively hindered the progress of the SME sector at large. However, the current era of Industrial Revolution 4.0 has finally sparked a long-term transformative change in the sector.
The Current Scenario
The landscape of today is changing to make way for rapid digitisation and automation of processes across businesses. The economy is inching towards optimisation of SME sector productivity, through technological intervention, easy capital availability through Fin-tech and focused regulatory changes.
Let us see how:
Digitisation: The Need Of The Hour
Rapid operational optimisation at minimum costs, this is what the SME sector needs the most. Digitisation promises exactly that. Digital solutions require lower costs and investment, along with streamlining business functions. However, according to reports, close to 70% of SMEs in India are offline. Several of these businesses are not equipped with even the basics of computer literacy, thus holding them back from reimagining their inefficient processes.
There are certain steps that SMEs need to take in order to bridge this gap and make a seamless transition into digitised operations. They need to audit current processes, foster innovation, and upgrade specific functions accordingly within the larger business framework. Employee skill-gaps should also be addressed, through phased, on-the-job training in a gradual and personalized way.
By auditing the need internally, businesses will be able to gauge which aspects have to be addressed to ensure that the workforce is equipped to effectively create value using advanced software and tools.
SME-Focused Government Initiatives
To facilitate infrastructural changes within the SME sector from the ground-up, the government has introduced several initiatives over the past few years. These include Digital India, the National Manufacturing Competitiveness Programme and Assistance to Training Institutions, amongst others.
These efforts encourage the younger generation, especially in rural areas, to join or start businesses in their field without having to move to another city in search of work. To that effect, the National Skill Development Council is actively focused on providing the youth industry-relevant training to work within the SME sector.
Most of the government’s initiatives are aimed at enabling SMEs and their employees to become digitally savvy, by making the relevant training and facilities more accessible to them. They are focused on skills like web design, familiarising SMEs with local software solutions, controlled automation and driving innovation by fostering entrepreneurship in the sector.
Through these programs, SMEs can enhance their overall digital capabilities to be at par with industry standards in their respective businesses.
The Changing Landscape Of SME Lending
Up until a few years ago, access to adequate finances was a major hurdle for the growth of the SME sector in India. The requirements from traditional banks, including tedious paperwork, the need for strong credit history and high-interest rates even on small-ticket loans is not feasible for most of these businesses. Recently, however, a large number of Fintech platforms have emerged to fill this need-gap and continue to extend their offerings to suit the requirements of individuals and smaller businesses.
With the rise in smartphone users and the widespread penetration of the internet into Tier 1, 2 and remote areas, Fintech platforms are easily accessible to most SMEs for their loan-related needs. Most of these platforms operate via a website or an app, making them easy to use as well. A major factor that these platforms bring to benefit SMEs is their alternative credit score systems, easing the need for lengthy credit history and enabling superfast loan disbursals.
They make use of advanced technologies against various traditional and non-traditional data points such as POS data and other records to determine the creditworthiness of an individual. The popularity of these platforms has also encouraged a number of banks to partner with them and extend their offerings.
The Need To Prioritise SME Evolution
SMEs play a key role in creating employment opportunities with minimal capital costs, as well as in enhancing the industrial landscape in rural areas and non-metros. This, in turn, helps to facilitate a more uniform distribution of wealth across regions, thereby complementing the existing ecosystem of larger industries.
With the advent of several technological advancements and a plethora of initiatives to incentivise businesses to adapt to them, the SME sector in India has immense scope for growth. These businesses need to keep their eyes peeled in order to strategically implement new processes suited to their specific business frameworks.
By smartly incorporating changes in their respective businesses and bolstering employee capabilities, SMEs can surely be the growth engine for the economy in the years to come.