By B Yerram Raju In India, 98% of manufacturing micro and small manufacturing enterprises (MSMEs), estimated at 1.6 crore, are single-owner enterprises even if they are proprietary or partnerships and family enterprises or private limited enterprises. Stages of their growth are similar to biological organisms like the seeds transforming into flowering or fruit-bearing trees. This […]
By B Yerram Raju
In India, 98% of manufacturing micro and small manufacturing enterprises (MSMEs), estimated at 1.6 crore, are single-owner enterprises even if they are proprietary or partnerships and family enterprises or private limited enterprises. Stages of their growth are similar to biological organisms like the seeds transforming into flowering or fruit-bearing trees.
This article discusses the issues relating to their digital transformation per se and not their ease of access to finance. Medium enterprises and those in the service sector are not the focus of this article as they are already digitally savvy. Digital transformation is the foundation for a sustainable future. It enhances the reach to the customers and markets and enables the supply chains to transform into value chains. It helps in faster realisation of revenues.
Enterprise-level hurdles
Most MSMEs have rigid mindsets, lukewarm approaches to change and fear of growth. Digitisation transforms such mindsets with ease. For example, manufacturing micro-entrepreneur startups often find land as a big hurdle because of its ever-increasing price. Space-wise the next question relates to locating an enterprise – closer to home, closer to raw materials, closer to a political constituency, closer to markets or where there is the ease of starting, like in clusters and industrial parks or industrial estates. Digitisation, upfront, through a search engine, operating through the internet or cloud technology, could help him find a viable solution.
Entrepreneurs should be open to listening and learning so that they can continually review their growth journey. They can develop business plans with data support; build confidence in their employees and stakeholders and improve the quality of the product consistent with market requirements. Then, why are they not going ahead?
Reasons for Slow Pace
First is access. Second is cost. Small firms find the reach to a software company extremely difficult. Even if they find one, it is difficult to verify and validate the firms’ ability to help them, despite the best ecosystem engineered by the union and State governments.
The ecosystem covers the effective interaction between various stakeholders of MSMEs, both in terms of cost and speed. Policy advocacy, stakeholder interactions, institutional support, both from the public and private, better communications and incentive delivery system etc are all a part of the ecosystem.
Change Movers
Both the union and State governments are going all-out to support the digitisation of MSMEs. Around 2.5 lakh villages have been provided with broadband connectivity. Networking has improved. Business to businesses (B2B), Business to government (B2G), and Business to Customers (B2C) have acquired speed. Realisation of the transactions has become easier with factoring in Trade Receivables Discounting System (TReDS) for transactions of firms with an annual turnover of Rs 100 crore and above, Government e-market Place (GeMs) portal for procurement of goods and services by governments, PSUs, and larger firms, and for delayed payments, the Centre’s Samadhan portal, MSE Facilitation Councils of the State governments and the Insolvency and Bankruptcy Code (IBC) resolution for firms with Rs 1 crore investment in the MSEs. These are a few examples to highlight the change movers or facilitators in the ecosystem. In addition, the Reserve Bank of India has established account aggregators to resolve the information asymmetry and moral hazard issues of the lenders across the lending institutions – commercial banks, NBFCs and fintechs.
Telangana – Prime Mover
Telangana is unique in the institutional building for strengthening the ecosystem. The State proved that one can start the industry immediately after conceiving an idea. All approvals are delivered on the TS-iPASS within 15 days and in the absence of receipt of approvals, the approvals are deemed to be given.
Telangana State Program for the Rapid Incubation of the Dalit Entrepreneurs (TS-PRIDE), We-Hub for women entrepreneurs, T-Hub for startups, TS-HART for handicrafts and artisans, Nethanna Bima for handloom weavers, Telangana Academy for Skills and Knowledge (TASK), Telangana State Innovation Cell, Research and Innovation Centre of Hyderabad (RICH) and Telangana Industrial Health Clinic Ltd (TIHCL), the only institution in the country for the revival of stressed manufacturing MSEs, etc, are autonomous institutions run on transparency and good governance practices.
The State has minimum inspections and maximum facilitation for the MSMEs. Uninterrupted power supply to the industry, industrial water, 12 new industrial parks in addition to the existing 25-odd, and Industrial Local Area Authorities have reinforced the ecosystem uniquely.
Case Study
TIHCL, following the digitisation process, during the last four years, assisted 334 MSMEs either through margin funding or non-finance stress resolution, stabilising employment of around 13,000 people and around Rs 1,000 crore capital.
Deccan Pulverisers at Talakondapally in Mahabubnagar, run by a woman entrepreneur, engaged in manufacturing of silica/potash powder from quartz/feldspar mineral stones, employs 27 workers. Almost on the brink of collapse, at the instance of its main financier, State Finance Corporation, it approached TIHCL for a resolution. The due diligence was completed in a week and it was noticed that the unit faced problems from day one. It spent more than the sanctioned amount for the construction of the factory shed. Later, struck by a natural calamity, the shed was damaged and the delay in delivery of machinery further elongated the commencement of commercial operations. The unit became NPA on SFC books. TIHCL’s Critical Asset Funding loan of Rs 25 lakh, which reduced the interest burden for the enterprise by 4% and provided much-needed relief in the working capital cycle, led to the upgradation of the asset to standard from the NPA status within ten days. The pending incentive was also released by the government.
With TIHCL support, the firm saw 100% capacity utilisation taking its turnover from Rs 90 lakh to Rs 145 lakh in six months. The revival effort was conditioned by the company agreeing to digitise its operations that allowed TIHCL to handhold and monitor till it realised its cash flows.
TIHCL is a fully online functioning non-deposit NBFC. It does due diligence in a week and its USP is handholding and monitoring through a low-cost customised and consent-based enterprise resource planning architecture set up with the MSMEs they serve. It has signed MoUs with FTCCI, ALEAP, SBI, for effective coordination and with the Centre for Economic and Social Studies for research.
Startups’ Role
Data builds trust and this data should be reliable and verifiable easily by the stakeholders for rendering quick support. This is possible only through digitisation. Startups should turn their focus on the MSMEs for developing customised solutions at low cost and handhold them till they smoothen their supply chains and access finance easily. AtmaNirbhar Bharat will be truly competitive when the MSMEs are facilitated to become digitally savvy. Such startups should be accredited by either the government or an industry federation.
(The writer is an Economist and Risk Management Specialist)