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MSME – the real key to a sustainable economy and development

MSME – the real key to a sustainable economy and development

We got this backward

All of us are keen on making this world a better place. All of us have been thinking and trying out various ways and means to achieve this august objective. But all of us have been failing consistently, though with some isolated, partial success stories, which are by no means unimportant, but in no way adequate. Somehow, we don’t seem to be getting this feedback from the world which is trying to tell us by crying out loud that working on problems in isolation does not yield lasting results.

Why is this so?

The critical success factor of sustainable systems

Any system becomes sustainable only when the weakest participants or components are strengthened. This is applicable from a chain to a chain reaction. However, the mainstream management literature and knowledge base talk about prioritized risk management based on taking care of some critical success factors. However, these critical success factors are identified based on their asset value and impact on the business if disrupted. Hence the focus is usually on the important few rather than the trivial many. And our systems keep failing invariably due to the inherent unpredictability of nature and the world itself. We keep wondering why.

The real critical success factors are the weakest links and participants in the system. All it takes is one security breach due to a new guard, a mistake by a janitor, a wrong connection done by a low-level technician to create major disruptions. But they are rarely if ever, are on the radar of the management oversight.

If we want sustainable agriculture, we must take care of the microbes, bees, and butterflies. Has anyone ever heard of any intervention for protecting these weakest players? We kill them or drive them away by applying different chemicals and pesticides, with obvious results.

Why MSME?

If we look at any economy, the Micro, Small, and Medium Enterprises (MSME) sector is the largest employer and is comprised of the weakest players. MSME accounted for 30.27% of the GDP of India in the FY 2018-19 and 33.5% Gross Value Added. It grew at 12.88% in FY 2018-19 and has created 11.1 Crore jobs, as per the Annual Report of MSME 2020-21. But if we look at all the policy support or economic interventions, they are heavily skewed towards the larger players. Schumpeter, one of the well-known management researchers said that small is beautiful. Our own C.K. Prahalad talked about the bottom of the pyramid, from a marketing perspective. How about looking at the bottom of the pyramid of any value chain? That space is filled with MSME. Apart from tokenism, no serious systemic support is made available to MSME which can help them survive and grow.

What can be done?

First, pay them on time. Almost all MSME struggle with cash flow issues. The customers, usually larger businesses enjoy 60 to 90 days of credit which is very difficult for a small business to manage as they will have large amounts of cash stuck in the business. This needs to change and the large companies must realize that it is in their own interest to pay them on time.

The next thing is to reduce the regulatory burden for them. Can there be a complete tax exemption for MSME as in India, more than 99% of businesses are MSME category and 94% of them are unorganized, as per Dun and Bradstreet’s report of 2021? What is more important, a sustainable economy or increasing the tax base? Interestingly, if the MSMEs are allowed to grow freely, they may soon attain the size and turnover, which qualifies them to get into a tax bracket.

Cash against approved invoices can also be a great scheme. This already exists on paper but is used by a limited number of MSMEs due to the challenges involved. These will augment the existing support structure of MSME and help them sustain and grow.

The large companies should spend time with the MSME training them and improving their product and process quality. This will ensure that their inputs become cheaper and better in the long run.

The interconnectedness of the world

Would these interventions be adequate? This is where the connected nature of the world kicks in. No program or intervention in isolation would give us lasting results. We must understand how the other systems are connected to MSME development and sustenance, including education, skill-building, institutional finance, family and child welfare, healthcare, power and infra and so many other aspects of economy and life itself. Thus, unless all other elements are well-aligned and function in synch, MSME can’t be revived on its own. This is another critical dimension to be focused on.

Concluding thoughts

What is required is a deep concern and empathy for the MSME sector by everyone in the economy. Starting with the willingness of consumers to buy from them rather than going only for the big brands, every stakeholder and actor in the economy must take care and nurture the MSME to ensure their survival and growth. This is not about charity or social responsibility. We must realize that it is ultimately a selfish motive as without the survival of the weakest, we cannot become sustainable.

About the Author

Flt.Lt. Sridhar Chakravarthi is an experienced organizational change coach and consultant with over 30 years of leadership experience in various industries. He believes in the possibility of exponential growth for individuals, start-ups, and mature organizations. He empowers them to achieve exponential growth by bringing agility into their mindset, processes, and behaviours. He is an authorized training partner for Enterprise Agility University, runs his company “Coach for Change” and lives in Bengaluru, India.