As we slowly get back onto our feet and the wheels of the economy also start turning, we are getting into a reconciliatory mode where living with the Corona Rules will be a way of life. For how long, I cannot say. Human ingenuity can surprise us all so a cure and a vaccine are not far away. But till then its Caution, Caution and more Caution!
News about Corona is almost reaching a saturation point. Life is gradually getting unlocked as the hibernation period is slowly getting over. The harm to Global and Indian economies has been unprecedented. Especially to small businesses or MSME’s as they are referred to. Businesses both big and small face challenges and some even closure. Some have already declared insolvency. But resurrect we will and it is how quickly and effectively we rise up and get back on our feet, and then start running, which will decide where we will be headed, in the future.
So, since I represent the MSME sector and the manufacturing sector, in particular, I am going to share some thoughts on How MSME’s in India, can now change the rules of the Indian and Global Economy! They say necessity is the mother of invention. I’ll add to that. Adversity is the catalyst for those inventions. Indian ingenuity and enterprise is our biggest strength. All we need to do is harness and upgrade it to global standards, to be world-beaters.
As global manufacturing supply chains are trying to reduce their dependency on China and find alternatives, they are looking at countries like India, Vietnam, Thailand, Cambodia, Malaysia, Indonesia and even Ireland. And these countries are seizing the opportunity and moving very quickly. We need to move faster.
What are Global buyers looking for or rather what will win them over?
- They want a good political and trade relationship which will be stable and long-lasting with a trading partner, like India.
- They want perceptive countries with good communication skills.
- They want scale and volumes.
- They want world-class manufacturing standards and quality.
- They want an efficient infrastructure which can help the manufactured goods to reach them in the fastest possible time, as everyone wants to have very low inventory cycles.
- They want range and flexibility in product categories or in other words ‘one’ destination from which they can source multiple products.
- They want competitive pricing.
- And if they want to set up base in India, they want Ease of Business parameters to almost plug and play levels, if they want to invest.
I feel we score fairly high on most of the above fronts and have to look at both short term and long term measures to make this happen quickly. Our size and human resource automatically make us the top contender to replace China. But the speed of catching the opportunity will be key. It’s no longer going to be just survival of the fittest. It will be survival of the quickest!
So let’s look at the Short Term Measures that need to be taken:
It is an accepted fact, that to invite investment, the messaging to potential investors must go from those already invested in India. So Ease of Doing Business is going to be crucial and the next generation of reforms must happen now, as this is a necessary and opportune moment, whether it is Industrial, Land Reforms, Labour Reforms or even Police and Judicial Reforms.
These will be crucial to sending the right message. Over and above this, digitization and paperless communication will be a clincher. With over 60 million MSME’s and over 110 million employees and a substantial contribution to exports and to the GDP, our war chest is ready. We have to only make them battle-ready.
- To match up to global standards of manufacturing and with social distancing being the norm for some time, manufacturing will acquire a new dimension. While the larger units have already upgraded to global standards, the MSME’s have not. At the same time, the potential to grow for large companies is limited and contrarily, MSME’s can be a huge exponential multiplier for revenue, jobs and exports. And help reach the Trillion-Dollar threshold faster. For far too long, MSME’s have been incentivised to stay small. Times have changed. And to be a global player, we need to be ahead of the curve on technology and scalable at the same time.
- To be able to do that and satisfy the needs of global supply chains (as mentioned above) MSME’s need to upgrade. The new Industry 4.0 Standards require manufacturing companies to have connected machines, application of Internet of Things ( IOT), extensive use of Artificial Intelligence(AI), Data Analytics, 3D Printing etc, to make manufacturing, efficient, attain exceptional quality and supply at very competitive prices. And with our strength in IT, this should not be difficult or expensive compared to other geographies. But customized solutions must be available to MSME’s as they do not really know where to go.
In the life of an MSME, they start with limited capital but unlimited passion and dedication. The limited capital, however, makes them compromise with quality and manufacturing standards. Then they struggle and put back whatever they earn, to grow. Debt from banks, for expansion, adds to their liabilities and while most of the time they are growing but earning more for the bank, than for themselves.
At the same time, they never find the time or advice to evolve into a modern-day manufacturing company. In situations of downturns, and more so in situations such as now, a lot of them may not survive as three months of no revenue and fixed costs of 35 to 40% will erode their whole year’s profit. And assuming it may take 2 years to get back to earlier demand levels, they are looking at 2 or more years of struggle.
Their main challenges always are, High Capital Costs, Access to Finance and related costs, Marketing and Sales and above all, competing with cheap imports. What is ironical is, that many a time, companies in India import cheaply priced products from China or similar countries and later discover, that the same product of better quality and price was available in India.
The reason they could not connect, was because we do not have an authentic database of Indian MSME! This is a serious issue and must be addressed immediately. Why should the business go outside the country when it could well stay here! Uttar Pradesh is a live example of how they leveraged their ability to attract foreign investors and companies to set up a veritable Electronics Hub in the state, thereby sending the right signals for future investments.
So what is the Way Forward?
We contribute to less than 5% to global exports. The reason perhaps was due to continuous growth in domestic demand and our inability to scale up for the global markets. Here are the steps, I feel, that need to be taken immediately.
- Identify the import substitution products that Indian companies should, and can make. The entire import data must be analysed by respective Export Promotion Councils.
- Immediately ask Indian Trade Missions in Consulates overseas, to collect import data of the top 20 imported products in their respective countries and share the same with the Ministry of Commerce in India. Let the respective Export Councils go through the same and identify manufacturers that match these product categories. The Trade Missions can play matchmaker thereafter.
- Identify companies in those product categories, that can immediately set upscale, to meet that demand, and identify their needs for technology up-gradation at the same time if required.
- Create a very low-interest Technology Upgradation Fund for these Industries to access immediately. Our ability to switch tracks and adapt to needs of the country has been adequately displayed during the pandemic, where hundreds of small and large companies switched to providing Sanitisers, Masks, PPE Kits and ventilators etc, at breakneck speed.
- Also, post-COVID-19, a lot of good companies with good technologies, are likely to go insolvent in developed markets ( Europe in particular). This is a huge opportunity for Indian companies, especially MSME’s to grow inorganically both in terms of scale and technology. The Foreign Trade Missions will also have a huge role to play in matchmaking. I can say from experience and from exporting for over 3 decades, that Indian manufacturing capability is ‘not’ being showcased to the world as it should. This must change.
- Create a Professional Body of successful entrepreneurs to periodically handhold the MSME’s as they ramp up both on technology and scale.
- Upgrade and modernise all existing Industrial Areas in line with international standards, which would be critical to help put all this together.
Let’s Look at the Long Term Measures:
We need to Focus on leveraging our strengths but what are these strengths?
Let’s take Agriculture and food processing: Each country has its inherent strengths. Our strength lies in our ability to provide food to 1.3 Billion people from within the country and still have food to spare. It is unfortunate though, that over 50% of our rural population in agriculture, contributes only a little above 20% to the GDP. We are the largest producers of Milk in the world, yet UAE, one of our largest business partners prefers to buy cheese from the Netherlands or New Zealand.
Using technology to enhance both produce and crop valuation, and supplementing them with modern manufacturing, to process our products, will make us truly, the food bowl of the world. Of course, the Honourable Prime Minister’s focus on Agriculture and Food Processing must be realized with immediate agriculture reforms which will make more than half the country prosperous in a very short time.
The other sector is Pharmaceuticals and Drugs: We are supplying 40% of the generics to a market like the USA and the Government has rightly created a fund for three Pharma parks in the country to focus on the production of API’s ( Active Pharmaceutical Ingredients), for which we were so dependent on China. The whole world is our market to get. We are one of the most cost-effective manufacturers of pharmaceutical products and we must encash this strength. What is good about this sector is a huge contribution to the MSME sector as well.
Human Resource: Our huge Human Resource needs to be trained and harnessed for future growth. Blue collared jobs are the future in employment. Vocational Skills and Industrial employment will take care of this huge figure of over 25% as is being reported.
And then, there are a host of Other Opportunities:
With our very cordial geopolitical relations, we can partner with a lot of countries to supplement their needs arising out of the threat of the pandemic as well. Our brilliant start-ups and IIT/IIM pass-outs can focus on helping to find solutions for badly affected businesses, post COVID-19, like Airlines and the travel Industry, Restaurants, Malls and Movie Theatres etc. as they will all have to get back on their feet. How innovation can reduce or drive away from the fear of the virus, is what India needs to show to the world.
Although this pandemic has brought global economies and nations to their knees, it has also thrown challenges and opportunities to developing economies, to step in and take control and to help shape the future. India happens to be in a sweet spot. But you can only go the distance if you strike it right and time that strike.
As Swami Vivekananda very aptly said: Awake, Arise and Stop Not, till the Goal is reached! So here’s to a resurrected India!
– Kiron Chopra/Lucknow
(The writer is a Lucknow based businessman of eminence. He is Chairman & Managing DirectorChopra Retec Rubber Products Limited, Lucknow, a former member of the Prime Minister’s Task Force on MSME’s, Past Chairman CII U.P. State Council)