Major trends that dominated the MSME sector in 2021

By Sthitaprajnya Panigrahi Friday, 24 December 2021

The Micro Small and Medium Enterprises (MSMEs) sector has emerged as a major contributor to the socio-economic development of India, owing to its contribution to Gross Domestic Product (GDP) of the country and exports. The sector has also provided enormously to entrepreneurship development of the country especially across the semi-urban and rural areas of India. If we take a look at the year 2021, of course, it wasn’t an easy one. The COVID-19 has knocked down many thriving businesses with deadly waves of the pandemic, one after another. Although the pandemic has caused much turbulence in the industry, the MSME has not only managed pave its way out of it but has also welcomed some innovative trends which turned the course of the industry prolifically. Numerous small and medium type businesses were anxious with uncertainty, and it took a while for business owners to find their way.

While the pandemic is yet to be over, the year has almost come to an end, and we take this opportunity to reflect back on some of the significant trends that triumphed in the micro, small, and medium enterprises (MSME) sector.

The ‘Make in India’ Approach

Urging Indians to work towards a ‘Atmanirbhar’ Bharat or self-reliant India, PM Narendra Modi evoked the country to strive towards reducing its import bill and consume more local products. Initiating the mission to ‘Make in India’, he invited the foreign investors to acknowledge the mounting importance of India as a premium manufacturing hub which can cater to the needs and demands of the global industry. Encouraging India to ‘Make for the world’ in his speech, Modi quoted that, “the batch of reforms and legal vicissitudes initiated by India over the last few years is envisaging many global firms to finance and build their manufacturing units in India. We need to become self-reliant to contribute more to the world. We need to increase value addition in the country.”

Owing to the ‘Make in India’ initiative introduced by the Indian Govt., SMEs have thrived significantly. With the larger players concentrating more on domestic production and capacities, the ecosystem of MSME has expanded and enabled a lot of fragmented component manufacturers and other businesses to get more organised. Since the last few years, many Indian brands have emerged as original equipment manufacturers for various global brands by the virtue of quality and adaptation of novel technologies.

As per, Jiten Arora, Venture Lead of Solv & Member, SC Ventures, “After the access to financing avenues have started to open up, MSME has emerged as an organised sector and now everyone wants to be a part of this sector. The ‘Make in India’ perspective can get the international companies to invest and thrive in such a significant ecosystem.”

After the strike of Pandemic, MSMEs have understood the importance of technology as well as the requirement of the apt skill sets in order to grow. Ensuring easy access to numerous advanced technologies, resources and skill sets, the ‘Make in India’ initiative has enabled the MSME sector to become a pioneering hub for numerous start-ups and foreign enterprises.

Emergence of D2C and E-commerce as Drivers

While the coronavirus pandemic has compelled many industry leaders to shift their operations from offline to online, businesses were eager to catch up with this trend. As contactless buying has appeared as the new norm of the industry, businesses are not shying away to establish direct contact with the customers. This trend has proven to be much beneficial for small and medium businesses, because at present, the business owners are handling the marketing and advertising through online platforms.

According to Ashvini Jakhar, founder & CEO of Prozo, local businesses are now progressively taking the course of online business and e-commerce to directly interact with their customers across India.

Similarly, another business tycoon Mangesh Panditrao, Co-founder & CEO, Shoptimize, quotes that “COVID-19 has compelled the SMBs to search for novel growth avenues, and pertaining to that, D2C and e-commerce segment has emerged to be quite an influential conduit.” He further adds, “Apart from driving new markets and generating significant sales for MSMEs, this conduit holds marvellous possibilities to connect SMBs with a vast client-base and provide a customized brand experience. Technology has certainly made the transition of the industry quite simpler,” he said. 

Rise of Automation

Apart from other ambiguities, the pandemic also introduced the scarcity of labour, making many businesses to scramble down. Due to several workers either escaping to their native places, or getting infected, the business owners had to face the shortage of hands and this scenario directly affected their businesses as well. Emerging as a pioneering solution for the industry at such critical times, automation has significantly addressed the nuances of labour shortage.

Sharing his opinion in this matter, Pranav Kohli, Vice-President, Stag International avers, "MSMEs have always been a labour-intensive sector, however, in lot of places, automation and digitisation have become inevitable. Pertaining to the pandemic, things have been changing and automation has become one of the imperative parts of MSME industry.”

Hospitality industry remains one of the most-affected sectors due to labour shortage and the situation is envisaged at a much pragmatic level by Mukunda Foods of Bengaluru, which builds automated machines for cooking. After witnessing the demand for these machines growing substantially during COVID-19, Eshwar K. Vikas, Co-founder, states, “Hotels and restaurants that were facing the scarcity of staffs in their kitchens were benefited immensely from the deployment of these machines. With the help of automation, brands struggling to be profitable will be able to raise their businesses exponentially and remain lucrative. Soon the businesses will be significantly able to bring down expenses and upsurge productivity as well as boundaries by systematizing product lines.” While Mukunda Foods sold more than 150 machines quarterly pre-pandemic; this number has significantly gone up to more than 500, much to the satisfaction of Eshwar.

Digitization in Payment and Accounting

Owing to an unprecedented rise in the digitization across every sphere of commerce, business owners are opting to digitize their books of accounts for seamless business operations and using digital payments for quicker flow of money. According to a recent survey, payment modes like UPI has extraordinarily helped MSMEs to scale business. Thanks to digital payments, money has found a new medium to exchange hands and the cashless transactions have benevolently benefitted many SMBs, emerging as a noble phenomenon. “Another reason why digital payment has thrived significantly is because of ‘Buy Now Pay Later’ (BNPL) options”, states Gurjodhpal Singh, CEO, Tide IN. He further adds that opportunities like BNPL are heading for more popularity in the future as moneylenders have realised that ‘credit taps’ require to get exposed for SMBs to function effectively.

Seconding that small and medium businesses have accepted digital means as the new way forward. Abhishek Dalmiya, Director- Product Management, Tally Solutions, quotes, "The pandemic has compelled all businesses, irrespective of sizes and segments to search for fresher ways of steering their business efficiently and digitization has unquestionably played a crucial role in this. Although the large conglomerates remain way ahead in their expedition towards digitization, MSMEs had to adjust to certain vicissitudes. But the industry demonstrated a great zeal and gradually adopting pioneering strategies to make their presence known in the market".

Reportedly, there has been a significant rise of 70 percent retail SMBs comprising of eateries, stationery suppliers, jewellers, travel agencies, and more, who are implementing contemporary digital tools to upkeep their books. The states which were majorly benefitted from digital bookkeeping and accounting tools include Meghalaya, Manipur, Karnataka, Kerala, and Tamil Nadu.

Growing Significance of Intent-based Lending

It is often seen that banks and lending institutions are a bit reluctant to give loan to MSMEs because of their not-so-great prominence within the industry. According to Ketan Patel, CEO, Mswipe, the pandemic has meaningfully caused a momentous change in the lender perspective. Quoting that the industry has been shifting to intent-based lending from eligibility-based lending, he adds, “lenders are now emphasizing the needs of the MSMEs rather than looking especially at their revenues, balance sheets, income tax returns, and so on.”

Reflecting on the current industry scenario, Shachindra Nath, Executive Chairman and Managing Director, U GRO Capital, an MSME lending platform, states, “The lending space is being majorly driven by collaterals, and this is one of the latest trends which is gradually rising within the industry. Earlier, it was quite difficult to evaluate factors such as the expenses as well as the revenues of the businesses. As a result of which, having physical securities was safe for the lenders.” He further adds, “The situation is vividly changing because lenders are now equipped with data and technology now, which will enable the MSME financing to reach the level of consumer financing in the upcoming future.”

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