In the complex web of India's economic system, Micro, Small, and Medium enterprises (MSMEs) are the thread that holds India's vast economic fabric together. The Ministry of Micro, Small & Medium Enterprises (MSME) of the Government of India, through the MSMED Act, formally defines MSMEs as:
a micro enterprise, where the investment in plant and machinery or equipment does not exceed ₹2.5 crore and turnover does not exceed ₹10 crore;
a small enterprise, where the investment in plant and machinery or equipment does not exceed ₹25 crore and turnover does not exceed ₹100 crore; and
a medium enterprise, where the investment in plant and machinery or equipment does not exceed ₹125 crore and turnover does not exceed ₹500 crore.
Often quoted as the backbone of the economy, MSMEs span across a diverse landscape – from small shops to growing startups – supporting livelihood and advancing inclusive growth and innovation. Today, MSMEs contribute to 30% of the country's GDP and employ more than 28 crore people.
Despite their vital role, MSMEs grapple with considerable challenges, which include limited access to credit, minimal marketing possibilities, regulatory compliance, and a lack of skilled workforce. While several schemes and initiatives launched by the government to address the challenges play their part, we need grassroots-level, unconventional solutions that are both local and scalable.
Access to Finance
MSMEs in India encounter several challenges when it comes to accessing finance, including inadequate collateral assets, a lack of financial awareness, and high interest rates. The COVID-19 pandemic resulted in a decline in demand, supply chain disruption, and reduced cash flow for MSMEs, further aggravating the problem of accessing finance.
One possible solution could be Alternative Credit Scoring. The creditworthiness of an MSME can be assessed by integrating digital resources like Khatabook - a digital ledger app that helps Indian small businesses manage their accounts, track transactions, and manage customer credit - with utility bills, GST payments, and UPI transactions. This system can even be used for a formal loan application.
Another solution could be a Token-Based Barter System. In this system, MSMEs will trade goods and services using tokens instead of cash, where each token will represent a unit of value. These tokens can be earned by offering goods and services within a trusted network. Moreover, the tokens can be used to purchase from other members, even without a direct barter match. A community platform will record transactions and maintain balances. The model can be made flexible by offering optional settlements in cash periodically. This system is inclusive for both urban and rural MSMEs, enabling continuous trade despite shortages in cash, reducing reliance on informal credit, and powering local economic activity.
A similar idea, the Drishtee Barter system, is already in use in India. Drishtee, a social organisation, under its initiative Making in Rural India (MIRI), uses a barter app to facilitate the exchange of goods and services between rural individuals, particularly women, who may have limited access to cash. Instead of money, the app uses Livelihood Points (LP) for each producer. These LPs have a value equal to the product price and thus can be used to exchange for goods. This means that if someone possesses 5 eggs worth 50 LP, he or she can exchange them for another item of similar value, say 2 litres of milk worth 25 LP each.
Initially, people can face the challenge of adopting the new systems and digital processes. Moreover, the reliance on non-monetary exchange can continue to present a barrier to certain needs, such as medical bills.
Marketing & Sales
Most MSMEs work in the informal economy, which restricts their access to the global market. Moreover, they face difficulties in branding and understanding market trends, making them vulnerable to market fluctuations and limiting their product variety.
One possible solution could be the urban-rural MSME twinning model. For instance, a rural textile cooperative will partner with an urban boutique. This twinning approach is already implemented through initiatives by Fabindia and GoCoop. Fabindia sources its handcrafted products directly from community-owned businesses where artisans have a stake in the company and sells them through its own retail stores and e-commerce platforms. GoCoop is an online platform that connects rural producers and cooperatives directly to domestic and international consumers and markets. These initiatives thus provide sustainable livelihood, promote craft preservation, and ensure fair pricing.
This mutual exchange will benefit not only urban businesses from a low-cost production, traceable, transparent, and unique supply chain but also rural producers by gaining consistent demand, pricing insights, and branding.
The urban MSMEs can further gain market insights by combining digital tools and strategic platforms. To understand the preferences of the consumers - what the consumers are searching for or what they are engaging with, free tools like Google Trends and Instagram hashtags can help by providing them with real-time data. In addition, to examine the analytics on consumer behaviour like views, clicks, and wishlist, the urban MSMEs can list their products on online marketplaces such as Amazon, Flipkart, or Meesho. Moreover, to identify the buyers' trend across the industries, they can engage with B2B or B2C platforms such as IndiaMART and TradeIndia.
However, the rural artisans need to stay updated with the latest designs, trends, and deliver consistent quality with the consumer preference while preserving their authenticity.
Skill Development
A report by NITI Aayog points out that a significant portion of the MSME workforce lacks formal vocational or technical training, hindering productivity and scalability.
One practical solution could be a Mobile Skill Training Van. This would involve converting a regular bus or a large van into a mobile classroom that would visit villages and urban slums on weekends and offer a short yet high-impact course on tailoring, digital literacy, and more, depending on the unique skill needs of each community. Residents can be informed about the training through local leaders and community influencers using posters, loudspeakers, or WhatsApp groups. To operate these vans, the government skill development agencies can partner with corporate CSR initiatives.
Additionally, the government can collaborate with local NGOs and self-help groups to conduct surveys and pilot programs to align course content with the actual needs of the community, and investigate the logistical issues that may arise during the program delivery, such as poor road connectivity, power supply, and lack of suitable parking or teaching space.
Capacity Building
MSMEs struggle to access the capacity-building opportunities they often miss out on, including learning crucial business skills, managing GST filings and digital payments, setting prices, and handling inventory effectively. Breaking down these concepts in the form of comics and short stories in vernacular language will help in demystifying business basics.
For instance, a comic strip about a fruit seller who learns to digitise payments or a fable about an artisan who figures out profit margin will help entrepreneurs and businessmen learn complex concepts through culturally relatable narratives and characters. These stories can be shared via WhatsApp or printed in a local newspaper.
This approach has been successfully adopted in other scenarios. The Election Commission, during the 2024 Lok Sabha elections, launched a special comic book titled "Chacha Chaudhary aur Chunavi Dangal", which used the iconic comic characters Chacha Chaudhary, Sabu, and the team to educate and motivate youths and emphasise the significance of women's participation in the election process.
MSMEs are central to the economic growth of the Indian economy. Notwithstanding, they face persistent difficulties like financial access, scarcity of skilled labour, limited marketing knowledge, and capacity building. Local solutions ranging from alternative credit scoring, a token-based barter system, to mobile skill training vans, and vernacular education can empower MSMEs at the ground level. However, this blog is just one part of a broader discussion. Part 2 will discuss infrastructure, technology and innovation systems, and regulatory compliance to further strengthen MSME potential.
Ishita Narvekar
