How to transform India’s MSMEs

Increased investment, testing and capacity building, regulatory reforms, cluster-driven innovation, and state- level competition essential for economic transformation

- DHANENDRA KUMAR

INDIA NEEDS A comprehensive strategy to infuse technology and R&D across industry and services, with particular emphasis on micro, small, and medium enterprises (MSMEs).

A multidimensional thrust-including increased investment, testing and capacity building, regulatory reforms, cluster-driven innovation, and state-level competition-is essential for India's economic transformation.

MSMEs are the backbone of India's growth, contributing about 30% to GDP and half the exports, employing millions, and fuelling regional development. However, most units lack back-end processes like integrated supply chain and procurement, with only about 15% adopting Industry 4.0 technologies. This limits productivity, competitiveness, and exports.

The key challenges to technology and R&D infusion are as follows.

Low R&D investment: Although it is rising, India's overall R&D expenditure is only 0.66% of GDP, according to World Bank-well behind developed economies that allocate over 1.5%.

Weak infrastructure and connectivity: Unreliable electricity, weak digitalisation, unreliable internet,and high implementation costs hamper adoption of advanced technologies.

Limited awareness and access: Many MSMEs are unaware of, or not able to access, government schemes that support technological upgrades.

India should take the following steps.

Expand R&D investment and incentives: Substantially increase public and private R&D investments to at least 1.5% of GDP, supported by states, applied R&D allied with national missions. Also, widen eligibility for patent box regimes and incentives to cover designs, models, and substantial intellectual property development to fuel innovation and foreign direct investment.