A Fillip to MSME Productivity

Raising productivity of MSMEs is vital to injecting dynamism in the economy, and it could raise India’s GDP by 10.5%

- KANMANI CHOCKALINGAM

MICRO, SMALL, and medium enterprises (MSMEs) are the backbone of India's economy. They account for about one-third of the economy, and more than 60% of employment. In manufacturing, professional services, and information and communications technology (ICT), they generate about 40% of value added in the economy.

A new McKinsey Global Institute (MGI) report, A microscope on small businesses: Spotting opportunities to boost productivity,' highlights the vital role of MSMEs.

In the 16 economies studied-both advanced and emerging-MSMES account for two-thirds of employment in advanced economies and almost four-fifths in emerging ones as well as half of all value added. They also inject dynamism into economies. Globally, about one in five of today's very large companies scaled from being MSMEs at some point after the year 2000. But in India, it is only one in 10.

But MSMEs struggle with productivity in comparison with large companies. Today, India's MSMEs are only about 25% as productive as large companies, compared with 29% in other emerging economies, the MGI report finds. In fact, the productivity of India's MSMEs lags by more than 50% compared to that of large companies.

Raising productivity is the optimal route to healthier incomes and business resilience. In a world beset by uncertainties and a move by some companies to realign their manufacturing and services footprints to build resilience, raising the game of MSMEs is a priority.

For the growth of India's economy, therefore, raising the productivity of its MSMEs is vital.