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Role Of Indian MSME Sector In Steel And Economy

Government is trying to push it forward with a number of plans to foster technology, innovation and quality in SMEs

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Micro, Small and Medium Enterprises constitute the backbone of an economy in maintaining an appreciable growth rate and in generating employment opportunities. This sector has been regarded as engine of economic growth and social development in many developed and developing countries. Contribution of MSMEs to the Indian economy in terms of employment generation, containing regional disparities, fostering equitable economic growth and enhancing export potential of the country has been quite phenomenal. Despite some infrastructural deficiencies and challenges like flow of institutional credit and inadequate market linkages, this sector has registered remarkable success with regard to increase in number, quantum of investment, scale of production and overall contribution to national GDP. 

Indian economy during the recent years has shown an appreciable growth performance by contributing to creation of livelihood opportunities to millions of people, in enhancing the export potential and in increasing the overall economic growth of the country. MSMEs in India consistently feed the domestic and the international value chain as manufacturers, suppliers, distributors, retailers, contractors and service provider account for a substantial segment of our industrial units. The MSME sector has the potentialities to emerge as the spine of Indian economy and to continue as an engine of growth provided an environment-friendly policy framework and enabling infrastructural support are made available for its functional operations.

Despite the pivotal role and strategic importance in the context of industrial development and economic growth of the country, the MSME sector experiences several constraints and challenges, which includes ; i)Equity as a source of financing is underutilized and the prevalence of investment by venture capital and angel investors is low, ii) MSMEs face the problem of delayed payments from their buyers which adversely impacts their working capital as well as their next cycle of production, iii) MSMEs lack adequate information about various schemes and benefits available by the government, iv) Financial institutions/Banks face challenges in credit risk assessment of MSMEs, v) The utilization of the available credit guarantee and insurance schemes by banks has been low.

However,this sector has exhibited enough resilience to sustain itself on the strength of the traditional skills and expertise and by infusion of new technologies, capital and innovative marketing strategies. Appropriate strategies are being evolved for creation of an enabling ecosystem where these enterprises are able to access the benefits meant for them& are further capable of meeting the emerging challenges of a globally competitive order. The MSME’s sector can be understood in 3 categories; it includes the Micro level enterprises having a turnover of less than Rs. 50 million and Small level enterprises having a turnover of more than Rs. 50 million but less than Rs. 750 million, followed by the Medium level enterprises having a turnover of more than Rs. 750 million but less than Rs. 2.5 Billion. 

Today, the Iron and Steel manufacturing industry is one of the most vital industries in India for SMEs. The burgeoning importance of SMEs in the steel sector is due to their significant contribution to the key factors of the growing Indian economy. Moreover we can say that steel manufacturing industry is one of the most vital industries in India for MSMEs and they further want to contribute in assembling part development. Currently, out of global steel production of 1691 Million Tone, India currently produces 128 MT crude steel. The key to ensure that SMEs are able to grow in tandem with the economy in this age of increasing globalization is to reckon the issues faced by most of them. Understanding which, MSME sector units are not being getting level playing field in sales of their products to government / PSU projects. The tender specifications of approved manufacturers / make in most cases are in favor of large sized steel manufacturers. 

Govt. of India has set a blue print of producing 300 MT by 2030. Indian per capita steel consumption from 90.68 kg in FY 17-18 is targeted to be raised to 160 kg against global average of 220 kg. In India, steel is manufactured primarily through two routes.Sectors with Integrated steel plants route out through a Blast furnace i.e. Basic oxygen Furnace, whereas SME sector comprises the Electric Arc Furnace which is Electric Induction Furnace.

The noteworthy recovery of the worldwide economy in the recent year after just about a time of limping development of the Global Steel Industry indicates a positive viewpoint for the Indian steel industry. According to the report presented by Ministry of Steel India, there is a set blue print of producing 300 MT by 2030 wherein the MSME’s sector has a huge role to play as they offer direct employment to 5 Lakh people and indirect employment to 25 lakh individuals, which is a notable contribution to Indian economy.

The key to ensure that SMEs are able to grow in tandem with the economy in this age of increasing globalization is to calculate the issues faced by most of them. While MSME sector manufacturers are denied equitable opportunity in sales to lucrative government aided infrastructure projects, the sector manufacturers are also constrained to purchase raw materials like coal and iron ore under spot buying / e auction from miners. In fact MSME steel manufacturers have to compete in the market against manufacturers such as SAIL & TISCO which have been awarded mines in the past on nomination basis.

SMEs require support from government and industry bodies to overcomethe limitations. The main obstacle in the growth of SMEs is the absence of resources. The total market size in long products, pipes and tubes and alloy and SS would continue to exceed the capacities (current and planned) of the primary producers that would necessitate the survival and growth of the SMEs. However, the critical factor of adherence to quality standards, specified by Bureau of Indian Standards (BIS), would largely justify their existence in the fast-changing market for steel.

Today, the Micro, Small and Medium Enterprises in the assembling part want to contribute to further development, as indicated by new research from pro loaning and funds bank. The new information indicates that SMEs are proactively searching for chances to become throughout, in the following five years. Besides this, about one in five SMEs in the assembling part means to develop by uniting with other business either through a merger or procurement. Just 13% of those addressed asserted that they won’t make a positive move, keeping in mind the end goal to develop their business. With 87% of respondents, most by far of little and medium firms in the assembling area are in the development business and making firm arrangements to accomplish it.

In spite of an abating world economy and expanding vulnerability about the future way of the Indian economy, somewhat because of the up and coming choice, the outcomes demonstrate that MSMEs in the assembling segment is sure that putting resources into their organizations is the most ideal path forward to fortify their position in the market. 

The MSME segment in India has traditionally been using the investment in plant and machinery as the metric to define the MSME sector as the investment in assets can be verified and measured. However, we must also appreciate that each sector has its own unique capital requirement and standard revenue and growth rates. Hence, in today’s complex business environment, turnover and number of employees are becoming more relevant matrices for consideration of coverage.

Over the next decade it is expected that MSME businesses will get more organized, registered and operate through banking channels to avail of new initiatives of privileges, benefits and incentives. Globally, turnover and number of employees is a wide spread criteria for MSME considering common data points for other stakeholders such as banks, equity investors, direct and indirect taxes and incentives for growth defined around these criteria. There is an opportunity to consider a gradual transition plan for MSMEs over the next decade to be in line with global MSME in developing nations.

Overall, the growing importance of SMEs, which account for about one-sixth of India’s total GDP, is manifesting itself in various quarters of the economy. Government is trying to push it forward with a number of plans to foster technology, innovation and quality in SMEs. It also helps in building inter-firm cooperation that adds to productivity and innovation. The efficacy of clustering in SME space will further increase in future as clusters continue to leverage benefits of spatial proximity. 

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Ashish Beriwala

The author is Director, SRMB Steel

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