MSMEs – Delivering Integrated Solutions
for Sustainable Development in India

Bold new approaches are needed to meet the global challenge of overcoming rural poverty and achieving sustainable development. A significant body of research and practical experience demonstrates the transformative potential of MSMEs to accelerate the transition to inclusive and resilient rural green economies.

As enablers of local capacities and jobs, MSMEs are effective for promoting equitable economic growth. Being decentralised in nature, they allow for the development of resilient economic systems. They prevent locking of large capital in few projects that reduces the risk of an economic crisis due to dependence on few large projects. Being closer to the natural environment and with limited access to resources compared to larger corporations, these enterprises tend to focus more on environmental protection in their approach to sustainability¹.

MSMEs account for more than 90% of all firms outside the agricultural sector, constitute a major source of livelihoods and employment, and generate significant domestic and export earnings in developing countries. Their development is crucial as inequitable and jobless growth continue to challenge these economies. A World Bank study² estimates that there are over 410 million (informal and formal) MSMEs in emerging markets. The formal MSMEs contribute to 45% of the total employment and up to 33% of the national income (GDP) in emerging economies. With large industry on the decline as a result of rapid mechanisation, MSMEs present an opportunity for job creation in the face of increasing unemployment trends. There is evidence that most formal jobs in emerging economies are located within MSMEs, which also create 4 out of 5 new positions.

In India, there are 46 million MSMEs, out of which 94%³ units are informal or unorganised in nature owing to inadequate support systems. These enterprises contribute to 45% of India’s manufacturing output and employ close to 40% of India’s workforce and yet contribute to only 8% share in total GDP⁴. Despite their crucial role in promoting sustainable development, the growth of MSMEs is limited owing to a host of factors that include lack of access to appropriate business services and an enabling policy environment. It is expected that if provided with appropriate support, MSMEs will generate employment levels to the extent of 50% of the overall employment, more than doubling the current MSME workforce of 106 million. According to KPMG (2015), MSMEs are growing at 11% per annum which is higher than average GDP growth rate and has the potential to increase the share of contribution to 15% of GDP by the year 2020.

Unlocking the transformative potential of MSMEs requires a comprehensive and multi-stakeholder response. This means effectively channeling resources and developing capacities at the local level, combined with supportive policy and institutional reforms at higher levels. Elements of such a programmatic approach include:

Forging an enabling policy environment that supports local enterprise development and promotes scaling such as tenure or regulatory reform through a charted staged strategy.

Ensuring equitable access to finance through a platform that enhances local access to the various sources and forms of domestic and international finance.

Building local capacity and providing technical support services that are accessible and coordinated.

Facilitating learning and knowledge sharing through targeted research, monitoring and analysis to better quantify and understand the determinants of sustainable local enterprises developed.

Case Study

TARA Machines and Tech Services Pvt. Ltd. – an affiliate of Development Alternatives – is a company that has developed small business packages based on green building material production technologies. These innovative technologies provide ‘Waste to Wealth’ business solutions for an expanding network of enterprises in the SME sector in India.

TARA Machines provides a business solution to enable the entrepreneur to maximise profitability and minimise risk. As a result, it has a strong focus on technical support, material and product testing, training and regular servicing along with machinery. It creates profitable enterprises across the country that convert industrial waste into building materials like roofing tiles, floor tiles and pavers, fly ash bricks and blocks, to be able to service customers at affordable costs and support the construction of eco-friendly houses in rural and peri-urban regions in a decentralised model.

Impacts

• Over 1000 enterprises created

• 1.1 million metric tonnes of soil saved

• 700,000 metric tonnes of waste utilised

• 130,000 metric tonnes of carbon emissions saved ■

Endnotes:

¹ Environmental Orientation of Small Enterprises: Can Microcredit-Assisted Microenterprises be “Green”?

² Brief on Small and Medium Enterprises (SMEs) Finance, 2015

³ MSME Finance in India, IFC Report, 2012

⁴ Economic Times, 2013

Chitrangna Dewan
cdewan@devalt.org