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MSMEs will have to grow big for India to become $5 trillion economy, says expert

Financial Express 2019-08-11 18:33:15

Ever since Prime Minister Narendra Modi envisioned doubling of Indian economy to $5-trillion size in five years, economists and pundits have been debating on whether that’s achievable and how if it is. Nonetheless, it is quite certain that for India to hit that target, its micro, small and medium enterprises (MSMEs) will have a very prominent role to play, if not the biggest role. MSMEs, which contributes 29 per cent to India’s GDP, and mid-sized firms will have to grow big to increase the number of large firms in India from 500 to 2,500 for the country to become a $5 trillion economy, according to Gautam Kumra, Managing Director, McKinsey India.

“We have to generate another 2,000 large firms to really establish that kind of economic growth rate. This will only happen if more of the MSMEs become bigger and more of the mid-sized firms become large firms,” Kumra told ET Now in an interview cautioning that the number of companies turning large annually has been stagnant since last five years.

Despite being regarded as the engines of economic growth, MSMEs have been continuously facing challenges around lack of access to credit, poor technology adoption and awareness, weak marketing strategies, low access to affordable yet skilled labour etc., that leads to low production capacity. Hence, it is critical to incentivising their growth and scale.

“If it is a game about productivity then you have to fix the composition of each and every sector,” said Kumra, or “what is the right comparative industry structure to create,” he said, in order to create “a playing field where the smaller companies are encouraged to actually become large.”

Kumra also stressed on the significance of the startup ecosystem in the time to come. India already has 26 unicorns including the likes of OYO, Paytm, Ola, Byju’s, Zomato, Swiggy, etc., while the startup ecosystem is the third-largest globally after the US and the UK in terms of the number of technology startups. “These are trends that are likely to sustain for time to come because this trillion dollars of value that is going to be created is not going to be just owned by the existing incumbents,” he said, adding that multiple new companies are likely to come up in areas such as consumer, agriculture, logistics etc.