RESEARCH PAPER on

INFORMATION TECHNOLOGY AND MSMEs DRIVING INDIAS GROWTH AHEAD

Presented to
Centre for Management Studies, Jain University

At
International Conference on
RE-SCRIPTING INDIAS GROWTH STORY
April 2015

By
R M Sudhakar
(Research Scholar Jain University, Aug 2012 Batch)
Director & CEO, Netsoft Group,
No. 2453, 9 Main, 17 E Cross, BSK 2 Stage, Bengaluru 560 070
Email: sudhakar@netsoftgroup.in, Ph: +91 9886795676
&
Dr. Y Vijayakumar
(PRINCIPAL, Shirdi Sai Engineering College, Bengaluru)

Information Technology and MSMEs Driving Indias growth ahead

RM Sudhakar, Research Scholar Jain University, Director & CEO, Netsoft Group,
Dr. Y Vijayakumar, Professor & PRINCIPAL, Shirdi Sai Engineering College, Anekal, Bengaluru

INTRODUCTION

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last five decades. There are some very interesting
facts about MSMEs on the Government of Indias MSME website. It states that MSME contribute
nearly 8 percent of the countrys GDP, 45 percent of the manufacturing output and 40
percent of the exports. They provide the largest share of employment after agriculture. They are
the nurseries for entrepreneurship and innovation and widely dispersed across the country and
produce a diverse range of products and services to meet the needs of the local markets, the global
market and the national and international value chains. There are lot of schemes and programs by
the government for these MSMEs.

There are about 46 million MSME units across the country employing about 106 million people
and they play a pivotal role in growth of India's economy evidently as they contribute about 45 per
cent of industrial output, about 40 per cent of exports, create over one million jobs annually and
produce over 8,000 varied quality products. Absence of adequate and timely banking finance,
poor infrastructure facilities, limited capital and knowledge, use of primitive technology, low
production capacities, ineffective marketing strategies, dearth of skilled labour, taxes and
regulations are certain major hurdles being faced by the MSME sector and their removal is
imperative for developing a smooth business environment in India.

Micro, small and medium enterprises as per MSMED Act, 2006 are defined based on their
investment in plant and machinery (for manufacturing enterprise) and on equipment for enterprises
providing or rendering services. The present ceilings on investment for enterprises to be classified
as micro, small and medium enterprises are as follows:

Classification

Manufacturing Enterprises (In

Service Enterprises (In

Rupees)*

Rupees)**

Micro

< Rs. 25 lakh

< Rs. 10 lakh

Small

> Rs. 25 lakh 5 crore

> Rs. 10 lakh 2 crore

Medium

> Rs. 5 crore 10 crore

> Rs. 2 crore 5 crore

* Investment limit in Plant & Machinery ** Investment limit in equipment

Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant and
dynamic sector of the Indian economy over the last five decades. MSMEs not only play crucial
role in providing large employment opportunities at comparatively lower capital cost than large
industries but also help in industrialization of rural & backward areas, thereby, reducing regional
imbalances, assuring more equitable distribution of national income and wealth. MSMEs are
complementary to large industries as ancillary units and this sector contributes enormously to
the socioeconomic development of the country.

There are over 6000 products ranging from traditional to high-tech items, which are being
manufactured by the MSME sector besides providing wide range of services. MSME Sector
consists of any enterprise, whether proprietorship, Hindu undivided family, association of persons,
cooperative society, partnership or undertaking or any other legal entity, by whatever name called,
engaged in production of goods pertaining to any industry specified in the first schedule of Industry
Development & Regulation Act, 1951 and other enterprises engaged in production and rendering
services, subject to limiting factor of investment in plant and machinery and equipment
respectively.

Information Technology (IT) can play the role of an enabler in business and can help the business
to improve its efficiency and effectiveness to gain core competence. MSMEs are not realizing the
importance and significance of technology adoption to change their old ways of doing business.
In MSMEs, IT has been considered in a supportive role instead of a business driver. For MSMEs

IT adoption is a huge challenge because it involves a lot of risk, fear of unknown and uncertainty
about the new changes. The purpose of this paper is to analyze and understand the factors that
stimulate or diffuse adoption of IT in MSMEs.

An attempt has been made in the present paper to bring Information Technology as a business
driver in MSMEs rather than a supportive role by effectively showcasing the profits an
organization can earn with respect to Technology and customer satisfaction.

Boston Consulting Groups (BCG) research found that over the past three years, IT-enabled SMEs,
which BCG refers to as technology leaders, grew revenues 15 percentage points faster and
created twice as many jobs as SMEs that use less technology. The research also revealed that
across nearly all product categories, these fast-growing SMEs use more Microsoft solutions than
any other products, and that SMEs view Microsoft as the top partner for new and future technology
needs. In fact, when asked what technologies survey respondents could not live without, they chose
Microsoft Office as the top productivity application over all others. Moreover, SMEs that adopted
Microsoft Cloud services grew faster than SMEs that do not use any Microsoft products. These
companies also reported greatly improved employee mobility, scalability and agility. The BCG
report argued that the latest wave of technological advancement, such as cloud services, brings
potential for the most far-reaching innovation and business growth ever, creating an opportunity
for more SMEs to achieve the growth rates of technology leaders by leveraging technology to fuel
productivity and growth.

GROWTH AND PERFORMANCE OF MSME SECTOR

Of total 21,304 memorandums of understanding signed during the seventh edition of Vibrant
Gujarat Summit, more than 17,000 relate to micro, small and medium enterprise (MSME) sector
alone. Of these 17,081 MoUs, 6,962 fall in the purview of MSME-IC (Industrial Commissionerate)
while 10,119 in the MSME-GIDC (Gujarat Industrial Development Corporation). In the MSMEGIDC category, where 10,119 MoUs were signed in 33 MSME sectors, the government expects
to get investment of Rs 27,461 crore and 2.04 lakh jobs. In the MSME-GIDC, MoUs in
Engineering, Auto and Ceramics industries dominated with 3,303 MoUs with investment of Rs

7,230 crore. It was followed by Chemicals and Petrochemicals (1,166 MoUs, Rs 3,713 crore
investment), Textile and Apparels (620 MoUs and Rs 2,164 crore investment) and Agro and Food
Processing (564 MoUs with Rs 1,079 crore investment).

Late January 2015 we saw Industry body Assocham and the Institute of Cost Accountants of India
(ICAI) have jointly set up the country's first 'Virtual Centre for Development of MSMEs'. The
Centre will cater as a facilitator to MSMEs by addressing their issues, connecting them to global
research and development (R&D) centres, strengthening industry-academia partnership, skill upgradation and conducting product/industry specific seminars and workshops".

Many multi-national organizations are extending their hands to help MSMEs in India. One such
development is from Samsung. The Ministry of Micro, Small and Medium Enterprises (MSME)
and Samsung Electronics have signed an MOU to set up the MSME-Samsung Technical School,
with an aim to establish a total of ten such schools for conducting joint training programs across
the country. Students will be provided trade-specific training on repair and troubleshooting for
consumer electronics products like mobile phones, home theatres, televisions among others. The
students will also be educated in soft skill to provide good customer service. Samsung has
committed that it will source a lot of parts and components of their products from Indian industries,
especially MSMEs to promote Make in India.

There are quite a few initiatives to boost MSME sector by the government under National
Manufacturing Competitiveness Program (NMCP) scheme. The objective of this component of
NMCP is to sensitize the MSMEs about the benefits that could accrue from usage of energy
efficient technologies, reduction in emissions of Green House Gases, improve the acceptance of
their products by product quality certification, thereby making them globally competitive. The
major activities planned under this component include Capacity Building of MSME Clusters for
Energy Efficiency/Clean Development Interventions, Implementation of Energy Efficient
Technologies in MSME sector, and encouraging MSMEs to acquire product certification licenses
from National / International bodies.

Another objective of this scheme is to enhance MSMEs competitiveness in the National as well
as International markets through various activities such as Technology up-gradation in Packaging,
Skills up-gradation/Development for Modern Marketing Techniques, Competition Studies of
threatened products, Special components for North Eastern Region (NER), Identification of new
markets through state/district level, local exhibitions/trade fairs, Corporate Governance Practices,
Marketing Hubs and Reimbursement to ISO 18000/22000/27000 Certification.

Present Status: Targets have been allotted to MSME-DIs for participation of MSME units in the
domestic exhibitions/fairs, reimbursement for ISO 18000/22000/27000 certification and for
Corporate Governance Practices. Financial assistance of Rs. 298.76 lakhs has been provided to
1987 MSME units under the Scheme upto 31.03.2014.

Promotion of Information & Communication Tools (ICT) in MSME Sector by the

government

The main objective of the scheme is to motivate MSMEs to adopt ICT tools and applications in
their production & business processes with a view to improve their competitiveness in national &
International markets. The likely development outcomes of the scheme will be:

To promote an eco-system of cost effective and all inclusive ICT applications for MSMEs
through Cloud Computing

To establish Inter and Intra Networks amongst Technology Centres and Institutions of
Office of DC, MSME

To enable MSMEs to search for value chain (raw material, experts) online

Adoption of best practices to improve quality of products and services

Reducing delivery cycle time

IT as a medium of communication to revamp access to the markets, enhanced access

empowers the market to undertake direct, faster and better transactions.

Evolving internal efficiencies by way of intense ICT intake and automating procedure for
cost reduction and capacity enhancement for information access, processing, collaboration
and dissemination.

These objectives will be achieved by expediting ICT interventions through Cloud computing
among MSMEs.

Bar Code Scheme

Scheme for Market Development Assistance for SSI Exporters (SSI-MDA) Scheme has the
provision for reimbursement of 75% of one-time registration fees and annual recurring fees (for
first three years) paid by Micro and Small Enterprises (MSEs) to GS1 India for adoption of Bar
Code. The scheme aims at enhancing marketing competitiveness of MSEs. Financial assistance of
Rs. 493.37 lakh has been provided to 3209 MSEs upto 31st March 2014 for reimbursement of onetime registration fees and annual recurring fees.

Technology Support
Technology is the key to enhance a units competitive advantage in todays dynamic information
age. MSMEs need to develop and implement a technology strategy in addition to financial,
marketing and operational strategies and adopt the one that helps in integrating their operations
with their environment, customers and suppliers. National Small Industries Corporation (NSIC)
offers MSMEs the following technology support services through its Technical Services Centres
and Extension Centres:

Material testing facilities through accredited laboratories;

Product design including CAD;

Common facility support in machining, EDM, CNC, etc.;

Energy and environment services at selected Centres; and

Practical training for skill upgradation

TECHNOLOGICAL DEVELOPMENT IN MSMES

Technology development is a catalyst not only for growth among Indias micro, small and medium
enterprises (MSMEs), but for the growth of the Indian economy as a whole. Many stakeholders,
including the Government of India, technology companies and MSME leaders, recognise that
roadblocks relating to infrastructure, technology and skilled labour must be eliminated to sustain
the growth of MSMEs and ensure their continued contribution to Indias industrial production,
economic growth and employment. In India, medium-sized and large businesses are adopting
technology in major ways, even ahead of their counterparts in Western markets, particularly with
respect to mobile technology. Indias widespread adoption of mobile solutions create a major
opportunity for other countries to learn from the India experience and find new ways to leapfrog
traditional communication means and use the mobile channel to reach huge populations on key
issues of social and economic importance.
Despite Indias global technology case study and best practices, today small business in India is
simply not realising the full potential technology can bring as a game-changer to the old ways of
doing things in their businesses. Although technology adoption considerably increased during the
implementation of the Government of Indias 11th Five Year Plan with its focus on creating a
technology infrastructure and rolling out technology-driven services the use of technology in
MSMEs remains limited. As a result, there is a clear and deeply-felt need to accelerate the pace of
technology adoption in the small business community and disseminate technology across the
bottom of the pyramid and among Indias MSMEs specifically dramatically during the
implementation phase of the 12th Five Year Plan. It is revealed that the majority of micro and
small businesses had a low awareness of and engagement with technology.

Majority of micro and small businesses has a low awareness of and engagement with technology.
Three business types emerged during the qualitative sessions: tech non-adopters, tech
aspirers, and moderate tech adopters.

Tech nonadopters or technology laggards do not employ technology to any great extent and
rely mostly on manual methods. They tend to be older manufacturing, established businesses who
practice old school business development and management.

Tech aspirers represent a mix of service and manufacturing units but tend to be on the smaller
size. The business attitude among this group is ambitious but cautious, as this group is usually
comprised of new entrepreneurs with younger, more inexperienced management. While tech
aspirers have a much higher awareness of the benefits of technology than non-adopters, they also
exhibit low engagement and only adopt technology solutions when they are tried and tested by
others.
The final group moderate tech adopters is the most technology-savvy of the sampling and
uses technology to keep ahead of trends and interact with clients in various aspects of their
business, although not always consistently and without struggle. These businesses are mostly
found in the services sector. Moderate tech adopters have an evolved understanding and use of
technology but this clearly remains at the nascent stage. Although all three types acknowledge the
benefits of using technology, most businesses appear to be applying technology to a limited extent
in business operations. Free and guided associations of technology remain in the functional
realm where technology is viewed as a means to save time and effort. Software usage is basic and
dependent on popular products and established brands. Internet and mobile telephone solutions,
while used for personal purposes, are surprisingly not employed equally across the business as
they are in business owners personal lives. Moreover, there is little Customisation of solutions to
meet specific business needs.

In order to enable SMEs tide-over the problems of technological backwardness and enhance their
access to new technologies, it is imperative to offer them a conducive environment, which in the
present context of globalization, calls for approach with knowledge playing a predominant role.
There is a need to understand and assess the real needs of the SMEs and accordingly devise
approaches that ensure their sustainable growth. The need today is also to leverage on modern
technologies to harness human capabilities through the process of increased communication,

cooperation and linkages, both within the enterprise as well as across enterprises and knowledgeproducing organizations.

IT Industry and MSMEs

Like other sectors of Indian economy, Indian IT sector is also pinning high hopes on the budget
for fiscal year 2014-2015. With the adoption of new technologies like cloud computing and mobile
solutions by SME sector, Indias small and medium enterprises (SMEs) are expected to double
their IT expenditure to over Rs 1 lakh crore (USD 18.6 billion) by 2017-18 , a National Association
of Software and Services Companies (NASSCOM)-Frost and Sullivan (F&S) report has stated.

R. Chandrashekhar, Nasscom President cited that the SME sector faces stiff competition in the
market and to stabilize their volatile condition, technology is the only solution. The study also
emphasized on the fact that Indian SMEs spent an amount of Rs 47,200 crore (USD 8.7 billion)
on IT infrastructure and services in FY 2012-13, which is likely to be doubled soon. He further
added that Indian IT industries need to be SME-oriented and devise products that suit the specific
needs of SMEs. The NASSCOM has always encouraged the SMEs for the adoption of
technology and to boost development and growth of IT companies by aiding them in creating
global presence.

With the adoption of Software licensing and software as a service (SaaS) by SMEs, the
compounded annual growth rate (CAGR) has crossed over 25% and is likely to reach USD 370
million by 2017-18. It is also revealed that out of the total domestic spend of SME on IT, 45% was
spent on hardware, 40% was on IT services and 15% was on SaaS. Only 21% was accounted by
manufacturing and 15% by education.

CHALLENGES AND BARRIERS FACED BY THE MSME FOR IT ADOPTION

Lack of IT awareness

Availability of skilled labor

Finances and affordability

Accessibility

Infrastructure

Inadequate realization of organizational issue

Inadequate realization of end users necessities

Lack of required resources

Business size and fund limitations

Inappropriate government assistance role and supportive regulations

Particular characteristics of organization, culture and family involvement in business

Security and privacy

CONCLUSION
Micro, small and medium enterprises (MSMEs) play a vital role in Indias economy and are an
integral component of the countrys growth strategy. Recognizing the importance of this sector,
the Government of India has expressed facilitating the development of small businesses as a key
policy priority. Indeed, the Government has designed and executed very forward-looking and
impactful programs and schemes to help small businesses succeed in an increasingly competitive
global economy. Nevertheless, there remain a number of challenges that stand in the way of the
growth of this sector, including barriers to technology adoption. This challenge creates an
opportunity for multi-stakeholder solutions where the Government is a leader but also one of many
key expert participants in the solution. There are several associations/organizations at city and state
level to promote MSME segment use IT and also Many IT companies including Microsoft, IBM
are investing on it and providing a better pricing on most of their products for the MSME segment.
Ultimately, we believe that a multi-stakeholder approach a collective effort between the
government, private sector, industry groups, training organizations and MSMEs themselves is
the most effective way to tackle the significant barriers identified through the research, namely:
cost, lack of skilled manpower, lack of awareness, privacy and security concerns, and
infrastructure. Indeed, only through this approach can India truly bridge the digital divide in a

sector that is arguably the most critical to Indias long-term prosperity and sustained economic
growth.

KEY WORDS: MSMEs, IT Industry, IT in MSMEs, Role of IT in the growth of MSMEs

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