State Of The Economy 2014

Get the basics right

Boston Consulting Group partner and director Arun Bruce on how India can take its MSMEs to the level of Mittelstand

Unveiled three years back, the 2011 manufacturing policy was the most aspirational piece of document the country ever produced after years of manufacturing history. So what we were looking at is manufacturing accounting for 25% share of GDP by 2022 (from 16% at that time) and 100 million additional jobs. Unfortunately, since then, not only have we not moved towards our goal, we have actually gone the other way around, with manufacturing growth slipping to near zero over the past two years. While an overall demand slowdown has been widely blamed for this slump, there are several fundamental issues that stand in the way of our achieving this ambitious goal. The purpose of this article is to highlight just two of them. The first is less talked about, and the second better known, but still deserving of a mention given the lack of change.

Fixing our weakest link — MSMEs 

India Inc’s supply chain is over-dependent on MSMEs (micro, small and medium enterprises) and, considering that the sector employs over 80 million across 36 million units, and contributes 45% to industrial output, remains a vital cog in the manufacturing wheel. This overdependence by itself is not a problem. German SMEs, popularly known as the Mittelstand, have for long been driving the region’s economy and have established a name for themselves globally for innovation and efficiency.

What is problematic is the fragility of our MSMEs. The German Mittelstand companies are highly specialised and, therefore, efficient and innovative. This efficiency and innovation translates into s

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