MSMEs Empower India's Workforce: McKinsey Global Institute Report

According to a recent report by the McKinsey Global Institute (MGI), micro, small, and medium enterprises (MSMEs) play a pivotal role in India's employment landscape, contributing 62% to the workforce. This figure, while substantial, falls slightly below the 77% seen in other emerging economies. The report sheds light on the significance of MSMEs in driving employment and economic growth in India.

MSMEs: Engine of Employment

Driving Workforce Participation:

The MGI report underscores the vital role played by MSMEs in India's employment landscape, with these enterprises accounting for a significant 62% of total employment. This figure highlights the substantial workforce contribution of MSMEs, indicating their critical role in sustaining livelihoods across the nation.

Key Findings of the MGI Report

• Employment Powerhouse: MSMEs are the driving force behind a significant portion of India's workforce. The report states that MSMEs contribute a staggering 62% to employment in India. This figure, however, is lower compared to other emerging economies, where MSMEs contribute an average of 77% to employment.

• Value Added Potential: While MSMEs are a major job creator, their contribution to the overall business value added in India is lower compared to other emerging economies. The report reveals that MSMEs in India contribute 30% to the total business value added, with a higher concentration in sectors like manufacturing, professional services, and information and communication technology (ICT). This figure stands in contrast to the 49% contribution observed in other emerging economies.

• Micro-MSME Dominance: An interesting aspect highlighted in the report is the dominance of micro-MSMEs within the Indian MSME landscape. These micro-enterprises, though significant job providers, haven't significantly contributed to the growth of larger companies. The report states that only around 10% of the workforce in top Indian companies comes from micro-MSMEs, compared to nearly 20% in other sample countries studied.

• Productivity Gap: The MGI report also points out a productivity gap between MSMEs and large companies in India. MSMEs in India are found to be only 26% as productive as large companies, which is comparable to the average productivity gap of 29% observed in other emerging economies.

• Learning from Developed Economies: The report draws a comparison with wealthier economies, where a larger share of employment transitions from micro-enterprises to small and medium-sized enterprises, or even larger corporations. This trend of scaling up, through acquisitions, mergers, or creative destruction, leads to a higher contribution of large businesses to the national output in developed economies.

• MSMEs and Large Businesses: A Symbiotic Relationship: The report emphasizes the interconnectedness of MSMEs and large businesses. Author Anu Madgavkar, Partner at McKinsey Global Institute, highlights that interactions between these two segments can be mutually beneficial, creating a "win-win" situation for both small and large enterprises.

• Bridging the Gap: A Path to Higher GDP: The report concludes by emphasizing the potential economic benefits of narrowing the productivity gap between MSMEs and large companies. It suggests that addressing this gap could contribute to an increase of approximately 10.5% in India's GDP. Key sub-sectors that could benefit significantly from improved MSME productivity include computer programming & information services, telecommunications, broadcasting, professional services like accounting and engineering, and manufacturing sectors like basic metals, chemicals, electronics, automobiles, and auto components.

Conclusion:

The McKinsey Global Institute report underscores the pivotal role of MSMEs in India's employment landscape and economic growth trajectory. Addressing productivity challenges and fostering collaboration between MSMEs and larger enterprises are key to unlocking India's full economic potential and ensuring inclusive growth.