New Delhi, May 4 (KNN) India's Micro, Small, and Medium Enterprises (MSMEs) contribute a smaller share to employment and economic output compared to their counterparts in other emerging economies, according to a new report released on Thursday by the McKinsey Global Institute (MGI).

The report states that MSMEs in India account for 62 per cent of employment, significantly lower than the 77 per cent average across other emerging markets. 

Additionally, their contribution to the overall business value added in India stands at only 30 per cent, in contrast to 49 per cent in comparable economies.

“The majority of MSME employment in India is within micro-enterprises, which have only contributed around 10 per cent to the top cap companies over time, in contrast to approximately 20 per cent contribution observed in other sample countries,” the report notes.

On the productivity front, the MGI report indicates that MSMEs in India are only 26 per cent as productive as large companies, a figure comparable to the 29 per cent average across emerging economies. 

The report suggests that as economies progress and become wealthier, a transition occurs where employment shifts from micro-enterprises to small, medium, and larger corporations, leading to an increased contribution from larger businesses to national output.

Anu Madgavkar, a partner at McKinsey Global Institute and the author of the report, emphasises the interdependence of MSMEs and their interactions with larger enterprises. "No MSME operates in isolation. Its prospects are influenced by its interactions with other enterprises, and these interactions can be mutually beneficial: a win-win situation for both small and large businesses," she states.

The report estimates that narrowing the productivity gap between MSMEs and larger firms could contribute approximately 10.5 per cent to India's GDP, primarily driven by sub-sectors such as computer programming, information services, telecommunications, broadcasting, accounting, architecture, engineering, manufacturing of basic metals, chemicals, electrical and electronics, automotive, and components.

Furthermore, the report highlights that the productivity of both small and large companies tends to be higher when they engage with each other, particularly in business-to-business interactions. 

In two-thirds of global subsectors, the productivity gap between MSMEs and large companies is 40 per cent smaller when MSMEs are engaged in business-to-business interactions, often with larger entities, compared to those primarily dealing with individual customers.

(KNN Bureau)