IAS Gyan

Daily News Analysis

INDUSTRY 4.0 and MSME

27th August, 2021 Economy

Context:

  • Adopting Industry 4.0 technologies would make MSMEs more efficient and competitive.

Background

  • The term ‘Industry 4.0’ was coined by the German government in 2011.
  • Additive manufacturing, Internet of Things, Cyber Physical Systems, Augmented Reality/Virtual Reality and data analytics are some of the technologies associated with Industry 4.0.
  • Micro, Small and Medium Enterprises (MSMEs) are expected to become the backbone of India as the economy grows larger who lack basic focus in the direction of Industry 4.0.
  • MSMEs form more than 95% of the industries in India, produce more than 45% of the total manufacturing output and employ more than 40% of the workforce.
  • According to the Economic Survey 2020-21, over 6 crore MSMEs employ more than 11 crore people and contribute roughly 30% to the GDP and half of the country’s exports.
  • MSMEs are also ancillaries to larger enterprises, leading to a seamless supply chain integration. As a result, making MSMEs more efficient will be advantageous for the whole economy.

Industry 4.0

  • Industry 4.0 is the digital transformation of manufacturing/production and related industries and value creation processes.
  • Industry 4.0 is used interchangeably with the fourth industrial revolution and represents a new stage in the organization and control of the industrial value chain.
  • Cyber-physical systems form the basis of Industry 4.0 (e.g., ‘smart machines’).
  • They use modern control systems, have embedded software systems and dispose of an Internet address to connect and be addressed via IoT (the Internet of Things).
  • Industry 4.0 refers to the intelligent networking of machines and processes for industry with the help of information and communication technology.
  • Industry 4.0 is often used interchangeably with the notion of the fourth industrial revolution. It is characterized by, among others

â—‹ Even more automation than in the third industrial revolution.

â—‹ The bridging of the physical and digital world through cyber-physical systems, enabled by Industrial IoT

â—‹ A shift from a central industrial control system to one where smart products define the production steps,

â—‹ Closed-loop data models and control systems â—‹ Personalization/customization of products.

Challenges faced

  • MSMEs face challenges when it comes to adopting new technologies such as Industry 4.0.
  • They lack awareness regarding Industry 4.0 and its benefits.
  • They consider such technologies disruptive and have the potential to demolish their existing system.
  • Industry 4.0 believes in improving the existing system.
  • Scientific literature provides evidence of sensors and WiFi networks being integrated with old machines like lathes and mills to improve their performance.
  • MSMEs will need to make major financial investments to adopt Industry 4.0.
  • Investing in the right set of technologies will need experts and consultants as well.
  • For any new technology to be adopted, an organisation requires a positive organisational culture and the support of people.
  • MSMEs need to believe in the advantages that Industry 4.0 technologies can o er.
  • The frameworks and steps that can assist MSMEs in adopting Industry 4.0 technologies have been missing.
  • In this regard, MSMEs need to understand the data they are producing from all their operational activities.
  • Based on such data, their readiness can be evaluated.
  • Finally, MSMEs should develop their own vision of Industry 4.0 technologies that they want to adopt and identify the relevant tools and practices they need for such a tailored vision.

 

Micro, Small and Medium Enterprises Classification 2020

Size of the Enterprise

Investment and Annual Turnover

Micro

Investment less than Rs. 1 crore

Turnover less than Rs. 5 crore

Small

Investment less than Rs. 10 crore

Turnover up to Rs. 50 crore

Medium

Investment less than Rs. 20 crore

Turnover up to Rs. 100 crore

 

Importance of MSMEs for Indian Economy

  • Employment:It is the second largest employment generating sector after agriculture. It provides employment to around 120 million persons in India.
  • Contribution to GDP:With around 36.1 million units throughout the geographical expanse of the country, MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities.
  • MSME ministry has set a target to up its contribution to GDP to 50% by 2025 as India becomes a $5 trillion economy.
  • Exports: It contributes around 45% of the overall exports from India.
  • Inclusive growth:MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society.
  • For example: Khadi and Village industries require low per capita investment and employs a large number of women in rural areas.
  • Financial inclusion:Small industries and retail businesses in tier-II and tier-III cities create opportunities for people to use banking services and products.
  • Promote innovation:It provides opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.