MSME (micro, small and medium enterprise) sector is one of the integral parts of Indian economy. It accounts for 17 per cent of the country’s GDP (gross domestic product) and one of the fastest growing sector with high resilience. It was this sector only which continued to grow in very difficult times when the economy was not passing through very good phase for eg. Sub-prime crisis. It has become the foundation over which our vibrant economy stands and grows. Going by the current trends of Indian economy there is a pressing need to develop this sector. MSME sector contributes for about 45 per cent of the total industrial output and 40 per cent of the total export. If one goes through the contribution of this sector in India’s social and economic indicators, we will find that no one can afford to undermine the importance of this sector. Starting with various campaigns launched by the government to lift the economy to the high end growth like Make in India, Digital India, increasing the FDI cap in various sectors etc, it is the development of this sector which can ultimately lead to purposefully achieve the aim behind these initiatives. Secondly, India is having one-fifth of the working age population of the world, it is the youngest country with 64.3 per cent of population in the working age group and every year roughly 12 million people enter the job market. In order to reap the demographic dividend, the country needs a vibrant employing sector, which can be better catered by none other than the MSME sector. It employs 40 per cent of the workforce and it is the largest employment generating sector only next to agriculture. Thirdly, if we want to progress into the group of developed countries, we have to increase the rate of economic growth and MSME is the sector where lies the potential. MSME sector is still untapped; it will be the torch bearer which can take our economy to great heights. The unique feature of our economy is that after being an agricultural economy for decades, it turned to services instead of developing a vibrant manufacturing sector. So manufacturing sector is yet to be tapped to its fullest and it is where the MSME has an emphatic say and can go a long way. Development of manufacturing has got immense benefit to the economy which has been even lauded by our Prime Minister by launching various campaigns like Make in India, Increasing FDI cap etc.. He has given the assurance to the world to provide conducive environment for doing business in order to make India a manufacturing hub. Development of manufacturing will help in generating employment, increasing the level of export, in achieving balanced regional development and wiping off several jinxes to the Indian economy. Making India a manufacturing hub of the world is the main idea behind the ‘Make in India’ concept. It will open various vistas of progress.
As development of MSME sector is the most crucial to a productive and growing economy, still it has been neglected for years. It has been left to grow by itself without any supporting fiscal environment. It struggles on multiple account and faces numerous constraints. It is working in very challenging environment. These challenges are unavailability of adequate finance, poor infrastructure, lack of affordable skilled labour, inflexible labour laws, unavailability of modern technology, lack of bakward and forward linkages etc. As most of the MSME units are in unorganised sector, most of them are self-financed and most of the MSME units start with their own capital and in the absence of adequate finance they are not able to survive and flourish in the long run. They are unable to get finance from the banking channel. With the micro, small and medium enterprises accounting for about a quarter of bad loans, banks are often awry of lending to this sector. However, Banks should understand the uniqueness and versatility of this sector and accordingly devise tailor made products for this sector. According to a study conducted by McKinsey and IFC, a member of the World Bank Group, “In developing countries, formal MSMEs represent around 45 per cent of employment and approximately 33 per cent of GDP. This is even greater when informal MSMEs are included. Despite their importance, the total unmet need for credit by all formal and informal MSMEs in emerging markets today is significant—in the range of $2.1 trillion to $2.5 trillion.”
Lack of modern infrastructure like road connectivity, power, storage unit etc. affects the daily working of the MSME units and hinders their proper growth. Various inflexible and complicated regulatory processes inhibit the various start ups in the industry and further hinders their growth. They also lack in the access of various technologies which makes them uncompetitive and less productive than the MNCs and other world class players. Procurement of raw material at ease and marketing their product is also one of the factors limiting their growth. In the absence of proper linkages, their profitability gets affected and they are unable to get the major chunk of benefits. Labour Laws is the another critical issue which needs to be addressed. Unawareness of the many changes taking place in the contemporary world around them is also one of the troubleshooters for this sector. They are not even aware of the various schemes launched for these sectors and various changes in the marketing techniques used by their national and global competitors. Problems and constraints are not only an end in itself, but it is a good sign that government has realised the potential of this sector well on time. In order to revive this sector, the government has taken a number of steps which comprises policy amendments, procedural simplification and many promotional measures.
It begins with the setting up of MUDRA Bank to help small and medium enterprises via refinancing. The MUDRA comes from Micro Units Development and Refinance Agency (MUDRA Bank). It will address the financing needs of the MSME sector and bring adequate credit flow to the MSME sector. These go further, pruning the list of industries that can be considered as defence industries requiring industrial license, two extensions of two years each in the initial validity of three years of the industrial license permitted up to seven years, removal of stipulation of annual capacity in the industrial license, and deregulating the annual capacity for defence items for Industrial License. Certain instances of inverted duty structure affecting domestic industry have been addressed. The recent amendments in Foreign Direct Investment (FDI) policy include allowing FDI in Defence up to 49 per cent and FDI in Railway infrastructure up to 100 per cent, easing the norms for FDI in construction and exempting FDI in medical devices from sectoral restrictions of pharmaceuticals. Improvement in ‘Ease of Doing Business’ in India through simplification and rationalization of the existing rules and use of information technology to make governance more efficient and effective has been taken up.
Integration of 14 Central Services through the e-Biz Platform has been already completed. The Government has launched ‘Make in India’ initiative with 25 thrust sectors to provide a major push to manufacturing in India. Information on the thrust sectors has been put up on ‘Make in India’s web portal along with details of FDI Policy, National Manufacturing Policy, Intellectual Property Rights and the envisaged National Industrial Corridors including the Delhi Mumbai Industrial Corridor. An Investor Facilitation Cell, with back end support up to the State level has also been created in ‘Invest India’ to assist, guide, hand-hold and facilitate investors during the various phases of the business life cycle. The ordinance has been issued to make land acquisition easier for important projects.
The Government has also developed unified Web Portal Shram Suvidha facilitating industries in allotment of Unique Labour Identification Number (LIN) to units; allowing filing a single self-certified online return for 16 labour laws; enabling random computerised inspections based on objective criteria and facilitating reports to be uploaded by inspectors within 72 hours of inspection.
As the SME sector is critical to the economic development of any nation, it needs continous support and hand holding. All these initiavies are very encouraging and helpful for the MSME sector, if implemented properly at the ground level. It will be helpful in bridging the gap, which has been formed due to difference in the level of support required by the MSME sector and the level of support provided by the government. It can take this sector to great heights which in turn will obviate the long envisaged goal of inclusive development. This is the only sector which can help in eradicating poverty, it can provide employment opportunity to the millions of working age population which every year enters the job market.
It will be very early to make any remarks on the consequential aspect of these schemes. After the implementation of these government schemes, as the time passes, it will unfurl the progress achieved by the MSME sector under various aspects. It has to be seen that these government initiatives taken for the upliftment of this sector are able to serve the purpose or not.
(The writer is a research scholar and the article is prepared under the guidance of Dr Kumar AN Sahdeo)