28 Jun
27th of June is celebrated as the national MSME day. MSME’s not only play a crucial role in the economic scenario of India but are of great global relevance. According to the World Bank small and medium enterprises play a major role in most economies of the world and particularly in developing countries. They represent 90% of global businesses and contribute to more than 50% of the employment. The World Bank estimates that around 600 million jobs would be needed by 2030 to absorb the growing global work force which makes the development of SME sectors a priority for most governments. In India the MSME sector has emerged as a highly vibrant and dynamic one. It provides large employment opportunities at comparatively lower capital cost than large industries and is a important vehicle of industrialization of rural and backward areas. The MSME sector in India contributes about 29% of GDP and 31.83% of Gross value add. It also contributes 48.10% to exports and creates employment for almost 11 crore people. It is clear that MSMEs are the growth engine for the Indian economy.
There have been different definitions of MSME sector from time to time but the latest one is applicable from 1st July, 2020. Now any industry having investment in plant and machinery upto rupees 50 crore and annual turnover not more than 250 crore qualifies as being a MSME. The limits have presumably been expanded on the request of certain sections of industry with the idea of bringing more units under the ambit of MSME and also taking advantage of economies of scale. However, to my mind this new definition compromises the interest of the micro sector which accounts for 99.47% of the total units under MSME and provides 96.96% of employment. A micro industry is defined as one having investment up to Rs. 1 crore and turnover less than 10 crore. It creates a situation where the larger units in MSME corner all the benefits of the various government schemes. The highest numbers of MSME are in the state of Uttar Pradesh, which is 14% of the total. The employment generated by MSMEs is almost equal for manufacturing, trade and other services.
Despite its obvious importance to the Indian economy, the MSME sector continuous to face several challenges like availability of adequate and timely credit, high cost of credit, collateral requirements, retention of skilled people and access to equity capital and rehabilitation of sick enterprises etc. Most of the micro units are not registered or mapped which constraints the ability of the government to develop them. Further, one of the biggest hurdles is the lack of financing as most banks and financial institutions are reluctant to meet the credit needs of the MSME sectors. This may be because of their past experience of a high ratio of bad loans. In addition, the MSME sector suffers from a huge delay in payments made to them including from the government and others. Since most of the MSME units are in the unorganized sector there is a lack of reliable and updated data base. Moreover, because of its poor paying capacity, this sector faces shortage of skilled man power resulting in not being able to have the desired managerial capabilities.
Since, most of the units in MSME belong to the micro sector, it is this sector which plays a major role in generation of new employment. We are all aware that India has the largest number of people in the working age and more and more young people are becoming ready for employment. Today, the biggest challenge that the Indian economy faces is creating enough employment to absorb the youth entering the labor force. It is essential that the right kind of focus and emphasis be given to the micro sector. It is recommended that a special cell for the micro within MSME sector should be created so that the problems of this sector are addressed.
There is no doubt that government of India and the state governments have introduced numerous schemes for the development of the MSME sector. To provide technical education to MSME sector the government has introduced the technology centre system programmes under which technology centers have been developed for giving technical education and support to MSME. Steps have also been taken to register these units in an easy manner on various digital platforms. The MUDRA (micro unit development and refinancing limited) is also a significant step in providing employment to the small entrepreneur. There are schemes like credit guarantee scheme which was especially announced as a relief during the Covid period and then there is PMEGP (prime minister Employment generation programme). The state governments have also introduced their own schemes like ODOP (one district one product) that has been introduced by UP government. To enable the MSME sector to get the benefit of the schemes the government has assured a single window clearance thereby ensuring that the entrepreneur does not have to run from one department to another to get the requisite permissions. The governments have also been giving capital subsidy, interest subsidy, GST refund and reduction in stamp duty. Several state governments have prescribed up to 20 to 25 % preference given to MSME sector in government purchases.
One finds that there is lack of awareness amongst the MSME entrepreneurs about the plethora of government schemes which have been formulated for their benefit. Moreover, even if they know about a scheme they are not able to access the benefits as they do not have the required skill set to do so. As a beginning, large scale efforts need to be made to make the entrepreneurs aware of government scheme and also to train them so that they know how to apply for various schemes, what documents are to be furnished etc. A continuous process of handholding is required, particularly, for the micro sector.
If the micro sector and the entire range of MSME have to play their important role in the Indian economy then certain steps need to be taken on priority. To begin with the definition of MSME sector needs to be relooked in to. At least a certain percentage in all government schemes should be reserved for the micro sector to enable them to take benefits of the opportunities. If separate targets are fixed for the micro sector then the bankers also will not be reluctant to extend credit to them. One of the major problems plaguing the MSME sector is that of pending payments. The government of India has announced that payments would be made within 45 days but this is not happening in reality. There is great requirement to establishing a payment recovery tribunal for MSMEs to ensure this. In the preferences purchase policy of the government the 25 % purchase from MSME sector must be made a reality and it should be seen that on fabricated grounds of poor quality this benefit is not denied to them. Once again a separate quota is required for the micro sector in this policy. Most of the governments are now making purchases through the digital GEM Portal which has several advantages and acts as a check on corruption. However, even here in actual practice things work against the interests of the MSME sector as the tender specifications are often designed in a manner that tends to favor some large enterprise and tends to exclude the MSME sector from its ambit. A major capacity building programme for MSME sector should be launched. Having an escrow mechanism to ensure payments to MSMEs from government should also be considered. Above all to enable the MSME sector to get funds from the market there is a need for a separate MSME stock exchange to be developed.
The governments keep focusing on bringing in new investments and setting up new units and no attention in paid to the grievances of the existing units. A framework to redress the grievances needs to be formulated and a policy is required for the revival and rehabilitation of sick MSMEs. Finally, a proper MSME data bank must be developed in order to formulate the right kind of polices and channelize their benefits to the MSME sector.
In conclusion, one must appreciate the attention being given to MSME sector both at the central government level and in the state governments. However, this sector still remains challenged and persistence and greater efforts are required to make this sector viable to allow it to fulfill the role of being the growth engine of economy.
