Dr. Arvind Kumar*
As we navigate a new development course in a changing world, the importance of Micro, Small, and Medium Enterprises (MSMEs) and the circular economy is crystal clear. MSMEs, which account for 90% of businesses, more than 70% of employment, and 50% of GDP worldwide, remain the core of the economy for most societies. Around the globe MSMEs are catalysts for economic inclusivity. In India MSMEs contribute to approximately 8% of GDP, employ over 60 million people, and hold a substantial share of 40% in the exports market and 45% in the manufacturing sector. Therefore, they are of paramount importance for the overall economic development of India. Micro, Small, and Medium-sized Enterprises (MSMEs) are pivotal contributors to economic growth, particularly in developing nations, where they play a pivotal role in the creation of employment opportunities and the advancement of global economic development. Small companies also offer various opportunities in the rural and urban areas of the country. The Indian economy generally experiences unemployment and small firms have helped increase the employment chances for the people. We have witnessed rapid growth in start-ups. According to the Ministry of Commerce and Industry, the recent start-ups of around 10,000 were approved and Tier-2 and Tier-3 cities are said to account for 49% of the start-ups.
We are vying to become Viksit Bharat by 2047, to achieve that it is not enough to accelerate growth, but the growth should be inclusive. With declining employment elasticity of growth, absorbing an increasing number of people entering the workforce has been a challenge and will continue to be so in the next 25 years when the population is expected to peak. Although it seems farfetched but MSMEs are a tool that can lead towards achieving that goal.
However, it’s not all smooth sailing, the current state of affairs presents a multifaceted challenge. Currently, MSMEs need to register under various schemes. This adds to their administrative burden and also creates confusion and duplication of effort. First, despite 31% of unorganized firms that are registered under various schemes such as GST, the Ministry of Corporate Affairs and Udyam, make it challenging to consolidate information for government support and this also adds to their administrative burden and creates confusion and duplication of effort. Second, registered enterprises represent less than 1% of all enterprises, and the presence of small and medium-sized enterprises is minimal. Third, a significant majority of enterprises are own-account enterprises (OAEs), constituting a vast segment, often overlooked in policy discourse.
Why despite so many MSMEs and startups we have rampant unemployment in the country?
Why having skilled work force the airports and bridges crumble under the first downpour of the season?
What are the pre requisites to achieve Viksit Bharat?
Formal policy recommendation
Globally as per economists India is a force to reckon with particularly for its global manufacturing, investment, and growth capabilities. India’s GDP grew by 55%, overtaking countries like the U.K., France, Italy, and Brazil to become the world’s fifth-largest economy. The IMF projects it will likely expand by 6.3% this year—no small feat for a trillion-dollar economy. To become a five trillion economy the government has to lay down the key priorities for the next five years as well as the policy prescriptions that are required.
According to de Guzman of Moody’s, the relatively large share of the labour force involved in agriculture renders the broader economy susceptible to climate shocks, such as irregular monsoons, flooding, as well as heat and water stress. Low and unevenly distributed incomes, as well as unequal access to high-quality education and other basic services, could also impair progress towards sustaining high growth over the medium- to long term, if not addressed. Moreover, India’s investment climate and regulatory quality-while having shown significant improvement over the past decade-remain weak when compared to many of its emerging market peers, although gains in addressing other shortcomings such as poor infrastructure have contributed to the resilience of growth in recent years.
Despite continuous efforts by successive governments, challenges remain. More reforms are needed to further improve the ease of doing business by ensuring faster regulatory clearances, say experts. The notification of the long-pending four Labour Codes, further land reforms, a national e-commerce policy as well as regulation of the digital economy are some of the pending items on the policy reform table. Lot more capital and reforms are needed to bring in global investors. India still needs to improve its physical infrastructure and raise the foreign investment ceiling in various sectors as well as privatise the non-performing, non-strategic central public sector undertakings.
Even though the government has many initiatives supporting the MSMEs financially, accessing financial help still remains a problem because of a lack of awareness. MSMEs must be aware of available credit options and the processes involved in accessing them. We are unable to make our youth our populace aware about the various schemes, programmes, financial inclusion missions that are initiated by the government. The focus has to be there on enhancing digital literacy and virtual collaboration skills among the youth and workforce. This enables seamless remote operations and ensures business continuity in the face of unforeseen disruptions.
Agriculture should be brought in the fence of MSMEs because Agri MSMEs can form the backbone of the rural economy by providing livelihood opportunities to millions of farmers, creating entrepreneurship opportunities for women and the youth, and empowering marginalized communities – resulting in higher rural incomes and reducing rural poverty. The most common problem that all small-scale businesses have faced, and are still facing is of credit. MSMEs struggle to obtain financial assistance due to several factors like absence of collateral, lengthy paperwork, and lack of trust in loan repayment capabilities. These obstacles remain despite the government’s conscious effort to provide easy credit line to MSMEs.
Way Forward
MSMEs need efficient coordination between central and state governments and the significance of having a comprehensive MSME policy that serves as a one-stop resource for firms seeking incentives and programs. Furthermore, governments at all levels must enhance awareness of these incentives and programs to facilitate wider adoption and utilization by MSMEs. The allure of a one-size-fits-all policy must be resisted – particularly in manufacturing which shows more heterogeneity across states. The path forward lies in blending the pursuit of common goals with the flexibility to adapt to state-specific requirements. In line with India’s leadership in discussions around “Common but Differentiated Responsibilities,” the national policy should encompass both the common and the unique, permitting adaptability while adhering to best practices. To create a vibrant and inclusive ecosystem for MSMEs, a there should be present an opportunity for diversification, encouraging a broader range of activities within the sector that can stimulate women empowerment, innovation and competition and also transparency which was made into an issue in the concluded general elections. As India aspires to amplify its economic footprint and global influence, nurturing the growth and recalibrating the MSME ecosystem becomes an essential chapter in its journey towards sustainable development and prosperity.
*Editor, Focus Global Reporter
