Day 31 – Q 4.The small and medium enterprises hold the key for accelerating India’s economic growth? Elucidate.
4. The small and medium enterprises hold the key for accelerating India’s economic growth? Elucidate.
लघु और मध्यम उद्योग भारत की आर्थिक वृद्धि को गति देने के लिए महत्वपूर्ण है? स्पष्ट करें।
As India gears up to retrace the high growth path, the Micro, Small and Medium Enterprises sector assumes a pivotal role in driving the growth engine. This sector in India continues to demonstrate remarkable resilience in the face of trailing global and domestic economic circumstances.
Importance of small and medium enterprises in India’s economy:
- Present contribution of the sector to overall economy: The share of MSME Gross Value Added (GVA) in total GVA during 2016-17 was 31.8% and Exports’ contribution which currently stands at 50%.
- Employment generation: The small and medium enterprises account for 11.10 crores jobs, becoming the 2nd largest employment provider. SMEs are thought to have lower capital-output and capital-labour ratios than large-scale industries, and therefore, better serve growth and employment objectives.
- Helps in inclusive growth: the larger population in India is involved in the economy in a big way through the SMEs. It focuses on empowering people to break the cycle of poverty and deprivation, on people’s skills and agency.
- Checks rural-urban migration: In the village, a person may at least live a dignified life, but when he becomes a slum dweller in the city, what he is put through is quite terrible. Not only do MSMEs generate the highest employment per capita investment, they also go a long way in checking rural-urban migration by providing people living in isolated areas with a sustainable source of employment.
- Increases export potential and promote sustainable growth: The share of MSME related Products in total export from India during 2018-19 is 48.10%. A major portion of the exports from SMEs are handcrafted and eco friendly and thus help in sustainable growth.
- Strong backward linkages: They act as ancillary industries for Large Scale Industries providing them with raw materials, vital components and backward linkages. For ex: large scale cycle manufacturers of Ludhiana rely heavily on the MSMEs of Malerkotla which produce cycle parts.
Challenges for the growth of SMEs:
- Deficiency in basic infrastructure: Such as water, rail, digital connectivity, electricity etc rendering them less productive in several stages.
- Difficulty in access to capital and thus, heavy dependency on informal sources of credit.
- Slow market penetration and weak design as a market driver.
- Lack of latest technology.
- Reduced competitiveness compared to imported products.
- Weak expansion and confinement to rural India and thus problem of a huge number of unregistered SMEs.
- Lack of skilled labour.
- Increase in red tapism and bureaucratic difficulties.
However, many of the obstacles and shortcomings have been addressed in the recent years:
- Policy support: MSMED Act 2006 and subsequent amendment in 2018, National Apprenticeship Promotion Scheme, Revamped SFURTI (Scheme of Fund for Regeneration of Traditional Industries), ASPIRE (A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship), MSME Outreach programme in 2018 etc. Prime Minister’s Employment Generation Programme (PMEGP) alone generated employment of 5.87lakhs (number of persons) in micro enterprises during the years 2018-19 only.
- Infrastructure strengthening: MSME Samadhaan, Udyami Mitra Portal, MSME Sambhandh, Zero Defect-Zero Effect scheme, Cluster Development Programme, National Manufacturing Competitiveness programme (NMCP) etc.
- Credit and financial strengthening: Through Technology Development and Acquisition Fund (TADF), Trade Related Entrepreneurship Assistance and Development Fund (TREAD), Mudra Loan scheme, Trade receivables discounting system (TReDS) etc.
- Definition of MSMEs: Classifying MSMEs from current investment in plant and machinery criteria to annual turnover criteria, compliant with the formally introduced GST regime.
What can be done?
- Recommendation: Kochi based Institute of Small Enterprises and Development at the South India MSME Summit 2019 in Bangalore in its report recommends an entitlement approach that can have the potential of compelling all related stakeholders to work on a common national agenda and solutions under a scientifically structured framework.
- Availability of Uncollateralized Credit: Create or sponsor multiple streams of credit funding for legitimate MSMEs as most service MSMEs do not have hard assets against which to secure credit.
- Free or Subsidized Education and Training in Business Management: Publicly funded colleges and universities must be set-up to create free or subsidized curricula for MSMEs to gain business knowledge and related skills.
- Simpler Business Registration and Insolvency Regulations: Make it easier to form new businesses and to suspend operations or restructure with adequate insolvency protection as is the norm in most countries.
The Indian MSME sector is poised for rapid growth and integration with major global value chains. Timely policy intervention and due support will definitely result in rendering the Indian MSMEs globally competitive. Thus, the emerging focus of India’s MSME policy should aim at covering the entire lifecycle of MSMEs to ensure a healthy, vibrant and competitive MSME sector.