By Shashvat Rai
Ease of doing business for MSMEs: India has a fast-growing segment of enterprises across agriculture, affordable healthcare, affordable education, financial inclusion, renewable energy, water and sanitation, among others in remote areas creating significant positive social impact. These include MSMEs, startups, and not-for-profit companies. Section 8 of the Companies Act 2013 allows the formal recognition of enterprises from only the not-for-profit section of this segment. This hampers the proliferation of directed schemes by the government that can otherwise aid this large and vital section of the Indian economy, which currently faces several challenges including the lack of precedents of successful business models to follow, capital, human resource scarcity and challenging geographic areas of operations. In the upcoming fiscal budget, there are a few areas that the government can consider towards aiding the development of a social enterprise ecosystem in India –
Formal recognition of social enterprises – Impact Investors Council (IIC) has recommended a broader definition of social enterprises to Niti Aayog, which captures the form, sectoral focus and intent of enterprises eligible for getting categorized under ‘social enterprises‘. SEBI also recently came up with the framework for a ’Social Stock Exchange’, which also outlines eligibility criteria for social enterprises. In order to create the support system for the social enterprise segment, it is critical that the Ministry of Corporate Affairs (MCA) in the budget takes cues from these recommendations and formalizes the distinctive identity of social enterprises under the Companies Act.
Capital support – Impact investors play a critical role in the development of the social enterprise ecosystem through capital and advisory support, however, India has attracted a cumulative impact investment of only $9 billion to date as per IIC, with foreign capital providers being the dominant contributors so far. The level of participation by domestic private capital is on the rise over the past few years but that needs to be complemented with government support in form of a dedicated Fund of Funds for impact investors that can be managed by experienced entities such as SIDBI and NABARD, who have the expertise of managing such pools of capital.
Supporting infrastructure – The government needs to continue its focus on infrastructure projects creating better road and rail connectivity to rural and semi-urban India. After a path-breaking success in furthering digital payments across India, digital penetration in other sectors such as agriculture, education, healthcare and financial inclusion is on the rise. Provisioning adequate budgets under relevant ministries for hardware, software and connectivity at service delivery points such as schools, colleges, hospitals, mandis, warehouses etc., is vital to advance digital penetration by social enterprises and other entities in rural and semi-urban India.
Also read: Budget 2023: Fixing MSMEs’ delayed payments, credit, GST related issues must, say experts
PLI and export-linked subsidy schemes – The current PLI scheme captures 14 industries with subsidy support of Rs 1.97 lakh crores over a five-year period, to promote Make in India in select industries. The inclusion of social enterprises involved in manufacturing utility products for the underserved segments of society should be considered. For instance, companies making affordable sanitary pads for low-income population shall benefit from such support. Additionally, there are several companies involved in creating global supply chains for Indian artisans, farmers, and MSMEs who need support and targeted export-linked subsidy schemes can help them grow alongside the vulnerable sections of the society that they work closely with.
Tax relief – Social enterprises should be considered for direct and indirect tax reliefs owing to the significant societal impact that they create. This can also be achieved via a system of measurable impact credits that firms can use to set off their overall tax liabilities.
Employment generation – Relevant ministries such as the Ministry of Rural Development and the Ministry of MSME need to work hand-in-hand with social enterprises to create defined schemes that can benefit firms that generate rural employment or that promote MSME development through structured interventions such as market linkages to support the necessary themes of reverse migration from congested urban clusters and broadened employer pools necessary for the Indian economy.
Sustainability and climate – Net zero ambition of global economies needs support from multiple stakeholders including startups working on innovative technologies around green hydrogen, electric vehicles, carbon sequestration to advisory companies advising the public and private sectors to reduce their carbon footprint. Given the significant work required in these areas, the central government should allocate pools of capital to foster the incubation and acceleration of such entities, along with the continued regulatory push to industries to adopt these technologies to meet their carbon emission goals.
Holistic development of the Indian economy in line with the UN Sustainable Development Goals requires thrust on the social enterprise ecosystem via budgetary and policy support from the Indian government and the upcoming fiscal budget can put some key enablers in place.
Shashvat Rai is the Director at Aavishkaar Capital. Views expressed are the author’s own.
The 2nd edition of FE Aspire’s SMExports Summit is here. Register now to book your seats!
