By Saket Dalmia
Ease of doing business for MSMEs: MSME sector is the backbone of the Indian Economy and contributes more than 30 per cent of GDP, 50 per cent of exports and provides employment to over 11 crore people. 30 per cent of MSMEs are in the manufacturing sector while 70 per cent are in the services sector. Furthermore, more than 99 per cent of MSMEs are micro enterprises and more than 60 per cent are based in rural areas. An extremely important feature of the MSME sector is that it endorses the ‘Pareto principle’ of 80-20 quite well, that is, with 20 per cent investment it produces 80 per cent of jobs in industry.
Thus, MSME enterprises are of utmost importance in terms of generating employment, securing social stability, eradicating poverty and curbing migration from rural to urban locations. They contribute to the stability of local economies, improving the economic condition of a vast number of low-income families, and have great potential of lifting the masses out of poverty. In fact, the dream of the prime minister to provide work to every hand can be realized only through the MSME sector of the economy.
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The micro segment of the MSME sector is the most employment-intensive segment measured in terms of all three scales of employment intensity (employment per unit of investment in plant & machinery, employment per unit of fixed investment and employment per unit of output). In fact, micro segment is far ahead of the small segment, in each of the three measures of employment intensity.
Two years before the pandemic, the National Sample Survey Office (NSSO) reported a 6.1 per cent unemployment rate in 2017-18, the worst in over four decades. The picture has gotten worse post the pandemic. In September 2022, the Centre for Monitoring Indian Economy (CMIE) estimated the unemployment rate at 6.43 per cen, a large proportion of whom were women. Given the current unemployment crisis in India along with predictions of a global recession, it is crucial to focus on sectors that are able to add value as well generate large-scale employment. In this regard, the MSME sector emerges as a champion with respect to employment generation.
During the pandemic, the government stepped in to save small enterprises. According to Prime Minister Narendra Modi at the Udyami Bharat programme, under the Emergency Credit Line Guarantee Scheme, the central government ensured Rs. 3.5 lakh crore for MSME, which has resulted in saving about 1.5 crore jobs. Time and again the government has stressed on the importance of the MSME sector for job creation and economic growth and has also increased the budget allocation for MSMEs. The prime minister has also given the mantra “Maximum Support to Micro Small and Medium Enterprises” and to this effect the government strives to continuously address shortcomings and needs of the sector to generate employment.
Integrated approach to self-employment
For capitalizing on the treasure at the bottom along with the demographic dividend, the Prabhat Kumar Committee on MSMEs suggested an integrated approach for creating self-employment opportunities. This integrated approach should encompass training, sourcing of appropriate technology, and providing credit and marketing support. This should not only be a complete hand-holding support but also a self-sustaining system for employment creation. A large part of the employment generated by such an integrated model can be self-employment through setting up new small business entities by way of manufacturing, processing and service enterprises.
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For such an integrated model, the first requirement will be to identify low-cost technologies, which can be applied and installed with a small investment and minimum infrastructure. This model should hold the promise of achieving multi-faceted goals of sustainable economic development and the generation of additional employment opportunities by way of promoting entrepreneurship and creating employment. Such an approach can improve the economic condition of young unemployed persons and reduce unemployment in the country.
Scheme for livelihood incubation for self-employment
In order to implement such an integrated model, the government should introduce a scheme for setting up of low-cost livelihood enterprise incubation centers in partnership with government and private academic institutions. In addition, private corporate sector companies, educational institutions, NGOs can also be initiated to establish such incubation centres on a self-sustaining basis. These centres will help nurture potential entrepreneurs to establish new micro and small manufacturing or services enterprises for creating self-employment opportunities. A suitable initial funding scheme for setting up these Centres should be offered by the Ministry of MSME.
In addition, all such incubated entrepreneurs should be given overriding preference in the ‘MUDRA’ financing scheme of the Prime Minister in order to help these trainees to access loans for their businesses. It will in turn also strengthen the ‘MUDRA’ scheme since trained entrepreneurs’ adequately prepared proposals would prove to be more robust and sustainable in running their businesses and meeting repayment commitments. The employment capacity of the MSME sector is five times more than the large industrial sector and therefore ‘responsible financing’ would call for redirecting the bank’s focus towards MSMEs lending. MSMEs have and will be the silent engine for growth, our approach towards them will decide whether the growth becomes inclusive or not.
Saket Dalmia is the President of PHD Chamber of Commerce and Industry. Views expressed are the author’s own.