Why MSMEs need more than mere promises on ‘ease of doing business’ and slogans such as ‘Make in India’

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Updated: Apr 06, 2018 6:32 AM

After the agriculture sector, the micro, small and medium enterprises (MSME) sector is the second-largest employment generator, providing 80% of jobs with just 20% of investment.

MSME, economy, agriculture sector, investment, make in indiaAfter the agriculture sector, the micro, small and medium enterprises (MSME) sector is the second-largest employment generator, providing 80% of jobs with just 20% of investment.

After the agriculture sector, the micro, small and medium enterprises (MSME) sector is the second-largest employment generator, providing 80% of jobs with just 20% of investment. The sector contributes about 31% to the country’s GDP and has a 45% share in overall exports. The MSME sector is the equivalent of the booming middle class in the Indian society, except that it is not going anywhere. It remains hobbled with archaic rules and regulations, with scores of inspectors breathing down their neck, waiting to collect their monthly or yearly handouts. Mercifully, consequent to the introduction of GST and a few other reforms, some irritants have reduced. Typically, a medium-level industry has to file monthly/quarterly GST returns, which has eliminated complex issues of product, service classifications and tax slabs. As of now, there are few complaints, although a couple of years down the line when the actual assessment of GST starts, things may heat up. Monthly provident fund and Employee State Insurance (ESI) returns and half-yearly labour returns are mandatory, but, surprisingly, it is the Legal Metrology Department (formerly the Department of Weights and Measures) that is now proving to be a major source of irritant. It is hard to imagine its role in industries dealing in refrigerators, washing machines, musical and electronics instruments, etc, where it chooses to throw its weight around.

Of course, the big daddies (I-T and Labour Department) are the two ubiquitous government entities that also make their presence felt, but are mostly manageable. With the current inefficient justice delivery system when cases could drag on for years, very few enterprises choose to take a firm stand and challenge the might of government agencies such as labour, ESI, Pollution Control Board, customs, etc. Seriously impacting cash flows are delays in payments by as much as 5-6 months by both public and private companies. This is in spite of government directives which stipulate that MSMEs should be paid all bills within 45 days. Furthermore, banks baulk at providing term loans to MSMEs working in the area of product development or design, for lack of appreciation of the value of R&D. Quick staff turnover is a common problem faced by all MSMEs and is multidimensional in nature. For instance, many entrepreneurs do not aspire to grow since that makes them more vulnerable to labour problems, higher income tax slabs and larger handout demanded for the services rendered. Unfortunately, in the absence of growth, labour tends to seek greener pastures in larger organisations where they may get higher wages for skills learnt as well as protection provided by the established trade unions. Some entrepreneurs also treat their labour shabbily by keeping them as temporary or contract workers on daily wages, especially when the demand is of a fluctuating nature.

Often, PSUs or private companies, particularly in aerospace and defence, prefer imports even though an MSME may have the capability and expertise to develop an equivalent product. Understandably, in case of imports, they do not have to bother about assessing the product performance and quality, since it already has the stamp of approval by a foreign agency, while in case of development by an indigenous manufacturer—even if it is as simple a thing as a screw—some government agency has to approve it, and therein lies the crux of the problem. Nobody wants to be in a position where he or she could be accountable for approving it. This nation will need more than mere promises for bringing about ‘ease of doing business’ and slogans such as ‘Make in India’. The all-powerful babus making themselves aware of ground realities and gaining some domain expertise in each sphere of activity are needed to extend MSMEs a meaningful helping hand, and enable them deliver economic growth as well as jobs—millions of jobs. A 25-year-old MSME classification is based on investment in machinery and plant—those under Rs 25 lakh as ‘micro’,  Rs 25 lakh to  Rs 5 crore as ‘small’,  Rs 4-10 crore as ‘medium’, and above  Rs 10 crore as ‘large’ industries. A recent modification to the MSME Act classifies them on the basis of annual turnover—up to  Rs 5 crore as ‘micro’, from  Rs 5 crore to  Rs 75 crore as ‘small’, and from  Rs 75 crore to  Rs 250 crore as ‘medium’ enterprises. Only time will tell if it will meet the avowed objective of eliminating the need for inspections and making the whole system progressive and evolutionary, while improving the all-important ‘ease of doing business’.

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