‘Govt must replace red-tapism with red carpet to attract firms exiting China and for MSMEs to benefit’

Updated: Jun 02, 2020 3:18 PM

Ease of Doing Business for MSMEs: Recently, Japan announced $2.2 billion stimuli to help out Japanese companies moving out of China followed by the US also expressing a similar sentiment to shift its manufacturing companies out of China. This indicates a retaliatory wave or mindset against the country.

India can position itself as an alternative to China as a preferred destination for foreign companies to invest and set shop. (Reuters)
  • By Deepak Sood

Ease of Doing Business for MSMEs: In the post-Covid-19 world order, India can position itself as an alternative to China as a preferred destination for foreign companies to invest and set shop providing the necessary impetus to micro, small and medium enterprises and reinvent itself as a manufacturing hotspot. Recently, Japan announced to set up $2.2 billion stimuli to help out Japanese companies moving out of China followed by the US also expressing a similar sentiment to shift its manufacturing companies out of China. This indicates a retaliatory wave or mindset against the country. There is a strong anti-business sentiment against the Asian giant building across various countries that can unwittingly work in India’s favour.

What India needs to do is come out with the comprehensive policy to replace red-tapism with a red-carpet for these fleeing foreign giants to set shop in India. This would help put the country on top of the global supply chain and benefit domestic MSME sector, which contributes almost 30 per cent to the county’s GDP and employs around 11 crore people. The MSME segment would thus push the economy out of the dual crisis of sluggish growth and economic fallout of the Covid-19 pandemic.

India’s long-term growth potential

India has several advantages in going its way. Firstly, as compared to other countries, India is less battered. It is one of the few countries that stand to post positive growth this financial year, whereas developed nations like the US and the UK are expected to register negative growth. It has a robust and steady inflow of foreign exchange reserves coming-in every year due to the remittances from expatriates. It has a stable government and investor-friendly policies. Countries prefer to invest in countries with strong growth potential.

Owing to the conducive business environment, the country has lured several top global companies looking to set up their manufacturing base in India over the last few years. The country has also jumped several places in its ease of doing business index, which is attracting foreign investors here. Another advantage that India offers is that it is a ready market to sell its finished goods to the growing middle-class segment of the country.

The Make in India scheme, launched in 2014, aims to promote India as a manufacturing hub in varied sectors ranging from defence, leather, agro-products to space and create 100 million additional jobs by the year 2022. Also, several other initiatives, such as Skill India, Digital India, are ensuring a ready stream of industry-ready workforce prepared to do productive work from day one of employment.

India’s ability to support bulk manufacturing, assembly and processing will tilt the balance in its favour. Though a large portion of the MSMEs is currently unorganized, the segment has the potential to contribute almost 50 per cent of the GDP in the next ten years, if given proper impetus by the Government.

Also read: PM Modi’s Rs 3 lakh crore MSME loan scheme sanctioned this much amount in just one day

Proactive State Governments

Several state governments have been taking additional initiatives to woo investors and give a boost to local businesses that would assist these foreign companies. For instance, the Uttar Pradesh Government recently held video conferencing with more than 100 top companies of the US who are eager to shift base from China. The state government also offered tailor-made solutions including capital subsidies, availability of abundant land in special economic zones, land subsidies, and other incentives to woo these foreign companies in UP. The Government believes that these initiatives would help their 90 lakh MSME units who would assist these companies in multiple purposes. These measures need to be adopted on a pan-India level.

Expectations from the Government

There has been a constant demand for a policy overhaul from various industry bodies’ time and again. Initiatives like a single-window clearance, tax reforms, and changes in labour laws are some of the measures needed to make this country a preferred Investment destination.

India needs to aggressively push itself in the immediate future in areas where healthy ecosystems of the domestic supply chain already exist. Domains such as engineering works, pharmaceutical, mobile phones, among other sectors are among India’s strengths, and it would be beneficial to build upon the existing value chain of MSMEs in these sectors.

Also, if the Government does away with 50 per cent of the GST for six months which would come to around Rs 3 lakh crore through deficit financing, this would help in propelling demand creation. It will help restart the economic cycle, and MSME business operations will start. The Reserve Bank of India should also think about giving a one-time rollover of all outstanding loan amounts for a period of at least one year to provide some breather to them to conduct their business.

While fiscal support during these troubles times will help firms tide over the unprecedented phase, long-term growth would need the Government to push for commercial diplomacy to match the efforts at the domestic front. This would help attract large global players to India and leverage the extensive ecosystem, built primarily by the MSME segment.

Deepak Sood is the Secretary-General of Assocham. Views expressed are the author’s own.

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