Ease of Doing Business for MSMEs: India observes Small Industry Day on August 30 to recognise the contribution of small scale units to the economy and promote them to grow big.
Ease of Doing Business for MSMEs: Micro, small, and medium enterprises (MSMEs) fuel India’s economy given the sheer enormity of the small enterprise base in the country. However, a significantly large number of around 6.3 crore MSMEs in India remain – MSMEs throughout their existence. The reasons are arguably less by chance and more by circumstances such as running out of money, poor technology adoption, labour issues, absence of collateral, and overall bottlenecks around ease of doing business. Beyond these challenges, as India observes Small Industry Day to recognise the contribution of small scale units to the economy and promote them to grow big, entrepreneurs and industry experts tell what’s holding MSMEs back in their transformation from small to big.
“Challenges would continue for MSMEs but if something that could help businesses accelerate their growth is direct guidance and handholding with respect to different government processes and regulations. MSME promoters usually are not well aware of rules or terms and conditions. Even a small mistake costs them heavily with penalties,” Vishnu Goel, Founder, MMD Rail Tracks, and President, Haryana Chamber of Commerce and Industries told Financial Express Online. He added that promoters try to manage everything on their own but they cannot afford a good lawyer or a consultancy or advisory firm and hence, representatives of respective government departments should guide MSMEs to avoid mistakes ahead instead of penalising them. While there are contact centers or helplines available but that doesn’t help much, Goel said.
Importantly, the government had in May 2020 launched the MSME grievance redressal platform Champions for issues around finance, raw materials, labour, regulatory permissions, etc., and also to seek information on the available government support to MSMEs. According to the data shared by the MSME Minister Narayan Rane in the Rajya Sabha in July, from 26,693 complaints resolved as of January 31, 2021, the number had grown to 35,562 as of July 15, 2021. The portal “covers many aspects of e-governance including redressal of grievances and handholding of MSMEs,” Rane had said sharing the data.
For Delhi-based Ashok Kumar Agrawal who runs plywood manufacturing firm Vidya Ply & Board, procedural barriers in government processes and the mindset of government officials towards small businesses are among the biggest impediments in the growth of MSMEs into larger enterprises. For instance, getting just an NOC from the fire services department requires multiple visits to the government offices.
“I had to visit multiple times for a fire NOC. Why can’t the government onboard multiple third parties for this instead of doing it by themself. MSMEs are not able to grow due to poor handling of issues by the government departments and red-tapism. In total, there is a change in the mindset required of government officials who harass MSMEs. It is almost impossible to apply online for such NOCs online. You would be forced for physical visits and pay the money. MSMEs are certainly growth engines for India but these engines are not operating smoothly,” Agrawal, who is also the President of the Indian Industries Association, told Financial Express Online.
For small businesses to grow big, another critical component is the focus is on competitiveness, brand building, and providing certainty to the business. The details lie in how a brand evolves with its competition evolving and growing in the competitive environment. “If a business decides not to pay attention to brand building, it is mostly going to get lost amongst the host of other brands available in the market. The same goes for providing certainty, it is important to build consistency in the way the brand is perceived by the consumers, so that it instills them with the faith and loyalty to trust a brand they have been engaging with, for a while,” Milan Thakkar, CEO, Walplast told Financial Express Online. Walplast is India’s third-largest infrastructure raw material manufacturer that had evolved from an MSME to a large enterprise in just 17 years.
However, there are MSMEs that prefer to remain small. Basically, many of them don’t want to scale up because of the issues involved in scaling up operations such as increased compliance burden. “Plethora of rules and regulations faced by large enterprises is one reason for small units to remain small. Because they remain small, they are not able to benefit from the economies of scale while regulations and red-tapism are major drawbacks in scaling up,” Kavita Chacko, Senior Economist, CARE Ratings told Financial Express Online.