[Answered] Examine the assertion that improving the productivity of smallest enterprises is key to India’s job growth. Justify a policy shift from focusing solely on large industry to the MSME sector.

Introduction

With over 7.3 crore unincorporated enterprises employing 12 crore workers (ASUSE 2024) and MSMEs contributing 30% to GDP (MSME Annual Report 2023), India’s employment landscape highlights the centrality of productivity-driven small enterprise growth.

Why the Smallest Enterprises Matter for Job Growth

1. Labour Absorption Capacity: Nearly 80% of India’s workforce is engaged in informal or self-employed activities (Periodic Labour Force Survey, 2023). Own Account Enterprises (OAEs) constitute 87% of all non-agricultural enterprises, yet operate with low capital, low technology, and minimal hiring.
2. Productivity–Employment Link: ASUSE data shows: A 10% increase in GVA of small enterprises leads to 4.5% growth in hired workers. Transitioning OAEs into Hired Worker Enterprises (HWEs) can dramatically expand employment.
3. Large Industries Are Capital-Intensive, Not Labour-Intensive: India’s modern manufacturing (steel, autos, refineries) follows capital deepening, creating fewer jobs per crore of investment.  RBI (2022) notes large firms increasingly automate to stay globally competitive, limiting labour absorption.
4. Why Productivity of Smallest Enterprises Remains Low
5. a) Constraints to Credit Access: Only 10–12% of unincorporated enterprises have formal credit (ASUSE). Credit gap of $530 billion in MSME sector (IFC, 2018). Without credit → no capital deepening → firms remain trapped at subsistence level.
6. b) Technology Deficit: Only 6% of micro-enterprises use basic digital tools (NASSCOM, 2023). ICT adoption increases operational efficiency, market access, and GVA significantly.
7. c) Informality & Non-Registration: UDYAM registration still covers only a minor share of micro enterprises. Perceived high compliance burdens and lack of invoice recovery deter formalisation (RBI MSME Report, 2019).

Why Policy Must Shift from Large Industry to MSMEs

1. MSMEs Have Higher Employment Elasticity: Employment elasticity in MSMEs is 0.75, compared to 0.20 in large firms (ILO, 2021). Example: Leather clusters in Kanpur and handloom in Tamil Nadu demonstrate high labour intensity.
2. Decentralised, Equitable Growth: MSMEs promote regional dispersal, unlike large industries concentrated in coastal belts. Example: ODOP in Uttar Pradesh created local job ecosystems in districts.
3. Role in Exports & Supply Chains: MSMEs contribute 45% of India’s exports. Integration through ONDC, Digital MSME, and GeM can boost market linkages.
4. Transitioning OAEs to Small & Small to Medium Firms: Policy must enable enterprise upgrading, not just enterprise creation. Key reforms:

• Targeted credit aligned to enterprise lifecycle (Shishu–Kishor–Tarun framework).
• Cluster-based skill development (e.g., SFURTI, MSE-CDP).
• End-to-end digital onboarding on UPI, ONDC, GSTN.
• Vocal for Local + global value chain integration.

Conclusion

As Amar Singh’s The Invisible Workforce and OECD’s MSME Outlook highlight, India’s employment future lies in empowering micro-enterprises, where productivity enhancement can unlock inclusive, decentralised and sustainable job-led growth.