India needs an ecosystem that’s conducive to MSME expansion

Relevance: Issues related to the growth of MSMEs in India

Synopsis: We must adapt our policy settings to favor new opportunities for small businesses if we want them to play a big role in job creation.

Context

With 65% of India’s population below the age of 35, job generation by micro, small and medium enterprises (MSMEs) therefore assume a high level of importance.

To reap the dividends, the country must equip MSMEs to use modern marketing tools, especially of e-commerce, which could be key for their expansion and sustainable growth.

Significance of small businesses in India

India has approximately 63 million MSMEs, more than 99% of them are tiny businesses. Only a fraction of them are registered.

According to data shared by India’s MSME minister in the Rajya Sabha,

• The list of registered MSMEs is dominated by micro enterprises, which number 2.2 million in 2019-20.
• Mid-sized businesses numbered10,981 during the same period.

What needs to be done?

1. Proper tracking: The first need is to continue to track MSMEs, so that we have a repository of information on these businesses, by geographical area and the products they sell. The aggregation of similar businesses will enable us to target skilling and handholding initiatives closely and also expose them to new market opportunities.
2. Quality manufacturing: Efforts need to focus on quality manufacturing, with the use of automation to enhance operations, and the exploration of new markets through e-commerce. This would require a holistic approach of hand-holding existing manufacturers in the sector, equipping both managers and their workforce with appropriate skills, and educating them on new technologies and standardization norms. New MSMEs, especially, should be encouraged to start off with this advantage.
3. Skilling through Apprenticeship: India’s current goal of skilling 402 million people is way too large, unnecessary and unattainable. Skilling plans, in accordance with sector-wise requirements, will enable us to create appropriate job opportunities not just in India but also across the globe. For the formal sector, the key is to forge collaborations with industry, and for the non-formal sector, schemes like the Pradhan Mantri Kaushal Vikas Yojana will need to deliver results. Given the prevailing trends, industrial units and emerging e-commerce platforms are best equipped to provide the right kind of skilling
4. Statutory backing for Apprenticeship. The traditional concept of apprenticeship, involving part-time work, does not find mention in India’s wage-protection rule-books. This oversight can be fixed via coverage by either the wage code or social security code rules, or perhaps the Shops and Establishments Act rules, as deemed appropriate. At this juncture of the development of our digital economy,
   it should be lawful for employers to engage part-time workers, ideally for up to six hours a day.
5. Suitable policy framework: Apart from trained manpower and a compliance burden, what holds India’s MSME sector back is a policy framework. It effectively acts as a disincentive for MSME’s to adopt emerging market platforms like e-commerce. Indian policies need to be revisited so that discrepancies are removed and we encourage small units to take advantage of e-com platforms.

Way forward

Policies should be designed to evolve an ecosystem that acts more as a facilitator with a light compliance regime and a sustainably credible framework for these units to plan and invest in expansion over longer time periods.