India needs to fill the vacuum of its mid-sized enterprises space

Source: The post is based on the article “India needs to fill the vacuum of its mid-sized enterprises space” published in Live Mint on 29^th May 2023.

Syllabus: GS 3 – Changes in Industrial Policy and their effects on Industrial Growth

Relevance: concerns with MSMEs

News: India has recently focused more on encouraging entrepreneurship through a variety of programmes and initiatives.

What are some of the initiatives that encourage entrepreneurship?

The government of India launched a Startup India in 2016. This increased the recognised startups from 442 in 2016 to 92,683 in 2023. The Startup India Seed Fund Scheme has also funded many businesses.

However, along with these initiatives, there is also a need to scale-up the firms.

Why is there a need to scale-up firms?

As per the MSME Annual Report of Government of India (2022-23), the micro sector makes up for over 99% of the total estimated number of MSMEs. The small sector has 0.33 million enterprises and the medium sector has only 5,000 firms.

Therefore, India needs policies that transform firms from a micro to mid-size stage because it is the mid-sized firms which hold greater potential to grow into a large firm.

According to a Mckinsey report, India is home to over 600 large firms that are 11 times more productive than average and contribute around 40% to total exports.

Therefore, to utilize this potential, India needs to promote micro firms and overcome its challenges.

What are the challenges faced by micro firms?

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Hence, scaling up is required for micro firms. This is because scaling-up enables firms to adopt newer technology, get access to different markets, and streamline production processes, along with boosting productivity.

What measures have been taken to scale up micro firms?

There are two major areas to focus for improving the ease of doing business and transitioning to larger firms – a) to simplify as well as streamline the regulatory framework, and b) promote access to capital.

In the context of streamlining the regulatory framework, finance minister Nirmala Sitharaman stated that there has been reduction in compliances along with decriminalizing various legal provisions.

This is important because a high regulatory burden disincentivizes firms to grow and firms prefer to stay small in size and outside the ambit of the formal system.

Additionally, various schemes have attempted to ease access to credit, especially for firms that have remained outside the formal credit system.

For instance, the Udyam Assist Platform, functions with the goal of bringing informal micro enterprises under the formal ambit to help them avail benefits under India’s priority sector lending rules.

Another notable scheme is PM SVANidhi (Prime Minister Street Vendor’s Atmanirbhar Nidhi) that provides credit to small entrepreneurs such as hawkers and street vendors.

Must Read: MSMEs: Significance, Challenges and Solutions – Explained

What can be the way ahead?

MSMEs form the backbone of the economy. Therefore, it is a huge responsibility to ensure that the schemes initiated for aiding growth among micro and small firms are implemented effectively.