Missing Middle in the Industrial Sector

Missing Middle is a  concept holds that industries in developing nations such as India are controlled by a high number of small businesses and a few major corporations, but disproportionately few medium businesses.

Challenges:

• The absence of medium-sized enterprises in India’s industrial sector limits job opportunities, resulting in higher unemployment rates and slower job growth.
• According to the 73rd Round of the NSS Report on Unincorporated Non-Agricultural Enterprises, MSMEs employ 11.10 crore people, with the micro sector accounting for over 97% of all jobs. However, a well-developed medium-sized firm sector could have an even larger influence on employment.
• The missing middle in India’s industrial sector exacerbates the concentration of economic power, with large corporations dominating and small-scale enterprises facing limitations. This hinders competition and innovation, as large corporations have more resources and influence, while small-scale enterprises struggle to scale up.
• Smaller firms often struggle to obtain loans from financial institutions due to issues such as a lack of collateral, a limited credit history, and a higher perceived risk. Large firms, on the other hand, have easier access to cash and are more appealing to investors and lenders. As a result, medium-sized businesses confront a financial gap, impeding their growth and ability to contribute to the industrial sector.  As per data, only 16% of SMEs get access to timely finance, resulting in small and medium firms being forced to rely on their resources.
• The lack of medium-sized firms in India’s industrial sector stifles innovation and productivity growth. Medium-sized businesses are noted for their agility and reactivity to market changes, which makes them key innovators. However, if these businesses do not exist, the sector may suffer from a lack of innovation and a diminished capacity for productivity growth.
• The “missing middle” in industrial development can worsen regional disparities by concentrating medium-sized enterprises in specific regions, leading to uneven growth and hindering balanced regional industrial development.
• Small enterprises frequently confront access barriers to markets, technology, and skilled labour, restricting their potential for expansion. Medium-sized firms serve as a link between small businesses and giant organisations, providing possibilities for smaller businesses to grow and thrive.

Steps taken:

• Credit Guarantee Scheme for Micro & Small Enterprises (CGTMSE): The scheme intends to encourage first-generation entrepreneurs to get into business for themselves by providing credit guarantee funds for third-party guarantee-free / collateral-free loans.
• Micro & Small Enterprises Cluster Development Programme (MSE– CDP): The scheme aims to foster MSE growth through sustainable manufacturing, market access, skills enhancement, and infrastructure development in existing clusters. It also includes the establishment of Common Facility Centres for testing, training, and supporting production processes.
• MSME – Innovative (Incubation, IPR and Design): The scheme aims to promote innovation, facilitate concept-to-market development, enhance design competitiveness, and protect and commercialize intellectual creations in the MSME sector. It fosters a culture of innovation, connects industry and academia, and supports affordable and commercially viable innovations with broad societal benefits.
• Digital MSME: The plan intends to digitally empower MSMEs and encourage them to use digital tools, applications, and technologies in their production and business processes to boost their competitiveness in domestic and worldwide markets.
• Raising and Accelerating MSME Performance (RAMP): The scheme aims to accelerate centre-state collaboration in MSME promotion, enhance existing technology upgradation schemes, strengthen receivable financing for MSMEs, reduce delayed payments, and support green initiatives and women-owned MSEs.
• Self-Reliant India (SRI) Fund (Empowering MSMEs for Aatmanirbhar Bharat): The scheme aims to support the rapid growth of MSMEs and assist enterprises with the potential to graduate from the MSME category to become national or international champions. It aims to provide support to MSMEs that contribute to making India self-reliant by producing essential technologies, goods, and services.
• Credit Guarantee Scheme for Subordinate Debt (CGSSD) for Stressed MSMEs: The scheme aims to assist and revive MSMEs at risk of becoming NPAs by allowing promoters to infuse equity, improving liquidity and debt-equity ratio. It provides alternative financing options for MSMEs when traditional loans are not viable.
• ZED certification scheme: The scheme intends to assist MSMEs in creating quality products by instilling Zero Defect & Zero Effect practices, hence ensuring continued progress and helping the Make in India initiative.
• The Emergency Credit Line Guarantee Scheme (ECLGS), part of the Atma Nirbhar Bharat Package, assists businesses, including MSMEs, in meeting operational liabilities during the COVID-19 crisis. It provides Member Lending Institutions (MLIs) with a 100% guarantee against losses from non-repayment. Over 130 lakh MSMEs have benefited, and the scheme has been extended till March 2023 with an increased guarantee cover of INR 5 Lakh Crore.
• According to the Union Budget 2023-2024, MSME suppliers that are unable to execute contracts because of the Covid-19 epidemic would receive 95% of their forfeited sums back from the government. This relief measure was announced as part of the Vivad se Vishwas plan.
• FM announced that an entity called DigiLocker would be established for MSMEs, in addition to prominent business and charitable trusts, for securely storing and sharing documents online with various regulators, banks, authorities, and other business organisations as needed.
• The newly designed Pradhan Mantri Vishwakarma Kaushal Samman (PM-VIKAS) scheme would assist artisans to increase the quality and reach of their products by integrating them into the value chain of Micro, Small, and Medium-scale Enterprises.
• In the Union Budget 2023, the Finance Minister announced the introduction of a unified digital platform for Skill India. This platform will prioritize demand-based formal skilling, establish connections with employers, including MSMEs, and enhance access to entrepreneurship schemes.
• To assist MSMEs in receiving timely payments, the Union Budget 2023-2024 recommended deducting expenditures on payments made to them only when payments were made to them by buyers. This means that buyers cannot claim a conclusion until they first pay MSMEs. The move is likely to compel buyers to pay off small firms’ debts as soon as possible.
• In the 12th Plan, the Planning Commission (2013) made an excellent recommendation to establish a Cluster Stimulation Cell at the apex level in the MSME Ministry, which will work to encourage cluster linkages. This type of cell, however, will require replication at the state level as well as measures to make it operationally effective at the district level.
• The portals of Udyam, e-Shram, National Career Service (NCS), and Aatamanirbhar Skilled Employee Employer Mapping (ASEEM) will be linked. They will now function as portals with live, organic databases, providing G2C, B2C, and B2B credit facilitation, skilling, and recruitment services.
• Prime Minister Employment Generation Programme: The scheme’s goal is to provide financial help to self-employment projects to create long-term job prospects for unemployed youngsters and traditional craftspeople in rural and urban areas.

To close the missing middle gap, a multifaceted approach that focuses on empowering MSEs, encouraging entrepreneurship, fostering collaboration, and creating an enabling environment for their growth is required. By bridging this gap, India can unleash the potential of small and medium-sized businesses, propel industrial development, and provide more job opportunities for its rising population.