{"id":351717,"date":"2025-12-11T14:44:20","date_gmt":"2025-12-11T09:14:20","guid":{"rendered":"https:\/\/forumias.com\/blog\/?page_id=351717"},"modified":"2025-12-11T14:44:20","modified_gmt":"2025-12-11T09:14:20","slug":"answered-examine-the-assertion-that-improving-the-productivity-of-smallest-enterprises-is-key-to-indias-job-growth-justify-a-policy-shift-from-focusing-solely-on-large-industry-to-the-msme-sector","status":"publish","type":"page","link":"https:\/\/forumias.com\/blog\/answered-examine-the-assertion-that-improving-the-productivity-of-smallest-enterprises-is-key-to-indias-job-growth-justify-a-policy-shift-from-focusing-solely-on-large-industry-to-the-msme-sector\/","title":{"rendered":"[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."},"content":{"rendered":"

Introduction<\/strong><\/h2>\n

With over 7.3 crore unincorporated enterprises employing 12 crore workers (ASUSE 2024)<\/strong> and MSMEs contributing 30% to GDP (MSME Annual Report 2023)<\/strong>, India\u2019s employment landscape highlights the centrality of productivity-driven small enterprise growth.<\/p>\n

Why the Smallest Enterprises Matter for Job Growth<\/strong><\/h2>\n
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  1. Labour Absorption Capacity<\/strong>: Nearly 80% of India\u2019s workforce<\/strong> is engaged in informal or self-employed activities (Periodic Labour Force Survey, 2023). Own Account Enterprises (OAEs)<\/strong> constitute 87% of all non-agricultural enterprises<\/strong>, yet operate with low capital, low technology, and minimal hiring<\/strong>.<\/li>\n
  2. Productivity\u2013Employment Link<\/strong>: ASUSE data shows: A 10% increase in GVA of small enterprises leads to 4.5% growth in hired workers.<\/strong> Transitioning OAEs into Hired Worker Enterprises (HWEs)<\/strong> can dramatically expand employment.<\/li>\n
  3. Large Industries Are Capital-Intensive, Not Labour-Intensive<\/strong>: India\u2019s modern manufacturing (steel, autos, refineries) follows capital deepening<\/strong>, creating fewer jobs per crore of investment.\u00a0 RBI (2022) notes large firms increasingly automate to stay globally competitive, limiting labour absorption.<\/li>\n
  4. Why Productivity of Smallest Enterprises Remains Low<\/strong><\/li>\n
  5. a) Constraints to Credit Access: <\/strong>Only 10\u201312%<\/strong> of unincorporated enterprises have formal credit (ASUSE). Credit gap of $530 billion<\/strong> in MSME sector (IFC, 2018). Without credit \u2192 no capital deepening \u2192 firms remain trapped at subsistence level.<\/li>\n
  6. b) Technology Deficit: <\/strong>Only 6%<\/strong> of micro-enterprises use basic digital tools (NASSCOM, 2023). ICT adoption increases operational efficiency, market access, and GVA significantly.<\/li>\n
  7. c) Informality & Non-Registration: UDYAM registration<\/strong> still covers only a minor share of micro enterprises. Perceived high compliance burdens<\/strong> and lack of invoice recovery<\/strong> deter formalisation (RBI MSME Report, 2019).<\/li>\n<\/ol>\n

    Why Policy Must Shift from Large Industry to MSMEs<\/strong><\/h2>\n
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    1. MSMEs Have Higher Employment Elasticity: <\/strong>Employment elasticity in MSMEs is 0.75<\/strong>, compared to 0.20<\/strong> in large firms (ILO, 2021). Example: Leather clusters in Kanpur<\/strong> and handloom in Tamil Nadu<\/strong> demonstrate high labour intensity.<\/li>\n
    2. Decentralised, Equitable Growth: <\/strong>MSMEs promote regional dispersal<\/strong>, unlike large industries concentrated in coastal belts. Example: ODOP in Uttar Pradesh<\/strong> created local job ecosystems in districts.<\/li>\n
    3. Role in Exports & Supply Chains: <\/strong>MSMEs contribute 45% of India\u2019s exports<\/strong>. Integration through ONDC<\/strong>, Digital MSME<\/strong>, and GeM<\/strong> can boost market linkages.<\/li>\n
    4. Transitioning OAEs to Small & Small to Medium Firms: <\/strong>Policy must enable enterprise upgrading<\/strong>, not just enterprise creation. Key reforms:<\/li>\n<\/ol>\n