Traditionally, India had the concept of trade guilds. Many of them were linked to castes. The stereotypes included assumptions: that women entrepreneurs would set up tailoring units or beauty parlours; rural men from lower castes were expected to setup footwear units or even assemble agarbattis.
In the recent decades, we have seen that (M)SME sector reducing such stereotyping and showing that competency is transferable across industries; of late, (M)SME entrepreneurs shift between manufacturing different products in their entrepreneur journeys, to avoid downward cycles.
As per the MSME ministry, India has 63.3 million MSMEs; employs 40% of India’s non-farm workforce, contributing nearly 25% of India’s services output and 33% of its manufacturing output. India has nearly 1/6th global population but does not have 1/6th of global wealth.
As they say, “never waste a crisis”. Even for those who have lived through wars and economic slowdowns in the past, this Covid pandemic would rate as one of the haunting crises that India has faced. Research has indicated that ECLGS provided much-needed additional credit to more than 1.3 crore MSMEs and helped them mitigate the adverse impact of the pandemic.
Policymaking needs Data
As per the MSME ministry’s Udyam registration portal, as of February 20, 2022,the registered MSME units stood at 72,63,401.
Since the total number of MSMEs is 6.34 crore (as per ministry statistics), this means only 11% of MSMEs are registered and have access to formal institutional credit support. However not much is known about how many (M)SME units were revived through credit supply.
Not much is also known with even reasonable accuracy in what more needs to be done to help the sector, as most MSMEs work in the informal sector, are self-financed, and outside the formal credit system! On February 3, 2022, the Government replied to a Parliamentarian query about how many MSMEs were closed down temporarily or permanently during the pandemic: “As MSMEs function in both formal and informal sectors, data regarding temporary and permanent closure of MSMEs are not centrally maintained.” With our intense digital adoption and usage of the JAMtrinity, we have to start collating granular data on MSME, SME, NSME (Nano SME); without data, we can only conjecture and not add real impact.
Real data can replace rhetoric! The problem that could happen with such missing data is incorrect/inadequate/non-impactful policy formation, while the intent of creating inclusive growth could be slowed down.
Realty & Reality of manufacturing
That the gig economic model is a reality is evident all around us.
That we can add protection of gig-worker rights and social security benefits for them is to be scaled up. Using gig workers, can we scale up our manufacturing prowess? Many economy-critics (in public) & manufacturing bosses (in private chat) will argue that India missed the opportunity to make a global manufacturing hub. For being one, it’s not just about cheap land or CapEx-capability or investor-friendly-labour-policies; it’s also the need to be a “perfectionist” in that business. “Jugaad” or “chalta-hai” precision won’t work.
“Along with large companies, our small and medium enterprises have a critical role in India’s prosperity. Our MSMEs have been the backbone of our economy, and a driver of Atmanirbhar Bharat,” said President Ram Nath Kovind, in his address to the joint sitting of two houses of Parliament atthe start of the Budget session 2022. At a time when fewer jobs are getting created, and when India’s urban sectors are not able to manage any further expansion, the growth of the MSME sector is important from the perspective of job creation and uniform growth process, pan-India.
Despite contributing to a decent chunk of India’s foreign exchange earnings,the MSME outputs are characterised by low-end products, unreliable delivery, and uncertain pricing.
As per a 2019 report, ‘Powering The Economy With Her: Women Entrepreneurship In India', published jointly by Google and Bain & Company,Indian women entrepreneurs could potentially create 150-170 million jobs in India by 2030. Currently, it is estimated that about 15-20% of MSMEs are owned by women. Only 17 % of nearly 70 lakh MSME registrations on the ‘Udyam’ portal are of women-led lMSMEs, as of Feb 2nd, 2022. Most of them get into the business, out of necessity rather than aspiration.
Research has showcased that the hindrances to women's entrepreneurship include access to finance, absence of support networks, skewed social norms,and potentially even restricted mobility. Unless we solve these infrastructural issues as well as make entrepreneurship culturally accepted, women's entrepreneurship will suffer.
Not for want of their interest or intent, but more of societal spite & lazy lending issues.
Helping MSMEs to be global
Currently, around 40% of India’s imports are high value-added products like electronic items and medical instruments.
The rest are either low technological, labour-oriented, or inelastic products like active pharmaceutical ingredients(APIs), fertilisers, chemicals, or toys. Times have changed; globally consumers seek quality and are cost-centric. Most of them don’t fuss about their country of origin.
Similarly, if China supplies our components and products far cheaper and quicker than we can manufacture, what’s the incentive for our buyers to change their behaviour? China has used its SMEs very strategically for growth&employment generation purposes. Contributing over 60% to the GDP and accounting for 80% of jobs in China, the number of Chinese SMEs is over 38 million.
In China, the focus of policies in the mid-2000s was to improve the operating environment of SMEs.
The Chinese SMEs Promotion Law, which came into effect in 2003, was a milestone in policies and laws specific to SMEs. It clarified the status of SMEs in the national economy and the responsibility of the corresponding government departments.
According to this law, the government would support firms actively, improve the quality of service for SMEs, create an environment where enterprises could compete fairly, and promise to encourage the development of SMEs with more effective policies, especially in the fields of finance and taxation. Indian MSMEs need policy & polity help in accessing global markets.
They could help in the Atma Nirbharta pitch. We have to build our MSME in “export competitiveness”. For which, our investments in developing our physical infrastructure across India have to be fast-tracked multi-fold.The Union Budget FY23 has proposed the Rs 6,000-crore Raising and Accelerating MSME Performance (RAMP) initiative to rate MSMEs will be rolled out over the next 5 years.
This would assist in building the export competitiveness and productivity of MSMEs. Despite all the policy initiatives, banks and other lending institutions have just scratched the surface for MSME / SME lending. We need to increase digital-lending initiatives where banks & fintech partners improve credit access to the MSME / SME ecosystem.
In spearheading the MSME growth, we would want policy impact and not poverty of relevant policies.
Every policy action/inaction/reaction has consequences for the next generation; and India’s inclusive economic journey.
(The writer is a Corporate Advisor and Independent Markets Commentator. His Twitter handle is @ssmumbai)