Wednesday, October 5th, 2022 11:29:41

MSMEs: A game-changer for Indian economy

Updated: November 24, 2018 11:16 am

India is currently the fastest growing economy in the world with a 7.3 % growth in 2018 and according to the Asian Development Bank report, its economic growth will remain 7.6 % in 2019 also. In 2018, India overtook France to become the world’s sixth largest economy with $2.6 trillion. Now it is important to mention that in 2007, India was the 12th largest economy with $1 trillion. So it is evident that despite being a multi-party democratic country, India’s pace of development is quite impressive. And in the last 10 yrs, it has been able to double its economy. The number of poor is declining drastically in India. According to an American research agency, every minute 44 people in the country are coming out of poverty and the report implies that by 2022, less than 3 percent people in India will remain below the poverty line. However, job creation has always been a matter of concern for every government amid growing unprecedented population.

After agriculture, if there is a sector which provides maximum job is Micro Small & Medium Enterprises (MSME). This sector has the potential to produce more jobs in less investment which doesn’t happen in the IT or other sectors. But the truth is that IT and service sector is attracting more investors which are unlikely happening in the MSMEs sector. If one looks at the richest people in the world, one can easily find the dominance of IT and due to this those investors who were earlier doing well in manufacturing are moving toward this sector to gain quick wealth. The value of world’s largest social media company Facebook is $84 billion, almost double of India’s richest person Mukesh Ambani. Though, the total numbers of employees in this company are 31,000. In India, Flipkart, a Bengaluru-based $20 billion e-commerce company, provides almost 30,000 jobs.

Paytm, $10 billion Indian e-commerce payment system and digital wallet company provides almost 5,000 employments. So it is categorically clear that multinational companies are not capable to fulfil the dream of the common man. Because they have limited opportunity and perhaps this is the reason that almost 60 per cent wealth of this country is owned by 1 per cent of the people. Therefore, it is obvious that MSMEs have the potential to provide employment for millions of people. Though, it needs large bank credit and FDI which is not coming yet.

Speaking on this issue, Rajiv Kumar, Vice-Chairman of Niti Ayog says, “FDI is not coming in MSMEs because this sector is too small for FDI. Earlier MSMEs were at least succeeding because they were out of tax net and that gives them thirty per cent competitive advantage. That is what shared between them and the people whom they supplied to. Now it is going to end soon because of GST. MSMEs will be forced to look for alternate means for competitiveness. That is when they look for FDI and joint venture or becoming part of the global and regional production chains and network. But in India, we don’t have that. The whole of Southeast Asia is a vast network of production chains which is 80 per cent of the total trade. Things go from one country to another country there. But we don’t do so. This is the time that we should be part of that and GST regime would help to tackle this issue. Niti Ayog is framing a programme called small business innovation research (SBIR) which is taken from the US and there are about eight other countries who have implemented it successfully. This is to start an innovation fund in six ministries. It will be able to fund innovation in MSMEs to make them grow bigger. So once we make them global and regional production chain, to my mind this will start bringing FDI in this sector.”

MSMEs and small and mid-size enterprises (SMEs) play a big role in the development of a nation. If we look at China, according to the latest report, SMEs in China amount to 44 million, which create 60 per cent of GDP, and provide nearly 80% of urban jobs. In China, small and medium enterprises create nearly 65% of the original invention of the whole country, more than 75% of enterprise technology innovation and more than 80% of new product development. Now it is important to mention that If Chinese products have made its global presence then it is only because of the huge production by Chinese SMEs and MSMEs.

In India, MSMEs in overall GDP is around 38 per cent, and the sector accounts for about 45 per cent of manufacturing output and around 40 per cent of total exports of the country. It also provides maximum opportunities for self-employment after the agricultural sector. On the other hand, listed companies contribute only 5% of India’s economic output. Therefore, it is obvious that MSMEs should be supported and it needs large credit from the banks and perhaps the current government is focusing on this issue. As a result of this, recently PM Modi launched 59-minute loan portal to enable easy access to credit for MSMEs. Through this portal, loans up to Rs 1 crore can be granted in just 59 minutes. However, it needs to be implemented successfully and therefore, result is yet to come.

Reform in the MSMEs sector is also vital to restrain migration from rural to urban areas. Due to less opportunity, people from small towns are hugely moving towards big cities like Delhi, Mumbai, and Chennai. According to the UN report, by 2030, 40.76% of country’s population is expected to reside in urban areas. This is also a matter of concern as cities like Delhi and Mumbai will not be able to sustain this burden of population. In this backdrop, if the MSMEs sector gets government support, it would successfully deal with the migration problem. And the innovation in MSMEs would also help agriculture sector to tackle rural distress.

There is also an interesting fact that countries like Japan and South Korea, which are facing the aging workforce, are already showing their interests in Indian small businesses and enterprises because of population dividend and the cheapest workforce in the world. This is also because India strategically matters for them to counter the dominance of Chinese monopoly over the world market.


By Ravi Mishra

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