India cannot become atma nirbhar

Context: Without fixing the issue of micro, small and medium enterprises (MSMEs) atma nirbhar Bharat will remain a pipe dream. 

Significance of MSME: 

• They employed 110 million people (60 million MSMEs). 
• They account for 25% of services gross domestic product (GDP) and one-third of manufacturing GDP. 
• They are part of the supply chain and distribution, both upstream and downstream and no large company can operate without them.

Key Challenges of MSME sector: 

• Size of Firms: 95% of all companies in India employ less than five people. 98% employ less than 10.  

• Low Investment base: Only 20,000 firms have a paid up capital of ?10 crore, or more.  

• The 3 shocks:  Covid-19 lockdown, demonetisation and goods and services tax have severely impacted the MSMEs. 30-40% are facing the possibility of extinction and 57% have already run out of cash.
• Ease of doing business at state: It is hard to start and run a business in most of our states.  
• Preference to remain informal:   The cost of formalizing, due to various regulations and compliances, is so onerous that many firms say it’s better to remain informal.
• Issues with land acquisition: due to lack of political will.
• Lack of Entrepreneurial drive: 

• In India, everything, even the most mundane things like salwar kameez, Ganesh statues, Diwali bulbs, etc. are coming from China.
• Firms are afraid to setup in states because of rules that criminalise for non-compliance of confusing regulations.

Recommended steps:  

• The report suggested steps to solve the liquidity challenge, the banking-partnerships, timely disbursement of loans etc. 
• Ease of compliance and Formalization - Lot has to do with 58,000 compliances, and drastically simplifying them, digitizing core processes and decriminalizing rules for companies.
• Creation of dynamic or entrepreneurial environment: similar to  Gurgaon or Bengaluru, in other cities as well.
• Offer incentives - Encourage entrepreneurship, create hubs, special economic zones where a company can come in and set up business very easily. 
• E.g. - state can set up a land bank of, say, 5,000 acres for a cluster to come alive.
• Repurposing land banks – from non performing and closed public sector enterprises to be utilised for MSME development. Punjab, Meghalaya and Uttarakhand are showing interest towards it.
• Making work force productive – It could be possible through strengthening protection and safety nets to employees —health and safe environments, job security, retirement benefits, etc.