India Needs An Ecosystem That’s Conducive To MSME Expansion

Context: We must adapt our policy settings to favour new opportunities for small businesses if they’re to play a big role in job creation.

Significance of MSME sector

• Leveraging demographic advantage: With 65% of India’s population below the age of 35, job generation by micro, small and medium enterprises (MSMEs) assume high importance.
• About 70 million individuals of working age (15-59 years) are expected to enter  labour force by 2023.
• Huge MSME base: India has 63 million MSMEs enterprises. Sustainable employment opportunities now lie largely in the sector of micro-enterprises.

Issues associated with the MSME sector

• Sector dominated by tiny enterprises: More than 99% of MSMEs are micro-businesses.
• According to MSME ministry data, out of registered MSME enterprises (2019-20), 2.1 million constitutes micro-enterprises, 295,000 are small, and medium (SMEs) and 10,981 are mid-sized.
• Widespread informalisation: Only a fraction of them is registered. The number of registered MSMEs grew at a high rate of 18.5% year-on-year, yet the absolute numbers of registered MSMEs are low. 
• Policy issues:
• Lacks realism: India’s current goal of skilling 402 million people (National Skill Development Mission) is way too large, unnecessary and unattainable.
• Restrictive policy framework: High compliance burden, stringent GST provisions and complex investment rules make it difficult for MSMEs to adopt emerging market platforms like e-commerce.
• Wages of apprenticeship not protected: It involves part-time work and is a widely accepted skilling practice, especially in weaving and handicrafts, but not find mention in the wage-protection rule.

Way forward

• A holistic approach towards MSMEs ecosystem: 
  • Regulatory regime shall act as a facilitator, with light compliance cost.
  • Focus on quality manufacturing by the adoption of automation to enhance operations.
  • Exploration of new markets through standardisation of e-commerce norms for MSMEs.
  • Equip both managers and workforces with appropriate skills and on new technologies.
• Forge collaborations with industry: 
  • Skilling plans in accordance with sector-wise requirements at the domestic and global level.
  • Legal flexibility to engage part-time workers.
  • Apprenticeship needs legal backing: Under the wage code or social security code rules, or perhaps the Shops and Establishments Act rules, as deemed appropriate.