One MSME Size Won’t Fit All

Context: Only when MSMEs are thriving does the economy also does well. So, addressing the challenges faced by small businesses becomes a critical part of ensuring socially inclusive growth.

Importance of MSME sector

• MSMEs are estimated to account for about 95% of all firms across the globe, employ at least 60% of the global workforce, and account for 50% of total value added.
• India’s MSME export share stood at 48.10% in 2018-19, as per the Directorate General of Commercial Intelligence and Statistics (DGCIS), and is expected to contribute 60% in coming years.

Issues associated with MSME

• Challenges associated with globalisation: Increased globalisation helped businesses in formal sector but posed stiff competitiveness challenges before informal firms.
• Inherent concerns of MSME sector: As per UN Industrial Development Organisation’s (UNIDO) Annual Report 2019, major concerns include:
  • Shortage in raw materials, out-dated equipment, scarce skilled labour leading to low utilisation of capacity, lack of market access, insufficient price incentive to improve quality, and inadequate capacity to upgrade technology.
• Limited access to funding also hampers MSME progress.
• Governance concern – No proper definition of MSME: A 35-country analysis shows
  • Vague criteria: Eight of the 35 countries analysed did not consider annual turnover as a criterion.
  • Five (including India) did not have a labour-based definition.
  • Differences across economies: Developed economies have a ‘bigger’ definition of MSMEs.
• Challenges in setting global agreements: Concerns due to huge variation in economic and legal framework across jurisdictions, scope for information asymmetry and discrimination etc.

Way forward: Six key recommendations

• Add MSME-related information in WTO trade policy reviews.
• Trade facilitation for MSMEs.
• Promoting MSME inclusion in regulatory development.
• Supporting the implementation of 2019 decision on the WTO integrated database.
• Access to finance and cross-border payments.
• Access to information.