One MSME Size Won’t Fit All

Newspaper Rainbow Series 15th October 2021 Save

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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.