The MSME sector holds the key to an Indian economic recovery

Context: Fiscal support for Micro Small and Medium Enterprises (MSMEs) and a level playing field vis-a-vis big businesses would help our economy.

Challenges before MSMEs:

• Loss of Employment due to pandemic: The sector is India’s largest employer outside agriculture and construction, with 111 million workers.
  • There has been a decline in the number of establishments registered with the Employees’ Provident Fund Organisation by more than 30,800 in October.
  • Number of enrolled workers also fell by 1.8 million during the same period.
• Failed government initiatives:
  • While the Atmanirbhar Rozgar Yojana tried to boost employment through provident fund contribution for two years, it failed to enthuse support in the MSME sector.
  • Collateral free credit also failed to provide impressive results.
  • Policy induced shocks like demonetization and ill-prepared Goods and Service Tax (GST).
• Large share of small units: 94% of these enterprises are tiny, with less than four workers, and about 62% are single-person businesses accounting for 78% of all workers in the sector.
• Regulatory hurdles: Since only 31% are registered under various acts, they face regulatory hurdles, some of them related to compliance with the GST.
• Lack of demand and unpaid dues: With the finances of state governments also strained, the fiscal situation has added to the problem of unpaid dues.
• Political economy biased towards large corporations: MSME sector has to compete with a corporate sector that has easy access to capital, cheap and unregulated labour and a lower tax burden.
  • Unlike the ?1.5 trillion tax bonanza that large companies received as part of a pre-pandemic stimulus, there was no such bounty for the MSME sector.
  • Most state governments have relaxed labour regulations for large companies.

Conclusion: Reviving the sector requires not just fiscal stimulus, but also a political-economy approach that prioritizes MSME interests and eases the regulatory burden while aiding their survival through fiscal support.