Following the Real Great Game

Context: Covid-19 pandemic has hit the already ailing MSMEs sector which forms the backbone of India’s economy.

Relevance of MSMEs

• Provide employment to about 110 million people, or about 40% of India’s non-farm workforce.
• Critical to the distribution and supply chains of larger companies.
• GDP contribution: close to a quarter towards services and a third towards manufacturing output.

Pre-existing Problems 

• Low competitiveness: even before pre-pandemic level.
• High informality and low productivity: resulting in most remaining stunted (i.e 95% units employ less than five people).
• High costs of formality and compliance: due to multiple registrations, licensing and reporting.
• Labour regulations: account for a little over 50% of these.

Recommended Reforms: by Global Alliance for Mass Entrepreneurship (GAME), a not-for-profit platform of policymakers-

• Short-term Reforms (‘Survive’): 

• Financial and regulatory support: to keep businesses afloat, restart operations and retain jobs. 
• Execution and explanation of MSMEs stimulus package (related to liquidity and credit access): through state governments and local industry bodies.
• Monitoring and ensuring disbursal of funds: to small and micro-businesses.
• Setting up funds directed at new-to-credit MSMEs: including MSMEs in supply chain financing and bill invoicing (Trade Receivable Discounting System -TReDS) initiatives.
• Mandating quick disbursement of payables: from government and private sector players.

• Medium-term Reforms (‘Revive’) 

• Increasing ‘ease of doing business: India is globally 63rd on the ‘ease of doing business’ rankings, owing to high burdens, complex processes, and costs of compliance.

• Simplifying key processes for starting and running businesses.
• Rationalising compliance requirements.
• Digitisation of processes by removing redundancies across key processes (such as registering property, construction permits).

• Decriminalise and evaluate the ease of doing business: at a state level, and publish annual scorecards.
• Strengthening the MSME support network: Partner with local NGOs to ensure grievance redressal and information access.

• Long term Reforms (‘Thrive’)

• Massive entrepreneurial movement for pursuing local (self-reliance) and global aims (integration with global supply chains).
• Developing entrepreneur ecosystems: in 300-plus cities by 2030 will require:

• Seed: Education levels, ambitious youngsters, agency and entrepreneurial mindset.
• Soil: Infrastructure, connectivity, access to markets, access to credit and capital.
• Climate: ease of doing business and local culture.

Conclusion: India need to recognise critical importance of MSMEs in promoting innovation, creativity, decent employment and contribution to sustainable development.