Why governments should encourage MSMEs more?
Stimulus for MSMEs announced in 1st tranche of Covid-19 package a good step, but Centre should bring in more measures
To say that India's MSME sector is a neglected child is an understatement. There are several reasons for that. The foremost is the disunity among Micro, Small and Medium Enterprises (MSMEs). Big industrialists and mega business tycoons have wherewithal to influence policies and policymakers on their own.
If they have any issue or problem, they have access to the powers that be and can get it resolved forthwith. But there is no point in finding fault with it as long as the issue in question is not illegal.
Further, there are also influential national-level industry bodies and lobby groups like Ficci (Federation of Indian Chambers of Commerce & Industry) and CII (Confederation of Indian Industry), which take care of interests of large companies and corporates.
To a large extent, Assocham (Associated Chambers of Commerce & Industry of India) also does that. So too are a couple of others. These bodies do have a separate wing, division or platform to address the issues of MSME sector. But that's not their first priority though.
So, there is not even a single effective national-level platform that looks after MSMEs and takes its problems to the notice of the powers that be. Further, maintaining a strong lobby group is not an easy proposition for MSMEs, which operate on wafer-thin margins and are largely into unorganised sectors.
But mind you, MSMEs do make mind-blowing contribution to India's economy. These numbers tell all the story. As per available data, India is home to over 6.3 crore MSME units, which account for 45 per cent of country's manufacturing output, 40 per cent of exports and over 28 per cent of GDP.
MSMEs employ close to 12 crore people, producing over 8,000 categories of products. Above all, the sector generates 24 jobs for every Rs 1 crore investment it makes. That means MSMEs are in a league of their own when it comes to creating new jobs.
Large companies and big corporates do make large investments, but pale before MSMEs in terms of employment generation. Therefore, for a country like India which is saddled with over 1.3 billion people, MSME sector is an imperative.
India needs more and more new jobs for its ever growing population, isn't it?
But sadly, the MSME sector is now on brink of collapse as the national lockdown to contain Covid-19 crippled its operations across the country.
The sector is struggling to come back to life due to financial stress and demand side issues even though lockdown norms have been eased and the economy has largely been opened up.
In this backdrop, Union Finance Minister Nirmala Sitharaman included stimulus package related to MSMEs in the first tranche of Rs 20-lakh crore Atmanirbhar Bharat Abhiyan announced by the Prime Minister Narendra Modi to rescue the country's debilitating economy from clutches of Covid-19 pandemic and its associated lockdown that come into force on March 25 and is still partially in force till May 31.
Announcing package for MSMEs in the first tranche itself came as a bit of a surprise for some. That means the Modi government seems to be giving due recognition to the neglected child on the India's economic firmament. That's a good sign indeed for MSME sector.
Under the Covid-19 stimulus package for MSMEs, the Centre announced collateral-free loans worth Rs 3 lakh crore.
Though the amount is small compared to the number of MSMEs in the country, it will provide much needed relief to those units, which are in financial distress caused by novel coronavirus.
However, as mentioned in my earlier article, implementation holds the key here as banks are normally reluctant to offer unsecured loans to industries even if the Centre offers guarantee.
Other stimulus steps include a Fund of Funds with Rs 50,000-crore outlay for capital infusion into promising MSMEs and Rs 20,000 crore subordinate debt for units under financial stress.
But these measures are not enough. The central government should do more to bring ailing MSME sector on track. More importantly, most of MSMEs depend on migrant labour.
With migrant workers making an arduous journey back to their native places in the wake of lockdown, MSME are facing acute labour shortages. The Centre should address this key issue on an urgent basis.
Further, interest rates on loans offered to MSMEs should be brought down to a minimum, say three per cent.This relief should be given at least during Covid-19 crisis. An additional stimulus package will also go a long way in helping the key sector.
Further, the central government should also nudge States to do their bit for MSMEs operating in their respective areas. On this, it can take cue from Andhra Pradesh, which, despite being shackled by a deficit budget, has come out with several incentives to infuse life into its ailing MSME sector.
Under its 'ReSTART' policy, which kicked off on Friday, YS Jagan Mohan Reddy-led AP government waived off fixed power charges for MSMEs for three months starting from April.
It is also releasing pending incentives totaling Rs 905 crore in two tranches. Besides, a working capital fund and preferential market access to MSMEs in government procurement have also been announced to support Covid-affected units.
But AP should obviously do more. In pre-bifurcation era, most of the industrial clusters came up around Hyderabad. With Hyderabad remaining with Telangana in the bifurcation process, residual Andhra Pradesh has nothing much to boast about when it comes to industrial sector.
That includes MSMEs. AP needs to correct this anomaly at faster pace. That is the only way to create large number of jobs for its unemployed youth. A cluster-based approach will do the trick.
The previous regime led by Nara Chandrababu Naidu announced a policy to launch MSME parks in each revenue mandal. But that was a non-starter.
It also signed MoUs during Partnership Summits for the development of industrial clusters.They include an exclusive MSME cluster as well.
These MoUs remained a pipedream. The YS Jagan government should encourage MSME clusters in a big way. So, should also the Centre and other State governments in the country.
The bottom line is simple. The Centre and State governments should initiate more measures to strengthen MSME sector and help it tide over Covid-19 crisis.
That's the one of key ways to create more for jobs, increase our exports and spur economic growth. India needs more and more new jobs as time goes by. The answer for that lies in the MSME sector.
Last word: Is Covid-19 rising its ugly head in India now? It looks like so. With Covid-19 cases going well past 1.25 lakh mark and daily count hitting 6,000 (on May 22), the country has its task cut out.
With lockdown more or less reduced to an ineffective night curfew, rapid rise in cases is not surprising. As Mumbai, the epicentre of India's commercial activity, is under siege with ever increasing cases, the economy will continue to bear the brunt-lockdown or no lockdown.
If Covid-19 spread goes out of control, a second round of lockdown is not ruled out. Our economy will receive a bigger body blow if the country goes for a second clampdown.