The data shared by RBI recently suggests that the availability of credit for Micro, Small, and Medium Enterprises (MSMEs) has confined despite having the guarantee scheme for the emergency credit line. It was announced to help this weak sector to sustain the impacts of the pandemic-induced global lockdown. There are a total of 4.5 million MSMEs eligible for credit support under the scheme, but according to the records, only 2.4 million, that is 53% have acquired loans. MSMEs are expecting demand to revive before taking loans.
We must build the road to recovery for the Micro, Small, and Medium Enterprises. It is high time to take a firm look at what has to be done to secure this sector and make it further productive and rival on a global platform. The world bank states that the MSME sector in Asia, Africa, and the Middle East together shares over 35% of the total global economic activity. The contribution of the MSME sector to employment is a tremendous 60% plus. The profit of B2B transactions made by this sector within formal carriers is more than $3 trillion. These numbers showcase the potential of this sector has, the job opportunities it offers to common people, and can also play a major role in strengthening the regional economy.
- Fix structural concerns to make up-scaling profitable
Most of the Indian MSMEs, however, are still grappling with a lack of competitiveness, especially when compared to their global counterparts. The problem with the Indian MSMEs is structural – they are not growing. 99% of the approximated 60 million in India proceeding to be micro-enterprises throughout their life cycle, with insufficient means and objectives. Sub-scale units are bound to produce less, which is why the vicious circle perpetuates.
What is required to assist our MSMEs to move and scale-up the value chain? The regulatory framework and the industrial policies are substantial areas to focus on. The main reason that has prevented our micro units from developing into medium industries has been the legacy of restrictive policies.
Another area that should be considered is agreement. Presently, our regulations do not differentiate among enterprises based on their scale, except for the small ones, in terms of agreement needs. The Trade union rules are applied on the units with more than six employees, and the Factories Act can be applied on the units with more than 10 employees. Although, the small units have the same complex regulatory requirements as large ones. The small units also require attendant costs of the agreement, it still appears as a disincentive for micro-units to develop. Entering an orderly economy turns out to be too costly for them. That is why they often prefer to stay small, which is certainly a huge economic loss for the country. It is necessary to design a more resilient regulatory structure.
- Develop new trading partnerships in the region and address skill deficit in the manufacturing sector
India should make itself a more engaging target to attain the inflow of a large amount of Foreign direct investment. The services sector has to engage more FDI than the manufacturing sectors is because the availability of skilled labor earlier was far better than the latter. Our country must address the skill deficit in Manufacturing to benefit from the sentimental decisions around global trade. Infrastructure remains another area in which changes need to be made urgently.
- Form partnerships with big players and let the market expand
There is a need to expand localized services and local networks across the nation to allow the Government to develop economic hubs exceeding tier 1 cities. MSMEs can actively shape this through counterfeit partnerships with big players–including foreign entities. These partnerships present significant opportunities for MSMEs to climb fast and move up the value chain within a short period.