Paper & Topic: GS III à Indian Economy

Model Answer:

Introduction:

Micro, Small, and Medium-Sized Enterprises (MSME), known as India’s “engine of growth,” have contributed significantly to the expansion of the nation through generating employment possibilities. All areas of the economy have been affected by the Covid-19 outbreak, but the Indian MSMEs (Medium, Small and Micro Enterprises) have been hit the most.

In order to ease their suffering, the government and Reserve Bank of India (RBI) have lately started a number of initiatives.

Body:

The MSME sector in India has potential:

Contribution to GDP: It is estimated that MSMEs account for around 32% of the nation’s gross value added.

Export Leverage: It also generates roughly 40% of all exports and 45% of industrial output.

Opportunities for Employment: It employs 60 million people, generates 1.3 million new employment annually, and manufactures more than 8000 high-quality goods for the Indian and global markets.

Diversity: India has about 30 million small and medium-sized businesses (MSME Units), and there is a wide variety of diversity among them in terms of size, level of technology used, scope of goods and services offered, and target markets.

Fostering Inclusive Growth: MSME promotes non-agricultural livelihood at the lowest possible cost, impartial regional development, significant female participation, and offering a deflationary protection, among other strategies.

The difficulties and worries posed by the expansion of the MSME sector

Credit Access:

According to the Economic Survey (2017–18), the MSME sector has a serious issue securing enough finance to expand their operations.

The survey had noted that only 17.4% of the total outstanding loans had gone to MSMEs.

The majority of banks are hesitant to lend to MSMEs because, in the eyes of bankers, these businesses lack experience, have poor financials, collateral, and infrastructure.

In 2018 research, the International Finance Corporation found that less than one-third (or roughly Rs 11 lakh crore) of the credit MSME credit demand that it might possibly fund is provided by the conventional banking system.

This fact is essential because it explains why the Reserve Bank of India’s efforts to push additional liquidity towards the MSMEs have had a limited impact. The majority of MSME funding comes from informal sources.

Lack of infrastructure:

MSMEs’ production capacity is very low and their production costs are quite expensive due to insufficient infrastructure.

access to contemporary technology

Lack of technological expertise and budgetary limitations restrict access to current technology, which keeps technological adoption at a low level.

Getting to markets:

MSMEs have limited market access. Comparatively speaking, their sales promotion and advertising are weaker than those of other large enterprises and global corporations.

It is challenging for them to compete with big businesses because of their inadequate advertising and weak marketing strategies.

Legal obstacles:

Obtaining legislative permissions for labour, environment, and power are significant obstacles.

The laws governing every area of the industrial and service industries are extremely complicated, making compliance challenging.

Lack of qualified personnel:

With regard to the growth of MSME’s, training and development programmes have been. As a result, MSMEs have experienced a persistent shortage of competent labour.

Other problems:

low use of ICT.

a little market share.

certification or assurance of quality.

IPR-related problems.

certification or assurance of quality.

To enter new markets, items should be standardised and marketing strategies should be effective.

Actions required:

Recently, the Union Cabinet authorised a World Bank-supported initiative on “Raising and Accelerating MSME Performance” (RAMP) for USD 808 million, or Rs 6,062.45 crore.

The Indian government and banks should develop strategies and initiatives to increase easy, hassle-free credit access.

The RBI should implement strict non-performing asset (NPA) standards because they will deter defaulters on loans and encourage the collection of prospective good debts. Additionally, opponents claim that the SIDBI-run Credit Guarantee Scheme for MSME (CGTMSE) is an expanding contingent liability that requires urgent review.

To promote the growth and development of MSMEs, the government should improve the development and upgrading of the current rail and road network as well as other infrastructural amenities in less developed and rural areas.

The right amount of research and development should be done in relation to new manufacturing and service delivery methods. The government should also support and encourage technical know-how for Micro and small businesses.

To recover the growth of sick units, the government should promote procurement programmes, credit and performance ratings, and comprehensive marketing support.

One of the most important steps to boost the sector’s production is to teach MSME employees and expand their skills. The government should place a strong emphasis on programmes for training and skill development.

The Centre has redefined MSMEs, financial access, subordinate debt, and preference in government bids in order to “energise the MSME sector” through the implementation of Aatmanirbhar Bharat.

Additionally, the MSME Udyam portal has been launched, albeit registration is not required. It is important to bridge the information gap on government initiatives and registration incentives.

To increase their market access, diversify their clientele, and strengthen their supply chain, MSMEs must better integrate themselves into the digital economy.

Leveraging technology will assist business, the Indian economy, and MSMEs, which would increase employment and have a good knock-on effect on the GDP of the country.

Moving ahead:

In India’s wage-protection rule-books, there is no mention of the traditional concept of apprenticeship, which entails part-time labour and is a commonly used skill-building practise, particularly in weaving, handicraft and manufacturing units. This error may be corrected by applying the regulations of the Social Security Act, the Wage Code, or possibly the Shops and Establishments Act, as appropriate.

The emphasis should be on high-quality production, the use of automation to improve processes, and the investigation of new markets via e-commerce.

This would necessitate a comprehensive strategy that involved assisting the sector’s current manufacturers, giving managers and their workforces the necessary training, and educating them on new technologies and standardisation norms, all while exposing them to new market opportunities and inspiring confidence in them that the nation’s ecosystem would support their expansion plans.

It is important to encourage new MSMEs in particular to start off with this advantage.

We will be able to provide suitable work opportunities not only in India but also around the world thanks to skill-based training programmes that take into account industry-specific needs. Developed nations require skilled labour across a range of sectors, including manufacturing, software, and healthcare.

Indian policies need to be reviewed in order to eliminate inconsistencies and to encourage small businesses to use e-commerce platforms.

Conclusion:      

As a result, the Indian MSME sector serves as the foundation of the country’s economic system and protects it from external shocks and adversities by acting as a bulwark. Given the sector’s crucial position in the economy, problems it faces must be resolved quickly if the economy is to recover from the pandemic’s damage. In addition to fiscal stimulus, the sector needs a political-economic strategy that puts MSME interests first. India must lessen the regulatory load on small businesses and assist their survival financially. They require level playing fields most of all with regard to large corporations.