Focus on MSMEs to boost manufacturing in India

This is the season of webinars and hardly a day is passing when there is no invitation to join one. Recently, I attended a discussion on real wealth creators of India. The wide consensus was that the labour, farmers, and micro and small enterprises are making us proud through their respective contributions.

It is no surprise that Union Finance Minister Nirmala Sitharaman in her post-COVID-19 roadmap announced multiple support measures for the MSME sector. This just shows the importance of the sector which has share of about 30 percent in the national GDP, 45 percent share in national manufacturing and 40 percent share in exports. There are almost 110 million people who are dependent on this sector for livelihood security.

As per the new definition, a company with up to Rs 50 crore investments and up to Rs 250 crore turnover is classified as a medium enterprise. The Central Public Sctor Enterprises (CPSE) have been asked for clearing all the bills within 45 days so that working capital remains in rotation. The government also announced a couple of other measures such as the change of definition and Rs 20 thousand crore subordinate debt for stressed MSMEs, estimated to be around 200,000 units.

With the change of definition, the effort is to factor in both investment and turnover, and do away with the distinction between manufacturing and services. As announced on May 13, by Sitharaman, a micro enterprise is one which has investment of Rs 1 crore with a turnover of Rs 5 crore, while similar numbers for small and medium are Rs 10 and 50 crore, and Rs 20 and 100 crore, respectively.

This would allow a larger scope for companies to avail benefits of incentives announced for the MSMEs. Although, there is sense in the demand that the operability of micro and small enterprises become difficult when they are combined with medium enterprises. At times, it is found that medium enterprises while leveraging similar incentives eat away market spaces for micro and small enterprises.

With huge reverse migration, the support structures and relevant programmes may be specifically designed in such a manner that the rural landscape generates hundreds of micro and small enterprises. In fact, a new programme for Rural Micro and Small Enterprises (RMSEs), may be launched for providing greater traction for job creation and local production.

The RMSEs programme would need support on two counts, viz. working capital and technology. The collateral-free automatic loan scheme of Rs 3 lakh-crore may emerge as a major source of strength at least for firms with a turnover of Rs 100 crore. Greater clarity on this announcement and line of action with details on relevant agencies would help the micro and small enterprises. A lack of communication on this, with full details is creating scope for confusion. The scheme of Fund of Funds for equity infusion of Rs 50,000 crore may also prove out to be extremely advantageous.

On the technology front, institutions such as Council for Scientific Research and Industrial Research (CSIR) may play an important role in promoting technologies with rural relevance. The Government of Odisha and the CSIR collaborated in launching a focussed project in Nabrangpur to enhance opportunities and the quality of life for farmers. The CSIR-IIMT Bhubaneswar is supporting the initiative.

What is required at this point is a frontloaded support mechanism with a delicate balance of fiscal and monetary provisions. The current disarray in manufacturing is so intense that both demand and supply have almost disappeared. In this situation no national strategy can work in isolation. We need to realise that given the huge sectoral and state-wide variations, the District Industry Centres (DICs) can play the most important role, and if we have to expect a catalytic role, it has to be played by the industry inspectors. Depending upon green and orange zones, and the latest post-COVID-19 scenario, the DICs would have to be enabled to play their role. The NITI Aayog should help government establish a national connect between the DICs and industry inspectors.

As discussed already, the recent announcements by the Finance Minister also focused on migrant labour. The efforts by the DIC would enhance the prospects for an inclusive development. Efforts have also been made to bring-in community participation though co-operative banks, regional rural banks, self-help groups, dairy co-operatives and fishermen organisations. In this respect, we also need to see what has happened to clusters? The central and state governments would have to again work together on clusters.

It needs to be emphasised again that quick implementation in letter and spirit is the most essential. The relevant ministries and agencies would have to be motivated to pro-actively bring all the actors together for collective forward movement. Bureaucracy would have to be motivated for pragmatism and for a result-oriented approach.

Sachin Chaturvedi is Director General, Research and Information System for Developing Countries (RIS). Views are personal.

Note to readers: Make In India — Reboot is a series of articles that will take a top-to-bottom look at ways to breathe life into manufacturing in India