Q. What is the new definition of micro, small and medium enterprises? Critically evaluate the role of MSMEs in boosting industrial growth and ensuring the success of Aatmanirbhar Bharat Abhiyan in India. [65th BPSC-2020]
Ans:
MSMEs, introduced by the Government via Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, are entities engaged in the production, manufacturing, processing or preservation of goods and commodities.
Last year (in 2020 ) government has revised the MSME definition. The changes in the definition of micro, small, and medium-sized enterprises made as a part of the Atmanirbhar Bharat Abhiyaan relief package. Earlier, the MSMEs were defined on the basis of investments put in, now the revised definitions will also include turnover of the company.
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The new definition of micro, small Critically and medium enterprises:
- Previous definition:
- New definition:
- Changes in new definition:
- Artificial separation between manufacturing and service MSMEs has been removed.
- Investment criteria for such enterprises have been revised upwards, while an additional criterion of turnover has been introduced.
- The definition being changed is done in the favour of MSMEs. It is expected to give them the confidence to grow.
- There has always been this fear, among successful MSMEs also, that if they outgrow the size of what has been defined as an MSME, they will lose their entitled benefits. This is why MSMEs like to remain within the definition rather than grow. With the revised definitions of MSMEs, they will not have to worry about growing their size and can still avail benefits.
- This new definition covers almost 99 per cent of all firms enabling MSMEs to grow in size and create jobs.
- No incremental tax obligation => No fear of losing MSME benefits => Economies of scale => Job creation => productivity gain.
The role of MSMEs in boosting industrial growth and ensuring the success of Aatmanirbhar Bharat Abhiyan in India:
- Since MSMEs produce and manufacture a variety of products for both domestic as well as international markets, they help to promote the growth and development of various product segments and industries.
- Micro, small and medium enterprises (MSMEs) are amongst the strongest drivers of the economy with a vast network of about 6.34 crore enterprises, contributing about:
- 45 per cent to manufacturing output,
- 48 per cent of overall exports,
- 30.5 per cent to GDP, and
- creating employment for about 111 million peope — second only to agriculture.
- Spread throughout the geographical expanse of the country → helps bridging the regional disparities. They help in the industrialization of such areas with a low capital cost compared to the larger industries in cities.
- The sector has consistently maintained a growth rate of over 10%. About 20% of the MSMEs are based out of rural areas, which indicates the deployment of significant rural workforce in the MSME sector.
- India’s vision of becoming a $5 trillion economy is possible when the MSME sector contributes to 50% of GDP. Government is planning to increase the contribution of MSMEs to 50% of GDP by 2024 and create around 15 crore employment by then.
- MSMEs play a key role in income augmentation, building rural infrastructure, women empowerment (Nearly 14 per cent are women-led enterprises), promotion of traditional goods, innovation etc.
- They also played an essential role in the country’s development in different areas like the requirement of low investment, flexibility in operations.
- The 2018-19 Economic Survey clearly established that MSMEs that grow not only create greater profits for their promoters but also contribute to job creation and productivity in the economy.
- They are crucial link and partner in global supply chains and provide dynamism to economic growth.
- MSMEs are known to provide reasonable assistance for improved access to the domestic as well as export markets for businesses.
- MSMEs support product development, design innovation, intervention, and packaging elements of a business.
- MSMEs support the upgrading of technology, infrastructure, and the modernization of this sector as a whole.
- It helps in creating a system that takes pride in local brands, encourages local capacity-building and indigenisation.
- They provide funding support to various banks in the country.
Thus, the MSME has essential role to play in boosting the industrial growth and realising different elements of Aatmanirbhar Bharat Abhiyan e.g. active participation in post-COVID-19 global supply chains, building resilience, promting the idea of decentralized localism etc.
However, the MSME sector is faced with several challenges:
- Impacts of COVID-19 pandemic:
- Study conducted by Khadi and Village Industries Commission (KVIC) revealed that, of the MSMEs affected by the pandemic, more than 50% were shut down and reported a drop in production and revenue.
- The department-related Parliamentary Standing Committee on Industry noted in its report that the stimulus package announced by the government is “inadequate” as the measures were more of loan offerings and long-term, instead of improving the cash flow to generate demand as immediate relief.
- Other problems faced during the pandemic were delayed payments, high informality, low financial resilience, scarcity in raw material availability etc.
- Infrastructure bottlenecks: MSME clusters, particularly the micro enterprises, are inadequately equipped with necessary support systems like new technologies, digital modes of payments etc.
- This makes them unable to take advantage of most Government schemes which are mostly based on digital infrastructure and require beneficiaries to have some form of digital identity and presence.
- Limited capital and knowledge: The majority of MSME owners are from education-deprived and poverty-hit regions. Apart from this, India’s MSME sector usually does not enjoy the same credit worthiness as owners usually do not have any assets in their name.
- Non-availability of suitable technology: Limited access to IT education, knowledge, and information is restricting the growth of the sector which results in slower production processes and compromised product quality.
- Labour challenges: MSMEs face a lot of inconsistencies when it comes to skilled manpower and labour law compliances. Moreover, the non-availability of a skilled workforce at an affordable cost is adding to the woes of the MSME sector.
- Other challenges include Ineffective marketing strategy; Constraints on modernisation & expansions, high competition from cheap imports etc.
Government has taken some steps to address the issues of MSME:
- New MSME definition and removal of artificial separation between manufacturing and service MSMES.
- ANIC-ARISE (Atal New India Challenges in Applied Research and Innovation for Medium and Small Enterprises).
- Production linked incentive (PLI) scheme
- Emergency credit line guarantee scheme
- MSE-Cluster Development Program
- Zero Defect and Zero Effect Scheme
- Honey Mission, Solar Charkha Mission
- Udyami Mitra portal, CHAMPIONS PORTAL SAMADHAAN, SAMPARK and SAMBANDH
- Raising and Accelerating MSME Performance (RAMP) Scheme
- Under Atmanirbhar Bharat 1.0, relief and credit support to MSMEs to fight against COVID-19:
- 3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs.
- 20,000 crores Subordinate Debt for Stressed MSMEs.
- 50,000 crores equity infusion through MSME Fund of Fund.
- New definition of MSME by raising the investment limit and an additional criteria of turnover.
- Global tenders to be disallowed upto 200 crores.
- Relief of 1500 crores to MUDRA- Shishu loans.
- Credit guarantee scheme for MSME Cluster Development Programme.
- Prime minister’s employment generation programme (PMEGP).
- Promotion Of Innovation, Rural Industries & Entrepreneurship (ASPIRE), Scheme of Fund for Regeneration of Traditional Industries (SFURTI).
- MSME portals like SAMBANDH (to address the issues related to delayed Payments), SAMBANDH (Public Procurement Policy Monitoring Portal) and Sampark (jobseekers and recruiters register themselves for getting employment and getting right kind of manpower respectively).
- Portal “Champions” was launched to cover many aspects of e-governance including grievance redressal and handholding of MSMEs.
- A Scheme for Promotion of Innovation, Rural Industries and Entrepreneurship (ASPIRE) aids to set up a network of technology centres and to set up incubation centres to accelerate entrepreneurship
- In-principle approval for loans up to Rs. 1 crore within 59 minutes through online portal.
- Interest subvention of 2 per cent for all GST registered MSMEs on incremental credit up to Rs. 1 crore.
- All companies with a turnover of more than Rs. 500 crore to be mandatorily on TReDS platform.
- All CPSUs to compulsorily procure through GeM portal.
- rationalisation of 44 Central labour laws into broad four codes to address the issue of complex labour laws.
- Single consent under air and water pollution laws.
The government has taken various steps in designing a policy ecosystem for MSMEs to enable them to grow and contribute more effectively to the economy. Some of way forward can be:
- Support the MSMEs in the current pandemic as suggested by Parliamentary Standing Committee on Industry. e.g. Soft loans to MSMEs at minimal interest rate of 3-4%, a larger economic package aimed at bolstering demand, investment, exports
- Integration of MSME sector with global value chains (GVC): It would enable MSMEs to produce quality goods and services which will have greater acceptability in the global market.
- Global Bharat program, designed by NASSCOM, UNDP and others to enable Indian MSMEs become globally competitive by equipping them with digital technologies is a step in this direction.
- A Central Research Institute for enterprises and entrepreneurship at the national level, can foster a conducive environment for the growth of entrepreneurs and development of skill sets. ©crackingcivilservices.com
