MSME: The favorite stepchild?

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MSME has been called as the favorite stepchild of the makers of Industrial Policy in India. It is favorite because they mention about MSME in every discussion they have on industry and the word stepchild is used as it is a sector where bold policy moves have failed to make the MSMEs more productive and competitive even though it has a contribution of 20% in GDP and have been employing about 110 million workers. It also has a lack of competitiveness. In general, the MSMEs of India are not becoming larger and more dynamic with 99% of the estimated 60 million being micro-enterprises with limited aspiration

The status of stepchild has begun to change under the present NDA government to fight against the crisis of COVID-19 the government included MSMEs as the only industry group supported with a financial package

One of the reasons behind China’s growth as an industrial powerhouse is because of the lack of dynamism of micro-enterprises of India with this being usually attributed to the large coastal SEZs with liberalized regulations tax benefit and duty-free imports which in attracting foreign capital and technology. China’s industrial growth is because of the launch of micro-enterprises which is called ‘town and village enterprises.’ China changed the ownership law which allowed private investment in them.

The 99% of India’s MSMEs are micro-units because of two reasons the first reason is that our policy legacy of restrictive asset-based definition coupled with the mindset and Concordantly, policies to support the narrative of smallest beautiful the second reason is that they would have to follow certain terms and regulations if converted from micro-units

As mentioned earlier that the most MSMEs are micro with low assets and over 90% of them are outside the formal credit system to which funds are unable to access for the improvement of this sector which leads to poor productivity and low competitiveness in this sector.

To avoid the situation, we need three policy interventions. The first intervention has to get more MSMEs into the formal credit system. The second intervention would be to de-average and implement a simplified tax and regulatory resume for MSMEs and reduce the cost of compliance. The third intervention would be to develop a comprehensive digital platform for the development of the sector.

As the launch of Atma Nirbhar Bharat Abhiyan by India for the economy during the pandemic of COVID-19 helped the Indian industries to improve and sustain its global competitiveness

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