The exodus of migrant workforce has brought the MSME sector to the centre of national discourse. The figures being reeled off are staggering…over six crore units employing over 12 crore people, contributing 30% of the GDP and nearly 50% of our exports. MSME sector is also going to be a key part of a global supply chain ecosystem that an “Atmanirbhar” Bharat aims to create to attract global organisations. Indeed, one of the key factors multinationals consider, before setting up shop in a country, is the ancillary support system that it provides to bolster its supply chain.
After agriculture, this sector employs the maximum number of Indians. This is where the tragedy is unfolding as millions are losing livelihood leading to the exodus. MSME sector has been under stress even before COVID. Let us consider the key factors that are ailing this sector:
Liquidity/Credit – Only about 16% of MSME get formal credits/loans and the rest have to fend for themselves through informal routes on higher interests. In this light, the government’s Rs. 3 Lakh crore collateral free loan facility and another Rs. 30,000 crore liquidity infusion to NBFCs, lenders and microfinance institutions are very welcome steps. However, government will need to provide this facility on a sustainable basis and not temporarily just to avert this immediate COVID crisis.
Infrastructure – Once an MSME is able to cross the liquidity barrier, it gets embroiled in issues related to ‘Bijli and Paani’. Adequate land at an appropriate price, power and water supply, efficient logistics and other infrastructural bottlenecks restrict their day-to-day operations, let alone future growth prospects. Compare that with countries like China, Vietnam etc., where they have built, ready to move in factories with plug and play facilities, and you realise the enormous gap. New states like Telangana, who are starting afresh, are developing high quality industrial corridors. However, states like UP and West Bengal alone, which house 25% of MSMEs in India, are unable to provide better infrastructure to their existing industrial belts, due to various reasons including apathy of local authorities but primarily because of lack of additional land due to restrictive land laws.
Restrictive laws/Bureaucracy – You will hardly find an MSME having all the NOCs needed to run their operations. Not that they have any wrong intentions but because the laws are so archaic and restrictive, it is practically impossible to follow all the rules. That puts them completely at the mercy of babudom, who treat them as their ‘golden goose’. The MSME owners setting aside a significant budget to pay off local babus, is a well-known secret. Even during the ongoing COVID crisis, one has heard of instances where under the garb of social distancing norms, the local officials were extracting 5,000 to 10,000 rupees per day as bribes from owners for allowing them to operate their units. On top of this, the bureaucracy has a feudal mind-set towards this sector and treats it as devil-incarnate. Even when the centre allowed the start of commercial activities in red zone, there were reports from many areas, of local authorities refusing to issue passes to MSME owners, making it impossible for them to run their units. There are many such instances where, even though the centre relaxes rules for MSMEs, the local authorities, asserting themselves, tighten the screws overlooking guidelines from top.
Hence, in such a restrictive environment, where the owners have to spend most of their time in sorting out bijli, paani, compliance issues and dealing with unresponsive bureaucracy, where is the time for them to think of product development, innovation, improving efficiencies and growth? The MSME ministry has taken appreciable initiatives in developing Common Facility Clusters, but unfortunately, most of them are ineffective as MSME owners are completely occupied, surviving on a day-to-day basis, having no time left to focus on development matters. There is no point building higher floors when the foundation is so weak, it is bound to crumble.
So how do we strengthen the foundation?
Firstly, the MSMED Act, 2006 needs to be completely overhauled, and instead an MSME Code needs to be created, which unshackles the sector from myriad as well as archaic laws and provides for easy access to land, capital, labour with added social security provisions, while freeing up the sector from over regulation.
Secondly, release the sector from the tyranny of local authorities and put it under a central nodal agency, which has a direct line of sight with the Chief Ministers of the states. The agency would be responsible to implement the MSME Code across the country. It may consist of bureaucrats; however, at least half of the folks should be lateral hires, experienced people from the industry and services sector. The primary approach of the agency would be of “service” rather than “suzerainty”, “contributing” rather than “extracting”. It would also guide & support MSMEs on capability development and growth.
This would provide a strong foundation, based on ‘partnership’, ‘trust’ and ‘transparency’. Prime Minister often talks about winning ‘Vishwas’ and leads from the front, setting an example for the government machinery to follow. The Prime Minister has also lived up to his promise of ‘na khaunga, na khane doonga’. However, this need to start percolating at levels below in the states, especially in the context of MSMEs, as around 90 to 95% of their dealings are with the local authorities. It is a big ask, however, perhaps we have never ever had a more decisive and determined Prime Minister than Modi. Hence, this is our best chance of bringing about these radical changes.
In addition to being a key cog in the wheel of a global supply chain hub that we are aiming to create in India, the MSME sector is going to be the biggest employer for the teeming millions of Indians who are entering and are going to enter in the job market in the future. Hence, it is about time that we won the “Vishwas” of this “Golden Goose” of our country.