Quandry, the present state of MSMEs

IN PERSPECTIVE

The Micro, Small and Medium Enterprises (MSME) sector, besides being the largest jobs provider in the country after agriculture, also contributes to more than one third of the country’s manufacturing output, almost half of the country’s exports and provides approximately 85% of the jobs in the industrial sector. It is the sector which does not ask for any subsidy or concession, like other major sectors of the economy do. Ironically, despite being called the backbone of the country’s economy, this is the sector which is never successful in getting itself heard by the powers-that-be.

Governments either listen to agriculturalists’ problems, as they are the vote-deciders, or to corporate houses, as they are the players having huge influence. The MSME promoter neither commands votes nor does he command heft. He keeps on working silently as long as he can and if he can’t anymore, simply dies his own painful death without even leaving a trace behind. Does he really deserve such a fate?

It makes for usual news that the Prime Minister had a ‘brainstorming session’ with industrialists to know their problems. The attendees are businessmen like Tata, Godrej, Ambani, Birla, Adani, L&T, Unilever, etc. They definitely are highly distinguished personalities with a lifetime of hard work and experience behind them, but the thing is, the problems of the country’s 63 million MSMEs and those of few hundred large corporate houses are entirely different from one another.

The large corporations discuss land acquisition policies, always needing hundreds of acres of land. The MSMEs are usually located on plots of a few hundred yards to a few thousand yards, and they are not concerned with land acquisition policies. While the big players discuss the labour (exit) laws, being employers of thousands of workers, the MSMEs are usually fine with the existing labour laws, being employers of smaller labour forces. The corporates discuss the Foreign Direct Investment (FDI) in power sector and in getting the norms simplified for captive power generation, whereas the MSMEs are more interested in supply of power at reasonable rates by the respective power corporations. While the MSMEs are more concerned about banks’ interest rates, the larger ones are more interested in simpler SEBI (Securities and Exchange Board of India) norms for equity issues or simplified norms for foreign currency loans, and so on.

The worst of it all is that when punitive laws are framed, based on the country’s experiences due to large corporations’ undisciplined financial affairs, the MSMEs are treated equally harshly. Draconian acts like Insolvency and Bankruptcy Code, 2016 (IBC), unfortunately, are equally applicable to MSMEs also. Thousands of MSMEs have been wound up for liquidation under this law in the last three and a half years since it became law. It is really pitiable.

The government must appreciate that the agricultural sector reached its saturation long ago as far as providing employment is concerned. For the perpetually migrating unemployed youth from villages to cities, the availability of government jobs is limited. This, in fact, makes the MSME sector an important policy tool which, if used correctly, can provide almost unlimited job opportunities.

An arguable fact is that since the advent of the era of liberalisation in the early nineties, which was ushered in for the larger good of the country, the entrepreneurial appetite of educated youth has died gradually. New entrepreneurs were not able to face the tough competition brought about by emerging globalisation in the country. Almost every undergraduate engineer, who earlier used to be eager to set up a unit after completing his degree, in contrast, is now only interested in getting a good job in a large company. First-generation entrepreneurs are hardly to be seen in the last few decades. The government’s much-hyped ‘Skill India’ and ‘Make in India’ have obviously not helped matters much.

The situation needs some out-of-the-box thinking. For that, the government will have to come out of its ‘denial-mode’ first, trying to make us believe that everything is hunky-dory with the economy. Laws will have to be suitably amended to ensure that the actions of promoters, taken in the normal course of business, are not seen through the prism of criminal laws. The promoter of a defaulting entity should have a “first right of denial” to the terms agreed with the potential buyer/asset reconstruction companies. The policies should be evolved with a view to encourage educated youth to become employers. The policymaking for MSMEs should involve MSME promoters with long experience.

The situation that has arisen due to the onslaught of COVID-19 is perhaps the toughest-ever challenge to the world. The entire dimensions of the disaster are yet to dawn on us. Naturally, the most fragile sector of the economy, the MSMEs, is the worst hit.

The government at this juncture has a very vital role to play. The repeated interest rate reductions by the Reserve Bank of India in the last one year are a welcome change in a long time. The recent financial package announced by the central government also seems to hold promise for MSMEs, including those MSMEs that are under stress. However, implementation on the ground will be the key for the resurrection of the flagging MSME sector.

(The writer is an engineer and entrepreneur based in Ghaziabad, Uttar Pradesh)