India needs a new MSME ecosystem post Covid-19 crisis

Atma Nirbhar Bharat Package offers nothing to informal sector workers
Atma Nirbhar Bharat Package provides some basic benefits to informal workforce, but offers no solution for reducing informality in labour market.

By Naliniprava Tripathy and Darshan Gosalia

MSMEs in trouble: COVID-19 has triggered an unprecedented crisis with the nationwide lockdown announced to control the second wave of the pandemic has given a grievous blow to Indian economy. The policy makers were involved in efforts to revive the economy when the deadly coronavirus struck. They had taken various monetary and fiscal measures to boost economic growth. The onset of the Covid-19 pandemic seemed to have nullified the effect of all measures taken earlier.

The government announced a package of liquidity and fiscal measures to support low-income households, farmers, the finance sector as well as Micro, Small, and Medium Enterprises (MSMEs). Atmanirbhar Bharat, a programme aimed at making India self-reliant, was launched to rebuild the country’s economy after the pandemic crisis. The idea was to make India a more significant part of the global economy. The government announced a stimulus package to provide benefits to MSMEs, labourers, migrants, needy people, and businesses to support the Indian economy.

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Strong MSMEs key to self-reliant India

The plan to make India self-reliant rested on five pillars — economy, infrastructure, systems, demography, and demand. This approach strengthened the economy and increased its resilience with the mantra ‘vocal for local’. With a total allocation of Rs 29.87 lakh crore, three Atmanirbhar Bharat packages were announced by the Narendra Modi government. Its five tranches contained packages for businesses, MSMEs, the poor, and farmers. The government announced a slew of reforms intended to benefit the people, worst hit by the pandemic. Various schemes were launched to benefit MSMEs by providing collateral-free loans, setting up a fund of funds, and providing support to stressed MSMEs that have NPAs.

MSMEs are at the heart of the Atmanirbhar Bharat scheme. They assume a significant role in the efforts to accomplish the vision of a confident India. Strong MSMEs are key to realising the dream of a self-reliant India. They form the backbone of the Indian economy. Six crore MSMEs employ approximately 40% of India’s non-farm workforce, contributing nearly 25% of India’s services output and 33% of its manufacturing output.

India is primarily an agrarian economy. Agriculture can undoubtedly help India in becoming Atmanirbhar. India can boast diversity in agricultural produce. Combining MSMEs and agriculture can help revive the Indian economy at a much faster pace. Agro-based MSMEs would be advantageous for both the farmers and rural entrepreneurs and can be a key driver of India’s growth. Industry sectors such as healthcare, consumer electronics, organic chemicals, machinery, apparel, solar power equipment, telecom, AI-based products, and services also hold promise for MSMEs.

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Need a new MSME ecosystem

Policy makers, industry leaders, and industry associations must foster mass entrepreneurship and inject dynamism into the MSME sector. An actionable operationalisation plan and metrics to track and measure success are also needed. It is also essential to take steps to shape a new MSME ecosystem. Encouraging the formation of incubators in every major city would go a long way in creating entrepreneurs and fostering entrepreneurship spirit. Indian MSMEs may be open to forging joint ventures with foreign players that will allow them to tap technologies to generate quality jobs in India.

Technological development can open up opportunities for MSMEs by enabling them to access market-relevant information and credit via peer-to-peer lending, crowdfunding, and cryptocurrency-based securities. It is also equally important to have better roads, railways, ports, airports, and telecom infrastructure to strengthen the MSME ecosystem. It is essential to set up an agency that could channelise investment into MSMEs. To increase Indian firms’ productivity and competitiveness, reforms must push formalisation of the Indian economy and make it more inclusive.

(Dr Naliniprava Tripathy is Professor (Finance) at IIM Shillong. Darshan Gosalia is a management professional and IIM Shillong alumnus.)

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