India’s aim of a $5 trillion economy must deal with collapsing MSME.
The budget should consider including provisions to strengthen manufacturing and make doing business easier for small and medium-sized businesses (MSMEs). Such distributions can assist smaller players in surviving and scaling up more efficiently.
Why should the status of MSMEs be improved?
Experts agree that improving the availability of credit, technological advancement, and simplicity of doing business are all necessary to give manufacturing MSMEs a competitive advantage. Well-established initiatives will make the sector self-sufficient and encourage businesses to take the next step in their entrepreneurial journey.
With 63 million MSMEs across the country, the sector accounts for more than 30% of the GDP and has the possibility of expanding even further. The year before, Union Minister for MSME Narayan Rane stated at an event in Mumbai that MSMEs’ contribution to the economy was critical to India’s growth path. “The ambitious target of a $5 trillion economy with a 25% participation from the manufacturing sector will necessitate a pivotal role for the MSME sector,” he said.
With Budget 2023 approaching, there is a chance to make sure that manufacturing receives an increase for small and medium-sized businesses. Economic expansion pangs are more demoralizing than birth pangs for small businesses in India. Most of them continue to stay in the size they were founded in, as entrepreneurs frequently have difficulty balancing their ambitions and growth needs.
Arun Singh, the chief economist of Dun & Bradstreet, claims that out of 100 organizations, 50 to 55 percent are microbusinesses, and 40 are small and medium-sized enterprises in the majority of industrialized countries.
High compliance and regulatory burdens are one of the primary impediments to MSMEs’ growth. According to industry observers, most MSMEs do not want to grow. They prefer to remain small — even sometimes shatter — to avoid becoming the target of ineffective regulatory policy.
According to Shridhar Kamath, Partner-Consulting at Deloitte India, if India is to become a $5 trillion economy, MSMEs must evolve to the next level and become larger companies. We will simply grow into a vacuum unless we have a consistent pipeline and evolution. “We’ll only be able to travel a certain distance before becoming stuck,” he says.
Several elements are necessary for this growth, the most important of which is to improve these companies’ access to credit. Industry participants agree that a small and medium-sized business emergency line of credit is available.”It is crucial to notice whether this might be increased and enlarged in any form imaginable to aid smaller players in setting up their organizations more rapidly and efficiently. Aside from that, Kamath believes that the objective should be to encourage such participants to upgrade technology by making it simple to do so. This would considerably increase the performance of manufacturing organizations.
According to MSME players, a good approach would be to classify various companies based on their size and qualitative strategies based on that.
According to the Director of Bengaluru-based agri-electricals company Himlite Products, Mr.Jayanth Mutha, one way to make such grouping more effective is to classify companies based on their employee strength. Payment protection will be critical for such businesses for them to survive.”He emphasizes that many MSMEs with the ability to expand to a higher level lack the requisite investment capacity, and as a result, providing these organizations with industrial property for rent should be the goal. A large number of MSMEs would profit from taking this step. They must be motivated to move on to the next stage of development.”
For enterprises to survive, Mutha cautions that such measures must be put into place as soon as possible because MSMEs’ manufacturing is still at a stop as of right now. They are on the verge of extinction in their current form.”The government must acknowledge this is the fact and design laws to meet both possibilities, so they must either rely on government handouts or seek a road of self-growth that will get them to a moderate or survival scale of existence,” he argues.
Others believe that, while PLI schemes are beneficial to the sector, more initiatives can be implemented to help businesses keep up with the times. According to Mahavir Pratap Sharma, Past Chairman of the Carpet Export Promotion Council (CEPC), income tax clauses should be enhanced. Since most SME sector starts are proprietorship or partnership firms, which save on taxes and ultimately become more compliant, it would help the MSME sector as well if the income tax band for individual persons improves. The current range of 14–15% for MSMEs’ term loans or credit limit interest rates is incredibly expensive.
He goes on to say that banks do not require as much collateral from huge companies as they do from SMEs. It is preferable if leverage can be linked to an interest rate. This will be a fantastic step for MSMEs that not only have facility, equipment, and stock hypothecated on loan to the bank but also supply collateral, adds Sharma. If the collateral security is better, a lower will rate as banks may have fewer risks.
The last call.
There are over 63 million MSMEs in India, which employ approximately 110 people and are an essential foundation of the Indian economy. However, 99% of businesses remain in the micro-stage of their life cycle. This industry is plagued by low productivity, inefficiency, and limited resources, all of which contribute to poor global competitiveness.
Edited by Prakriti Arora