As defined by the Micro, Small and Medium Enterprises Development (MSMED) Act of 2006, MSME stands for Micro, Small and Medium Enterprise. It is the highest executive body in India responsible for establishing and enforcing laws, rules, and regulations about micro, small, and medium-sized businesses. To facilitate, promote, and enhance the competitiveness of MSMEs in the relevant state(s)/country, MSME was established and is overseen by the Ministry of MSME (MoMSME), and it includes organisations that produce, manufacture, process, or preserve goods and commodities.
The MSME sector is regarded as the foundation of the Indian economy and has significantly contributed to the country’s socioeconomic advancement. It helps to develop rural and underdeveloped areas and provide employment opportunities.
According to official data, as of August 31, 2021, India has about 6.3 crore MSMEs. Over 60 million people are employed by MSMEs, which also make up 40 per cent of the export market and 45 per cent of the manufacturing sector in India. MSMEs contribute about 8% of the country’s GDP. The compound Annual Growth Rate (CAGR) of MSMEs in India increased by 18.5 per cent between 2019 and 2020. The MSME sector, which has significantly contributed to the country’s socioeconomic growth, is regarded as the foundation of the Indian economy. It contributes to developing underdeveloped and rural areas and creates employment possibilities.
There are currently about 6.3 crore MSMEs in India, according to official data as of August 31, 2021. MSMEs makeup about 60 million jobs in India, generate over 8% of the country’s GDP, and hold massive market shares of 40% of the export market and 45% of the manufacturing industry. From 2019 to 2020, India’s MSMEs experienced a compound annual growth rate (CAGR) increase of 18.5 per cent.
Need for Policy
To build an eco-system that is vibrant for the rapid growth of MSMEs, the policy is needed to promote competitiveness, technology up-gradation, infrastructure, cluster development, dedicated credit, procurement of products, and financial assistance to MSMEs. The policy is also needed to promote a conducive business environment covering “ease of doing business (EoDB)” and providing suitable exit routes. A comprehensive framework of methods and actions for effective adaptation is needed and must be included in state-level legislation. To solidify a national strategy for follow-up at the intergovernmental level, the draught policy paper has to be more widely disseminated, discussed, and receive comments from stakeholders.
To ensure the sector’s rapid expansion, the Ministry of MSME has suggested “particular action areas” in its proposed National Policy for MSMEs in India. Intergovernmental Roles and Responsibilities, the Legal and Regulatory Framework for MSMEs in India, Access to Finance/Financial Assistance for MSMEs, Technology Upgrading/Adaptation, Skill Development, Knowledge Management, Ease of Doing Business, Development of MSME Code and Exit Code are among the action areas. The Micro, Small, and Medium-Sized Enterprises (MSMEs) sector is active and dynamic. Here is a quick analysis of the draught policy’s action areas.
Intergovernmental role and responsibility
The three-tier governance structure plays a significant role in the growth of the MSME sector as a facilitator; therefore, each level of government is expected to take particular measures. The following national government initiatives are made: (a) alignment of national policy documents at the state level; (b) development of standard registration procedures & interstate platform for exhibitions & seminars; (c) regulatory framework review; (d) promotion of R&D activities for development; (e) development of a framework for supply chain mechanism; (f) development of synergy with ministry initiatives; (g) identification of MSME action agenda; and (h) development of measures to protect employees, Creating an integrated database, a network of sharing technology, documenting best practises, establishing online access or a grievance redressal system, and designing an appropriate tracking system for prompt payment are just a few examples.
Actions taken by the state government include: (a) developing a state policy on MSME that is consistent with the federal policy, (b) establishing state facilitation councils or promotion councils, (c) determining focus areas, (d) holding stakeholder meetings at the state level, (f) regularly updating databases, (g) documenting best practises, (h) assisting in the creation of value chains or connecting enterprises, and I integrating state portals with federal portals.
District government initiatives include the following: (a) districts should serve as focal points for the MSME framework at the sub-state level; and (b) MSMEs facilitation centres should include a broader range of stakeholders.
All of the measures outlined by the three tiers of government will improve the MSME sector, subsequently decreasing latent unemployment and creating local jobs. These measures will also result in the efficient use of local resources. Thus, increasing money at the district level will lead to better infrastructure. Additionally, these actions will reduce the number of local workers who relocate to other regions of the nation, protecting them from various challenges.
Due to the limited funding and technical assistance availability, implementing these steps at the district level becomes unfeasible. Furthermore, it is challenging to grow faster due to underdeveloped infrastructure.
Legislation / regulatory framework for MSMEs in India
The Ministry of MSME has significantly improved the MSMEs’ classification criteria to simplify regulatory requirements. Which are:
- MSMEs must adhere to each state’s regulatory framework;
- To address delays and case bindingness, each district needs a growing number of facilitation councils;
- Bringing “Samadhaan” to the attention of MSME borrowers;
- The primary concern in the event of insolvency of any organisation should be paying MSME obligations;
- For a more orderly exit of MSME, the focus should be placed on the respective state governments building a suitable legal structure;
- Creating an internet platform for local organisations chosen by state governments to handle complaints;
- To reduce the incidence of NPAs and improve liquidity, disputed cases must be resolved within 90 days;
- The registration and licencing of micro, small, and medium-sized enterprises, as well as the approvals and inspection process, must be made more straightforward; all states must adopt the model law to bring about uniformity;
The MSME code must be developed, various agencies must be established for ease of business, and a thorough and agreed-upon exit strategy must be recognised.
Because more businesses will be established due to the ease of doing business, generating more money and jobs, and allowing businesses to concentrate on their core functions, greater transparency will ensue.
Online resources offer a quick and fair way to handle complaints. By reducing red tape and increasing consistency across the nation, uniform laws will result in a more straightforward and more effective legal system. With universal in-laws, bias against any one state will be eliminated.
With the introduction of increased company accessibility, there is a significant risk that companies would disregard numerous regulations and eventually fail. MSMEs are typically so small that they cannot comprehend the specifics of online query submission. It is hard to adopt a single model law because each state in India has a unique cultural history. While it is theoretically conceivable to have coordination between multiple government departments, MSME policy also strongly emphasises the establishment of separate agencies. The variety of legislation will cause MSMEs challenges, yet they can be straightforward.
Access to financial/financial assistance for MSMEs
The draught policy has directed several plans and procedures because of the delay in obtaining the necessary financing.
- Putting a focus on enhancing accessible sources of money by bringing standardisation and streamlining the loan application process;
- Assessing the creditworthiness of MSME borrowers utilising a variety of techniques to help;
- Swift in-principle approval for the bank, as well as the establishment of new programmes like the MSE-CDP and the Fund for the Regeneration of Traditional Industries (SFURTI) in addition to the current programmes.
Since the initial credit eligibility of MSMEs is still in doubt, and quick clearance is highly challenging owing to the working environment in public sector banks, concessional rates are not readily available regarding modest amounts.
Technological advancement
The proposed policy’s main objectives are to apply new-age technology through creating indigenous technology through technological collaboration with international partners, adjusting to new procedures, and paying close attention to quality. It also emphasises setting up Centers of Excellence with specialist staff to regularly research the problems MSMEs confront, as well as establishing incubation centres for product development and connecting them to appropriate businesses.
It also emphasises solving the issue of the unskilled workforce’s technological adaptability and the shortage of trained labour. Additionally, it discusses the establishment of Tool Room Training Centers nationwide to guarantee technology-related skill development at every district level.
By providing our skilled and unskilled labour force with training in technological advancements that will boost productivity, decrease time and operating costs, and develop new industrial units, the draught policies indicate.
The absence of modern technology and periodic upgrades is one of the urgent problems preventing MSMEs in India from developing and growing. It also makes small firms undesirable in the global export market. Any industry or sector that wants to expand must be prepared to deal with the pace of technological change. The government should support these upgrades and adaptations through its policies and other improvements in terms of resources and money.
Skill Development
According to the draught policy, nodal centres should be established in the district for skill development training based on the demand for the skills that businesses need and the specifics of the programmes that the training organisations will present in the following six months. A cell at the centre for specific industries was also suggested, along with information on the training sessions to be held and their requests.
Along with its awareness campaigns, a calendar of various short-term training programmes should be created and posted on the websites of various entities and cells.
The MSMEs will benefit from the training programmes by obtaining trained labour and increasing production. Additionally eligible for increased pay is trained labour.
Due to a lack of awareness, MSMEs frequently hesitate to train their workforce. Information about training programmes might not go to every company.
Knowledge management
Artificial intelligence and creative & inventive knowledge management must be pushed for an enterprise’s internal and external processes. To generate information through data analytics for all the MSME linked offices at the significant level-one network, it is proposed that identified entities receive statutory, legal, and financial support for knowledge creation and dissemination as well as support for incubation to encourage knowledge-based innovative ventures.
To inform businesses about artificial intelligence applications in the relevant industries, state government data on MSMEs is to be linked with a central aggregator. Additionally, businesses and entrepreneurs should be encouraged to share pertinent information that will be posted on the website.
Encourage small businesses, especially those in rural regions, to use online methods for updating data and information on the leading portal to run their operations and to share and convey knowledge with other stakeholders. Utilizing data analytics and artificial intelligence, coordinate with the district- and local-level organisations such as financial institutions, insurance companies, and educational institutions.
Promoting artificial intelligence is urgently needed because it will speed up internet processes. The promotion of enterprises that will enable them to compete globally should use real-time data.
Technology adoption in the MSME sector is highly challenging due to a lack of funding and technical know-how at the local level.
Ease of doing business (EoDB)
Encourage local business owners, particularly rural ones, to use online tools for data and information updates on the leading site so they can run their operations and share expertise with other parties. Using data analytics and artificial intelligence, coordinate with district-level and local organisations, including banks, insurance companies, and training facilities.
The current imperative is to promote artificial intelligence because it will hasten and speed up online processes. Businesses that want to compete globally should employ real-time data in their marketing campaigns.
It is challenging for the MSME sector to implement technology due to a lack of local funding and technical know-how.
Exit Code
It is necessary for MSME to adhere to the fast-track insolvency resolution process outlined in the IBC code 2016 exit code. Fast dispute resolution through arbitration is necessary, and sick MSMEs must be given rehabilitation through the establishment of a separate rehabilitation fund. Establishing independent rehabilitation funds will aid in recovering from the financial loss, and banks can provide early warning indications so that data input can be monitored by partners, but the distribution of funds to the necessary MSMEs is an essential worry.