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[Answered] Promoting and strengthening the Micro, Small and Medium Enterprises (MSME) sector can help in achieving inclusive growth. Comment.

Demand of the question Introduction. Contextual introduction. Body. Discuss how MSME sector can help in achieving inclusive growth? Mention challenges faced by MSMEs in India. Conclusion. Way forward.

The Micro, Small and Medium Enterprise sector is crucial to India’s economy. There are 30 million enterprises in various industries, employing 69 million people. Nationwide, Micro, Small and Medium enterprises (MSMEs) have been acknowledged as the engine of economic acceleration and for promoting progress. The sector is critical for employment generation and for the development of Indian economy by increasing the standard of living of the people. In this way the MSMEs play a significant role in inclusive growth of Indian economy.

How can the MSME sector help in achieving inclusive growth?

  1. Employment: As MSMEs are usually labour-intensive, they have the ability to create more jobs. MSME sector is the most useful vehicle for inclusive growth in India due to its inherent nature of large scale employment creation in the shortest possible time, especially to people belonging to weaker sections of the society.
  2. Rural entrepreneurship: According to 2011 Census 68.84% people are living in rural areas of India. People in rural areas suffer with unemployment, poor infrastructure facilities which may be solved with the development of the rural entrepreneurs. There is a lot of scope for rural entrepreneurship in MSMEs sector economy which plays a vital role in providing employment and income for the poor and unemployed in rural areas.
  3. Non-agricultural livelihood: Indian MSME sector offers maximum opportunities for both self-employment and wage-employment outside the agricultural sector and contributes in constructing an inclusive and sustainable society.The rural non-farm sector in the form of rural SMEs absorb those released from agriculture but not absorbed in the urban industries.
  4. Female participation: 20% of Every 1000 MSMEs in India are women Owned. MSMEs provide a platform for female participation, especially being informal in nature. MSMEs act as an imperative instrument for the development of women and realize the goals of economic growth and development of the nation.
  5. Better pays: In addition, evidence suggests that small enterprises provide better stability, higher pay and better benefits to their employees than large enterprises and informal firms especially to unskilled labour force. This enables poor to earn more and save more for their welfare.
  6. Cheap products: MSMEs comprise the majority of firms which have much deeper and market penetration than foreign firms. Local SMEs are often the principal provider of goods and services in lower and middle income communities. Thus, they provide affordable products to poor and middle income families leading to more savings.
  7. Reduce inequalities: MSMEs help in developing infrastructural facilities like roads, power, bridges etc. It reduces the gaps and disparities in income between rural and urban areas. Rural MSMEs can avoid the migration of people from rural to urban areas in search of jobs.

Challenges faced by MSMEs in India:

  1. Problem of Finance: An important problem faced by micro and small enterprises in the country is that of finance. Most banks are reluctant to lend to MSMEs because from the perspective of bankers, inexperience of these enterprises, poor financials, lack of collaterals and infrastructure.
  2. Problem of Raw Material: A major problem that the micro and small enterprises have to contend with is the procurement of raw material. Procurement of raw material at a competitive cost and shortage of raw materials is a common problem. The small units that use imported raw material face raw material problems with more severity mainly due to difficulty in obtaining raw material either on account of the foreign exchange crisis or regulator delays.
  3. Access to modern Technology: The lack of technological know-how and financial constraints limits the access to modern technology and consequently the technological adoption remains low.
  4. Government policy/infrastructure related challenges: MSMEs face bureaucratic hurdles and red Tapism. Delay in getting power connection, water connection, permission of concerned authorities to discharge effluents, etc. are some of the issues faced.
  5. Marketing related challenges: Lack of entrepreneurial, managerial and marketing skills and lack of professionally managed top management along with ineffective marketing strategy is a major hurdle in success of MSMEs. Non-exposure to best management practices in manufacturing, marketing, distribution and branding and lack of adequate information hinders their productivity.
  6. Labour related challenges: Lack of skilled manpower for manufacturing, services, marketing, etc. is a big issue for MSMEs. Further, multiplicity of labour laws and complicated procedures associated with compliance of such laws impact MSMEs ability to grow.

Way forward to strengthen the Micro, Small and Medium Enterprises (MSME) sector:

  1. Access to credit: Government of India and banks should design plans and measures to widen easy, hassle-free access to credit. Ministry of MSME implemented Credit Guarantee Fund Scheme for providing financial assistance to MSMEs. Government must ensure that banks should enable timely credit to MSMEs. The establishment of the MUDRA (Micro Units Development & Refinance Agency Ltd.) bank under the Pradhan Mantri MUDRA Yojana has been a major initiative.
  2. Coherent policy and regulatory frameworks: Coherent regulatory frameworks can provide an enabling environment to foster MSME development. Barriers to entry, including technical regulations, compliance with Environment, Health and Safety (EHS) standards, labour laws and regulations need to be addressed.
  3. Infrastructure: Government should provide enhanced development and upgrade existing rail & road network and other infrastructure facilities in less developed and rural areas to boost growth and development of MSMEs.
  4. Human capital: Skill development and imparting training to MSME workers is a crucial step to increase the productivity of the sector. The government should emphasise predominantly on skill development and training programs. Skill India, Startup India are important initiatives in this direction.
  5. Technological know-how: There should proper research and development in respect of innovative methods of production and service rendering. Further, the government should promote and subsidise the technical know-how to Micro and small enterprises.

Therefore, while emphasizing the crucial role of MSMEs in creating employment, it could be useful to highlight their potential as decent jobs providers. This means not only formulating policies at enterprise level for improving human capital, efficiency and productivity of MSMEs, but also launching structural transformation that provide a regulatory framework conducive to their growth.

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