The MSME sector does not need more laws and regulation but handholding and support in India

The importance of the MSME in the economic and social development of the country, especially for developing nations, has been established in various studies conducted by the international institutions. In India, the role of SME is proven by the fact that they contribute about 30 per cent of the GDP and 45 per cent of the total export. The MSME sector is the main source of providing employment opportunities in India – about 12 crore people are employed, thus playing a significant role in promoting equitable and inclusive growth.

The government mission of promoting startup culture in the country also hinges on the growth and development of the MSME sector, thereby, encouraging innovation and creativity among the youth and budding entrepreneurs. Despite the role MSME plays in socio-economic development, this sector is unable to perform up to the immense potential and talent of Indian entrepreneurs.

The challenges faced by the sector have been discussed many times by the academicians and government, which include non-availability of adequate credit, regulatory issues, skill development technology upgradation and marketing the products, beside procurement of raw materials. Non-realization of dues /bills timely for goods and services provided from large firms has also been a matter of major concern for the sector.

Another serious challenge has been the non-availability of reliable data about the MSME. Though there are reported to be more than 70 million MSME in the country, the registration on the government portal has been only 11 million of them.

The government policy has been to make it voluntary for registration and despite the simplification of the process and online system designed, the registration of MSME is very less at 15 per cent. Existing approach may need to be revisited to ensure every MSME register, which is the basis on which any support or policy initiative can be designed and made effective for addressing the sector’s challenges.

Fortunately, the government initiative for labor registration through the Ministry of Labour and farmer registration by the Ministry of agriculture has been quite successful. More than 90 million farmers registered after the announcement of the PM Kisan Samman Nidhi Yojna. These are all E-KYC authenticated and land details verified through land registration database.

Farmers’ data is now very useful for the government to address some of their concerns. Even the Kisan Credit card scheme has a database of more than 50 million farmers. Thus, an appropriate incentive scheme, benefitting each one, can help and support the government in developing a reliable data base of the MSME sector. The other example is that of labour registration. The Ministry of Labour utilised the network of five lakh common service centres (CSCs) who supported in advocacy, mobilisation and registration of more than 170 million labourers out of 283 million registered so far. The registration exercise was taken as a mission and every agency of the government provided the desired support.

The incentive of Rs 20 provided by the Ministry to the CSCs for every registration played a significant role in this. Thus, the MSME Ministry needs to organize the registration on a war footing in a mission mode and utilize the CSC and postal department network with appropriate incentive. The MSME are generally apprehensive of the government regulation. The MSME units need to be locally supported in explaining the benefits of the registration.

In the case of MSME, some more incentive may be required to allay fears of government regulatory overreach. Universal Insurance scheme, similar to PM Fasal Bima Yojna can be one incentive. Beside every MSME shall be provided an MSME card like the Kisan credit card with three years cash credit limit (this will also help in addressing the liquidity issues). A digital identity for each MSME with a free domain name and a website can be other incentives.

The pension scheme designed for the MSME needs to be revisited and the limit of pension be enhanced to Rs 10,000 from the existing Rs 3000 (the existing scheme has been a non-starter for traders).

With such a comprehensive package and mission mode approach, all the MSME in the country can be registered on the Udyam Portal and sectoral intervention by the various Central Ministries and state governments can be designed and implemented effectively, more transparently and within a defined time frame. Once there is an API for account, PAN and e-KYC, a reliable database for the MSME in the country can be developed and made the stepping stone for sustainable growth and exploitation of sectors full potential in nation building.

The issues faced by the MSME are quite similar to the ones faced by farmers. The MSME contribution to the nation’s GDP is also significant. The MSME provides employment to a large section of the population and addresses the unemployment issues. The criticality of MSME in nation development can in no way be underestimated as compared to agriculture. Why is the requirement of MSME not supported as comprehensively as in the case of the farmers? One reason is that the collective bargaining power of MSME is not as strong as that of the farmers due to diversity in the activity and spread. The trader’s organization CAIT needs to play a more effective role in enabling the sector to get government support.

There is a need to appreciate the role being played by the MSME in the country and reexamine the policy intervention. The approach to resolve the issue of untimely or nonpayment of dues of the MSME units by large companies or government agencies by enforcing the provisions of “the interest on delayed payment to small scale and ancillary industrial undertakings Act 1998” has not been much relevant in Indian Context. Similar provision has been made in the MSMED Act 2006. Even the requirement to mention the outstanding of the MSME in the annual account of the companies has not been able to solve the liquidity issues of the MSME.

There is a need to relook at the Factoring Act and free the sector from regulations which are hindering the growth and evolution of this intermediary who can to a great extent address the issues of liquidity of the MSME sector. There is a need to relook at the stamp duty provision for assignment of the debt. Making factors more flexible and incentivising them may be desirable as they can be an effective tool to enable to a large extent meet the liquidity concern of the MSME.  Even the approach of including lending to MSME under priority sector and fix limit has very limited impact in resolving the issues of credit access to this sector.

The MSME sector does not need more laws and regulation but handholding and support in India. The inherent ability and talent of Indians to set up and build sustainable enterprises is widely recognized. Regulation should not impinge on innovation, flexibility and capability of this vast pool of resources, who are mainly youth, especially in small and medium towns and rural India. With digital India Initiatives, the approach to the MSME sector needs to redefine both at the Central and state level

(The author, an ex-IAS officer, is former CMD, Common Service Centre, IT Ministry)