Tuesday, December 5, 2023

The Ladder of Development

By Satish Singh

The Micro, Small and Medium Enterprises (MSME) sector remains the largest source of employment generation globally, including India. In India, this sector is a pioneer in the manufacture of consumer products, industrial, Agro-based and handmade products, equipment, machinery & its components etc. It is also playing an important role in increasing demand and supply. Foreign exchange is also increasing by the help of this sector. This sector is significantly contributing in accelerating the pace of development of the country.

About 11 crore people are employed in MSME sector. If we assume   family (four members) as a unit, then these 11-crore people are manging livelihood of another 33-crore people. The MSME sector contributes about one-third of the total gross domestic product (GDP). Not only this, about 50 percent of India’s exports are being done by MSME sector. Currently, 6.34 crore MSME units are functioning across India and their number has meaningfully increased in recent years.

In the year 2020, the corona pandemic had adversely affected the MSME sector. Due to the complete lockdown, most of the migrant laborers went to their villages. Although most of the workers have returned to work after opening of lockdown in phased manner, but  some workers still have not returned to work, due to which some units in the MSME sector either have not yet started working or they are not working to their full potential. Here, in some states like Maharashtra, Punjab, Kerala etc., the number of people infected with the corona virus is increasing again at a fast pace, which is again making trouble for the MSME sector, as the MSMEs in Maharashtra are prominently Present.

Currently, precious stones, diamonds and jewellery, cloths, readymade garments, ready-made food products, chemicals, leather products, machinery, automobile equipment etc. have been produced by the MSME sector. However, Corona Pandemic has reduced it pace. The supply chain has also not been fully opened yet. Therefore, India is lagging on the export front. However, the situation is improving now compared to the year 2020. Apart from Covid-19, the MSME sector is also facing some other problems today. Due to fierce competition from big industries, marketing issue, problems in getting loans, roadblocks in importing raw materials, etc, this sector is not able to give its best.

Considering the potential of the MSME sector, it is believed that by making this sector export oriented, there will be an increase in foreign exchange as well as more and more number of people will get employment and the pace of development will accelerate. Therefore, to enable this sector to pay maximum attention to increase exports, the government should make financial assistance, other facilities like tax cuts, duty reduction etc. on a large scale.

The MSME sector is the largest sector to cater to the domestic needs. Lastly, the government will have to plan for electricity, strong infrastructure, water, roads, healthy and qualified human resources, suitable environment for doing business, the elimination of Inspector Raj, transparent system etc. with immediate effect. With the help of facilities and financial support, this region can become a medium to make the country self-reliant. The government should also give incentives to increase production in MSME sector.

If every youth of India will be able to arrange two-time meals for their family, then the wheel of development will start spinning at a fast pace. This area can also be developed in tiers-III towns, as many Agro-based industries can be established in the nearby cities of the village. Now there is availability of roads and electricity in every corner of the country. The need is to make marketing and market arrangements firmly. If the government makes it possible, then naturally the MSME sector can be developed in the cities nearby of villages. This will drastically reduce the number of workers migrating to other states. However, to bring about a positive change in the situation, these roadblocks of development will have to be removed from the path of development.

Corona vaccination has started. India is producing Corona virus vaccine on a large scale. Also, India is exporting this vaccine globally. Though, in March, this virus has started spreading again in some states, but it is expected that with the help of public awareness campaign, its spread will be stop in time.

For smooth development of MSME sector, the government has changed the definition of investment and total turnover in the year 2020. MSME sector has also benefited from the Aatmnirbhar Bharat package. Today, on the instructions of the government, collateral free loans are being given to the MSME sector. However, for this, traders have to fulfill certain conditions. Due to the reduction in policy rates by the Reserve Bank of India, banks are providing loans to the MSME sector at low interest rate. Relief is also being given to the MSME sector in the doing business. Income tax department is refunding the excess amount deposited in the government account to the traders within a fixed time-limit. To make the business transparent in the MSME sector, the government is promoting the operation of e-market, so that corruption is eliminated from the market.

In the budget of 2021-22, the government has doubled the government spending on the MSME sector. Anti-dumping duty and excise duty have been cut to enable the consumer to buy the required goods at a cheaper rate. Anti-dumping duty is a tariff that the government imposes on imports. It is levied on products whose price is less than the fair market price. Dumping is a process where a company exports product at a lower price, while excise duty is levied on the manufacture of goods. Businessmen who are exporting clothes, leather, and handmade products in large quantities, have been given relief in import duty, so that they can import raw materials seamlessly. Due to the efforts of the government, the performance of this sector is constantly improving and at the same time the economy is also strengthening.

As per data of third quarter of the current financial year released by the National Statistical Office (NSO) on 26 February 2021, the gross domestic product (GDP) has increased at the rate of 0.4 per cent, while the first quarter of current financial year, 23.9 percent decline had been registered in GDP. According to the NSO, there was a growth of 3.3 percent in GDP in the same period of FY 2019-20.

Moody’s has raised India’s economic growth forecast for the financial year 2021-22 to 13.7 percent from the earlier 10.8 percent. Moody’s has made this new estimate because of the normalization of economic activity. Not only this, according to Moody’s, there may be an increase of 12 percent in FY 2021. Moody’s has estimated this based on increasing personal consumption and increasing demand for diversified products.

Rating agency ICRA said that India’s economic growth is expected to improve significantly in the financial year ending 31 March 2022. The agency has made this estimate in view of the increase in government spending by the central government and the consumption of miscellaneous products. According to ICRA, the impact of the corona pandemic is decreasing. Due to this, GDP can grow at 10.5 percent and nominal GDP at 14.5 percent in FY 2021-22.

According to the global rating agency Fitch, the target of deficit projected in the budget by the Government of India is high, but in view of the Corona pandemic, this move of the government can be justified, because the upsurge in government spending will increase the fiscal deficit. As per rating agency Standard & Poor’s (S&P), the situation of export-focused SMEs is more volatile in the current challenging economic situation. However, by the corrective steps taken in MSME sector taken by the government, the functioning of MSME units are improving.

Before the Corona pandemic, the Modi government was planning to make the Indian economy worth of US $ 5 trillion by the year 2024-25, but this dream of the government broke down due to the Covid-19. However, with the help of the MSME sector, the government can fulfil this dream, as it is possible to ensure inclusive growth in India by strengthening the MSME sector. This sector employs 11 crore people and these 11 crore people are managing livelihood of another 33-crore people. If this organized sector is developed in a planned way, then more employment opportunities will be created in this area and development will get faster.

(Author is Chief Manager at State Bank of India, Mumbai and editor of “Aarthik Darpan” an in-house journal of SBI.  Singh is also a freelance writer.  The views expressed are personal opinion of the author. He can be reached at [email protected] and [email protected].)

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