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Accelerate Development of MSMEs in Growth-ready Small Cities

Accelerate Development of MSMEs in Growth-ready Small Cities

In March 2020, India saw thousands of migrant workers leave their homes in large cities and return to their villages. Some of them walked long distances; others took crowded buses, trucks, trains, whatever. The covid-induced lockdowns had forced them to leave their crowded, tight city homes.

This migration brought out clearly that migrant workers mostly don’t lead a good life in the cities. Instead, they make do on daily wages to live in slum-like conditions.

Yet, they continue to come to the cities. The reason is that the economy does not generate enough reasonably paying jobs or other means of livelihood in rural India. So, people want to leave for places that offer better prospects for them and their children. Many of them go to large cities.

The exodus of people from rural India will continue for many years. Rural India has about 40% of India’s working-age population, but they produce only about 15-20% of India’s GDP. India’s rural economy simply does not generate enough money.

One way to reduce this outflow is to create more rural non-farm jobs or livelihoods. This will be expensive as it will require a major upgrading of rural infrastructure and skills. Only then will private firms look to create better jobs in village India.

Another way is to create more jobs and better living conditions in large cities. But this creates its own backlash. Improving the financial prospects and living conditions in large cities attracts more people to move to large cities. More migrants will come until the large cities no longer look attractive.

There is a third way that is cheaper and more efficient, and can be pursued along with the above two methods. This new method is to accelerate the development of MSMEs in several smaller, growth-ready cities in different parts of every State.

MSMEs create more jobs than large firms for the same amount of investment. Further, they are much more likely to come up even in smaller cities. The Union government and several State governments are already taking steps to develop MSMEs. So, this method fits in with government policies.

The additional proposed steps here are for non-profit groups to assist MSMEs in smaller cities that are growth-ready. The new jobs created by the MSMEs would absorb some of the migrants from neighbouring rural areas, and the cities themselves could expand along with the MSMEs.

Hence, we need to identify cities that are both small and growth-ready. For this purpose, we can take small cities to be those with populations between 0.5 – 3 lakhs, which would give them some scale but with good scope for expansion.

Why focus on growth-ready cities? Because their growth can take place without major government expenditures, as governments have already invested considerably in them. The criteria to identify growth-ready cities are:

  1. Adequate physical and digital infrastructure.
  2. Reasonable educational and health facilities.
  3. Available land and water supply for city expansion.
  4. Ongoing MSMEs that have growth potential.
  5. Motivated local administration

My associates and I have preliminarily identified several cities where this scheme can be implemented. They are Churu, Kotputli, and Bundi (Rajasthan); Kendujhar and Rayagada (Odisha); and Jalpaiguri, Suri, and Murshidabad (West Bengal).

We are now putting together a non-analytical description of existing MSMEs in these cities. Next, we will identify the main barriers/issues and growth opportunities of the existing MSMEs. The barriers may relate to technology, finance, input availability/cost, and regulations/bureaucracy issues. The growth opportunities will likely be specific to each city.

After that, we will try to make the existing MSMEs more financially viable by supporting them with advice and support from interested non-profit institutions. This would be similar to the extension services provided by the government to farmers with the major difference that the services would be provided by non-profit groups. The advice and support would fit in with ongoing government schemes, and any local non-profit groups.

The end result would be to make existing MSMEs more financially secure, with a significant potential for creating fresh jobs. Once we achieve this, we will consider the type of new MSMEs that can come up in these cities, and find ways to make them emerge and grow. There would be no need for major additional government expenditures, with most of the limited costs borne by non-profit groups.

At this time, this idea is in the very early stages of design and implementation, and we are flexible in our design and intend to adjust it to the ground realities. And if this works, the scheme can be readily scaled up and adapted to other cities and other States.

About the Author

Subodh Mathur, an Economist (Ph. D. MIT), has worked in many countries. He is the author of the book called ‘India's Path to Prosperity 2022-2047: A Workable Agenda for the Next 10-15 Years’.