Introduction: MSMEs play a crucial role in generating employment and contributing to the gross domestic product in India. It is estimated that the MSME sector contributes around 30 per cent of GDP in India. India's khadi and village industries are one of the key contributors and initial drivers of micro-enterprises in India. By and large, micro, and small enterprises are mostly in food, agriculture, and services like education, retail, and healthcare. There are several medium-sized firms in auto components and related trading, pharmaceuticals, textiles, apparel, chemical, and many cluster-based industries. There are many service firms in technology, media, and financial services. The apex ministry and the number of other ministries with their programmes and schemes along with the government agencies; state governments and their agencies and financial institutions including RBI, NABARD, and SIDBI and state-level financial institutions and a large body of academia and technological setups are propelling the growth of the MSME sector. India has an estimated 633.88 lakh MSMEs, of which 324.88 lakh MSMEs are based in rural areas and 309 lakhs are from urban areas [1].
Considering the extent of dominance of the rural sector in the Indian economy, the distribution of MSMEs clearly shows a bias towards urban areas which is natural in view of the availability of infrastructure, skilled manpower, access to markets and funding. The question is: Should we not focus on developing micro-enterprises in rural India as well? What are the potential opportunities? From the Gandhian philosophy of developing khadi and village industries, should we not transform rural India with the new generation of economic activities? Recent travel through villages clearly shows the transformation in adopting rural services business in digital services, retail including apparel and many more as the demonstration effect and proliferation of media spiralling the demand and thereby the need for services. Again, one may have to probe whether it leads to micropreneur broad basing services and creating employment or whether these are livelihood opportunities. One would prefer the former over the latter.
Just to relate the latest definition of MSMEs in India with effect from 1st July 2020[2] based on composite criteria of investment in plant & machinery /equipment and annual turnover for manufacturing enterprises, and service enterprises:
- Microenterprises: Investment not more than one crore of rupees and turnover of not more than five crores of rupees.
- Small enterprises: Investment not more than ten crores of rupees and turnover of not more than fifty crores of rupees.
- Medium enterprises: Investment not more than fifty crores of rupees and turnover of not more than two hundred and fifty crores of rupees.
Status: Amit Basole, Azim Premji University’s Centre for Sustainable Employment and the Global Alliance for Mass Entrepreneurship, studied at all non-farm microenterprises[3], except the construction sector (National Sample Survey covered manufacturing and services sectors). There are some key conclusions of the study, which are relevant here. As per this report, micro-enterprises create only 11% of jobs in India compared to 30-40% of jobs in the developed nations. Further, women constitute 20% of the microenterprises; contribute 16% to the employment and 9% of the gross value added as of 2015. This again shows the bias of the sector against women and their productivity. Hence, it is quite clear that micro-enterprises must increase their significance in the Indian economy, especially with the exponential growth of women's participation in terms of numbers, value, and productivity. One can also add that the growth has to be across rural and urban areas in India.
The report lists many industries which grew between 2010 and 2015. In rural India males dominate retail (about 37%) and transport (about 12%) while women share tobacco (about 30%), apparel (about 24%), retail (about 15%) and textile (about 11%). In the case of urban, the leading share is more or less the same except for women in tobacco is around 10% whereas retail and apparel are much higher.
Growth areas and action agenda: This article has a limited focus to guide educated youth to consider in terms of micro-enterprises as a vehicle for employment and income generation. Though India has a huge youth quotient, it has a larger responsibility to generate employment, income, and wealth. As an economy, we are targeting to achieve US$ 5 trillion in a couple of years. The formal sector and government policy environment may drive such a growth trajectory. But the onus is also among youth to pursue entrepreneurial drive at multiple levels. Indian education system produces millions of graduates, postgraduates, professionals in engineering, medicine, legal and accounting, and so on. The pool of talent is certainly high. The Prime Minister's office and the apex ministry are driving many policy initiatives, programmes, and publicity to spur entrepreneurial talent-driven growth. There is still scope for passing out professionals and graduates to be on their own engaging in business rather than being employment seekers.
Even when pursuing academic programmes, such talents can be nurtured. Though there are labs and centres available across India, students may take initiative in their programmes to try out team-driven projects which solve an immediate problem in the neighbourhood and thereby an opportunity be created. Educators can involve themselves in such projects and also encourage students with liberal support to be innovative. Institutions may find donors and funds for creating micro-enterprises around the education system. The cost of higher education is substantial ranging from rupees two lakhs to thirty lakhs plus for certain courses. Many students study using educational loans. The focus has been more on placement which would provide a return on investment in education rather than becoming an entrepreneur. If the funders find means of supporting soft capital for education, there could be more entrepreneurs.
India may have to look internally to evolve aggressive self-employment and entrepreneurial talent-driven education system compared to what we wanted three or four decades back. Earlier, India needed high calibre managers who can find and manage resources for higher productivity. But today, we need high calibre individuals who are more creative, innovative, and with a high-risk appetite.
Another important aspect that is missing in India is that the micro-enterprises are mostly three and less than three employees. We need to scale this to less than 20 and see the potential for increasing the revenue target to near five crores of rupees. In advanced nations, there is a large number of such firms and there are funders including those who provide capital for a leveraged buyout and support systems for the same. In India, it is observed that many prefer to stay small and limit their capital and risk. Further, after a certain stage, transition and selling of the firm to the employees through leveraged funding mechanism are found to be limited. It may be worth finding out means of increasing the average size to the threshold level and facilitating growth and transition of ownership. Educated youth can play a role here as well by teaming with multidisciplinary talents.
Conclusion: There is no other time than now to focus on micro-enterprises to drive growth and employment generation. It must start from the educational institutions and spread across sectors. Geography must be widely spread instead of limited to a few states and urban areas. There would be a limitation from policymakers to drive beyond a point. It is the collective spirit and common vision towards building a prosperous society that we must achieve.
Reference:
- https://www.ibef.org/blogs/msme-sector-imperative-to-lift-indian-economy#:~:text=MSMEs%27%20contribution%20to%20Indian%20economy&text=Over%2063%20million%20MSMEs%20spread,also%20created%20many%20employment%20opportunities. Accessed on May 16, 2022
- https://msme.gov.in/know-about-msme; Accessed on May 16, 2022
- https://cse.azimpremjiuniversity.edu.in/wp-content/uploads/2019/10/GAME_APU_Microenterprises_In_India_Report_Oct_2019.pdf; accessed on May 16, 2022.
About the Author
N Chandrasekaran, Professor, IFMR Graduate School of Business, Krea University.