The vibrant energy of a bustling marketplace, the innovative spark of a tech startup, the friendly face of the local kirana store – these are just glimpses of the immense contribution of India's Micro, Small and Medium Enterprises (MSMEs). The unsung heroes number well over six crores, (only half formally registered). The MSMEs are the lifeblood of the Indian economy, contribute around 29 per cent to the GDP and employ a massive 16 crore people. They are not just job creators, but also export giants, accounting for over 45 per cent of India's total exports. They provide vast opportunities and foster inclusive growth.
The broader ecosystem has undergone a digital revolution in the last decade. Physical infrastructure advancements, coupled with powerful digital tools, now empower MSMEs to translate their ambition into expansion. Yet, beneath the surface of this dynamism lies a hidden struggle.
*Challenges of an MSME: The unsung heroes walk a tightrope
A recent Crux study conducted across 5,600 MSMEs, 120 policy watchers, and economists’ paints a concerning picture. The study reveals that the current ecosystem, particularly the prolonged litigation process, is stifling even the most well-endowed and efficient medium enterprises.
Indian MSMEs operate in a demanding landscape that requires constant vigilance. Access to finance is shrouded in a maze of complex procedures and stringent collateral requirements and feels like a distant dream. Regulations, instead of acting as guideposts, morph into a tangled web that threatens to trip and trap them at every turn. Lurking in the shadows is the ever-present anxiety of ‘Inspector Raj,’ a system characterised by endless approvals and inspections that devour precious time and resources.
Formalisation, while crucial for long-term growth, can feel like a death knell for some micro and small businesses. In a battle for growth, MSMEs, clad in the armour of passion, and wielding the slingshot of agility take on the corporate giants. But their agility, the very weapon that keeps them afloat, gets bogged down by a Goliath-sized burden of paperwork, and compliance costs. Streamlining regulations can be the missing piece in their slingshot, allowing them to unleash their full potential and conquer the market.
Technology, a force multiplier in the modern world, presents itself as a double-edged sword for MSMEs. While offering incredible opportunities for growth and innovation, the upfront investment costs and lack of training can leave them trailing behind in the digital age. Further complicating matters is the skills gap – the mismatch between the talent MSMEs need and the talent readily available in the workforce.
*Beyond the ranking. India needs an MSME centric economic ecosystem
India's improved ‘ease-of-doing-business’ ranking is a positive step, but a misleading metric. The current administrative system, built for large organisations, throws shade on the true growth engine of our economy. The MSMEs need a radical overhaul, not a mere facelift, with streamlined regulations, simplified financing, and an ecosystem that fosters innovation and transparency.
Furthermore, the government must nurture industry clusters, bridging the skills gap, enable technology transfer and support market access. Similarly, larger corporates must forge partnerships and support the MSMEs. India’s economy has a ‘missing’ middle. A thriving MSME can enhance competitiveness and add value to the larger corporates.
Holistic reform isn't about improvement in ranking, it’s about unleashing the true potential of MSMEs.
*A Harsh Reality. The government is a sore loser
The Crux study highlights even a more a critical issue. The government is a "sore loser" in tax disputes, resulting in prolonged (even endless) appeals and unnecessary delays. This not only drains the MSMEs of their resources, but also creates a climate of uncertainty. The ripple effects are far-reaching. Banks become hesitant to lend to companies embroiled in legal battles. Vendors steer clear and clients shun, leaving employees facing job insecurity. The demise of an MSME impacts not just the business but also hurts every stakeholder.
Ultimately, diminishing value from the economy. Many MSMEs are entangled in lengthy and significantly burdensome tax disputes that divert resources, hinder growth and depletes will.
The study provides an insight into the fact that over 90 per cent of those surveyed believe that the government must initiate a ‘Second Chance’. It offers a solution for MSMEs that have consistently paid taxes equivalent to the disputed amount over the past five years. It facilitates a swift resolution, allowing businesses to focus their efforts on core operations, and contribute to the economic landscape. This win-win solution allows the government to collect its dues while allowing the MSMEs to finally put this dispute behind them. It ensures that the businesses thrive.
*Empowering the Engine of Growth
While the Second Chance could be a commendable initiative, it's merely a first step. To truly unleash the potential of MSMEs, we need a more holistic approach. Success hinges on a two-pronged approach: policymakers crafting robust policies with clear implementation mechanisms, and industry leaders, financial institutions, and educational institutions working together to create the enabling ecosystem.
Let's give our MSMEs the second chance they deserve. A flourishing MSME sector isn't just about impressive economic figures. Empowering these unsung heroes, will unlock a surge of job creation, innovation, trigger regional development and inclusion.
Our MSMEs can propel India's sustainable economic growth.
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