State Govts, MSMEs Must Collaborate For Sustained Growth: Experts On Economic Survey

State governments across the nation and micro, small and medium enterprises (MSMEs) must work together for sustained growth, said MSME stakeholders after the central government tabled the much-awaited economic survey in Parliament on 22 July 2024.

The sector which contributes 45 per cent to manufacturing, 30 per cent to gross domestic product (GDP) and provides 11 crore jobs, faces extensive regulation and compliance requirements. The survey calls for simplification of licensing, inspection and compliance for the industry at the state level to help the sector grow and create more jobs.

"We need continuous dialogue between state governments and the MSME sector for deregulation, training, capacity building, and technology adoption. Deregulation of the MSME sector is already paying dividends and further deregulation may promote fresh fillip to economic growth and job creation," said Vijay Kalantri, Chairman, MVIRDC WTC Mumbai and President, All India Association of Industries.

Tabled by Union Finance Minister Nirmala Sitharaman in Parliament, the survey highlighted that for MSMEs, while bridging the credit gap remains a crucial element, the focus also needs to be on deregulation, enhancing physical and digital connectivity, and putting in place an export strategy that enables MSMEs to broaden their market exposure and scale up.

"MSMEs bear a disproportionately high burden of regulatory compliance in the country. While they are instrumental in fostering entrepreneurship and employment, most of them remain economic dwarfs. They find it easier to fly under the regulatory radar rather than become formal and gain access to capital, technology, talent and global markets," Rishi Agrawal, Chief Executive Officer (CEO) and Co-founder, TeamLease RegTech.

According to the experts, a pharma MSME deals with at least 998 unique compliances in a year, of which almost 50 per cent prescribe imprisonment for non-compliance. Other sectors in manufacturing including automotive and chemicals deal with hundreds of compliances including licenses, registrations, returns, registers and payments a year.

Notably, while the cost of compliance continues to remain high, the cost of non-compliance is higher. An MSME entrepreneur ends up spending a large amount of their scarce time and resources in dealing with third-party consultants, paper-based processes, frequently changing regulations and many interfaces with inspectors.

"India must reimagine its regulatory ecosystem for MSMEs. A simplified, cashless, paperless and presenceless employer compliance is the need of the hour. The country should aim at converting one million informal MSMEs into formal employers that create 20 million new formal jobs in the economy," Agrawal added.

As the sector continues to face issues such as delayed payments, debt and lack of credit, the survey highlighted that they struggle to secure the necessary funds to start, operate, or expand their business citing reasons including lack of collateral or credit history, high interest rates, complex documentation requirements, long processing times, etc.

Notably, sectors with widely scattered production units like textiles face constraints of supply chain management, market access and formalisation. The survey recommended that MSMEs should receive support systems, financing and incentives to develop projects, ease compliance requirements, digitise processes, and access markets, while also emphasising government-industry-academia collaboration to upskill the workforce.

"MSMEs are the economic engine of India and will continue to be so for decades to come. It is more crucial than ever that the public and private sectors are aligned not only on the opportunity but on making the most of it. We support every effort to design and implement forward-looking policies that are customised specifically for MSMEs," said Bhavik Vasa, Founder and CEO, GetVantage.

Meanwhile, the economic survey revealed that the share of MSMEs in all-India manufacturing output during the year FY22 was 35.4 per cent. Also, the data dissemination portal of the Directorate General of Commercial Intelligence and Statistics (DGCIS) added that the share of export of MSME-specified products in all-India exports in 2023-24 was 45.7 per cent.

In India, small businesses face a significant hurdle such as limited access to timely finance, with only 12 to 14 per cent of formal credit allocated to them, resulting in a substantial credit deficit of around Rs 45 trillion. The cash-strapped sector has an estimated Rs 10.7 lakh crore which is 5.9 per cent of the gross value added (GVA) of Indian businesses is locked up annually as delayed payments from buyers to MSME suppliers, according to a report by D&B and Game.