Answer:

MSME sector employs close to 40 percent of India's workforce plays a critical role in generating millions of jobs, especially at the low-skill level. According to NSSO, there are about 57.7 million non-corporate business units outside construction sector, mostly unregistered and self-employment units. However, SMEs in India, due to their low scale and poor adoption of technology, have very poor productivity. The total employment in MSME sector is about 80.5 million (4th All India Census for Small Scale Industry), which averages to less than 2 people per firm.

Although they employ 40% of India's workforce, they contribute less than that (~35%) to the GDP. Too many firms stay small, unregistered and un-incorporated in the unorganised sector so that they can avoid taxes and regulations. These firms need to expand, grow and innovate in order to continue to scale up and hire more people to run their operations.

In a journey from a small firm towards a big one, it may face following roadblocks:

♤ Finance: with most of the 57.7 million units unregistered, banks, perhaps rightly, do not finance them. Lack of institutional credit means exploitation by usurious moneylenders.

♤ Regulations: Compliance cost- money, time and labour rise drastically once a firm graduates from M to S to Medium and large. As such, about 90% of MSMEs are Micro only and remain so.

♤ Marketing and Branding: Generally, small firms have good business idea but lack marketing and branding strategy to evolve themselves as a big firm.

♤ Access to technology – partly because of limited finance and partly due to inertia. This hampers productivity and renders the enterprise uncompetitive..

♤ Strict Labor Laws & Lack of skilled workforce: Firms deliberately remain small because as they grow they come under strict labour laws.

♤ Tax incentives: SMEs have tax concessions, therefore to continue to enjoy those benefits, they remain small.

However, these problems can be overcome through the following measures:

♤ Finance: We need banks that specifically cater the needs of the small firms- Recently launched Payments Banks, MUDRA Bank, and Small Finance Banks.

♤ Regulations: Self-certification to some compliances and single online portal for registration, clearances and approvals as envisaged in different programs (like Start Up India).

♤ Collaboration Hub: Setting up a hub like Start Up India hub for collaboration of governments, consultants, R&D institutions etc. that would assist small firms to

adopt best practices through exchange of ideas can be a way for adoption of better technology.

♤ Incentives: Innovation awards as provisioned in Atal Innovation Mission should be provided to prompt small firms to spend on R&D and hence become more competitive.

♤ Focus on manufacturing: The recently launched Make in India program is another move by the government to promote manufacturing, with a focus on SME sector.

♤ Skill development: Since majority of people employed in this segment is unskilled or semi-skilled, therefore skilling programs can be important game changer. In this regard, the government has launched the Skill India Mission.

♤ Dedicated e-commerce portal with the help of National Small Scale Corporation has been launched to provide wider market coverage.

Apart from these already launched, or proposed measures, there is a need to bring in much awaited tax reforms for streamlining the tax structure. SMEs is really the backbone of our economy, a very strong tool for poverty alleviation, and empowerment of marginalized segment, therefore there is an urgent need to bring in reforms to this sector.