To show the importance of Micro, Small and Medium Enterprises, the United Nations celebrates International MSME Day on 27 June every year. The United Nations General Assembly decided to celebrate this day in the year 2017 because these enterprises are important to achieve the goals of sustainable development by the year 2030. In the year 2015, it was resolved to achieve 17 such goals in 15 years. The first of these was the goal of ending poverty. MSMEs will be helpful in achieving total six goals, including this first goal. These goals are related to job creation and economic growth, reducing inequality, and increasing education and skills. MSMEs are the unsung heroes of any emerging economy. The United Nations says that 90 percent of the total businesses in the whole world are these enterprises, which provide employment to 70 percent of the people and they contribute 50 percent to the GDP.
In India too, although the focus is mostly on the manufacturing sector, more than half of the employment, production and exports come from MSME enterprises. But, they get less than 20 per cent loans from banks. Because of this, they have to depend on their family and friends, or moneylenders or any such informal sources to run the business. And, if they are B2B enterprises, that is, enterprises providing products to large companies, they are at the mercy of their customers, who are like parents to them. By the way, this thing is not as strange as it sounds.
For example, Railways buys goods from 10 lakh enterprises or vendors, i.e. from bed-blankets, food items to nuts-bolts, Railways is the only customer of these lakhs of vendors. Indeed, the development of vendors is a major achievement for large companies and governments. The fast growing auto and auto accessories sector in India is comprised of thousands of small vendors who have a co-existent relationship with the big auto companies. But when the market is slow, small enterprises get trapped as their payments get delayed. Even if these small suppliers ever think of going to court for payment, they run the risk of displeasure and blacklisting companies and losing customers.
In the Indian law, arrangements have been made for small vendors to get their payments on time. Delay in payment beyond 45 days is illegal under the MSME Act of 2006. But, how many big companies have paid any fine? Maybe not even one. Under the Insolvency and Bankruptcy Code law, small businesses can sue larger customers for non-payment. Earlier the limit of this payment was kept at one lakh rupees, but during Covid it was increased to one crore rupees, because the government did not want that there should be a flood of lawsuits for small payments. But, small suppliers are unable to take advantage of these legal rights, because their livelihood depends on the customers whom they have to drag to court.
Overall, this payment crisis is huge. It is estimated that the payment of about Rs 10 lakh crore is pending. If interest is counted in this, which is 10 percent, then only its burden comes to one lakh crore rupees. That is, if the payment crisis is resolved, then one lakh crore rupees will come in the market and the MSME sector will get strength. The Reserve Bank has also made arrangements for online payment to solve the problem, but despite the efforts of the bank, it has not been able to gain momentum. Ultimately, this crisis of delayed payment is related to ethics. Industry associations should ask their members, especially large companies, to take a pledge to clear payments to small vendors within 45 days. It can also be made a national movement, and the Prime Minister should run a campaign to put moral pressure on the big companies.
If India has to create one to one and a half crore jobs every year in the next decade, then it is not possible from big enterprises, nor from government, army, post office or railways. So, to create one crore jobs, it is necessary to create at least 50 lakh small enterprises every year. For this, not only there is a need to make business more accessible, but also the process of starting a business and closing a business has to be simplified. Paperwork and Inspector Raj are still the biggest hurdles in the way of new business in any corner of India. For these still permits and permission from city and state government offices have to be taken or registration has to be done. Uncertainty also remains regarding the time of completion of this process. Then again, corruption is a separate problem. Small entrepreneurs also do not have much knowledge of financial and technical subjects, due to which their helplessness increases further. The small businessman feels that instead of focusing on his business and its marketing, most of his time is being spent in filling government forms and getting information about GST etc.
There are about six crore 40 lakh enterprises in India, out of which 99 per cent are micro, small and nano i.e. very small enterprises. The policy support they need is access to capital (and avoid getting stuck with delayed payments), ease of starting, running and closing businesses, affordable technological and digital tools, and financial literacy (so that balance sheet and payments can be handled). Indian agriculture is also a vast ocean of small enterprises, where 14 crore smallholder farmer enterprises are equal. The contribution of small businesses to the economy is both recognized and respected. At the same time, the growing inequality should also be recognized. Increasing profits of big companies, and extinction of MSMEs is harmful for the economy and overall development goals. Overall development means the development of micro, small and medium industries.
(These are the personal views of the author)
