Three years ago, the United Nations declared 27 June as International MSME Day; This resolution was made to recognize the valuable contribution made by small businesses towards sustainable development. The proposal emphasized the importance of encouraging the formalization of the segment, which accounts for more than 90 percent of all firms globally, around 70 percent of total employment and half of GDP.
The day assumes greater importance this year in India as the economy is increasingly expected to be plunged into deep fiscal stress by COVID-19 and small businesses.
MSME pain in India has been well documented in normal times, its causes have also been well documented. Eighty-seventy percent of India’s companies, representing 21 percent of the total business, is completely informal. The reason for this is that companies with incentive formalization tax effects get incentives to stay under the radar. Regulatory cholesterol, largely through complex laws and regulations and cumbersome paperwork, has made us a country of small entities with informal, informal, low-paying jobs.
The government knows this – the Economic Survey 2018–19 made the point that poor policies accelerated the growth of firms, produced dwarfs, and the latest Economic Survey had a detailed section on the effective ease of doing business. Nevertheless, the initiative for change is few and far between.
Take the issue of delayed payment. The single-biggest obstacle facing small businesses is the stress of working capital and the issue of delayed payments has been flagged repeatedly over the years, completely ineffective enforcement of the 45-day rule of payments.
However, even so, the government, which should have led by example, was dragging its feet on small businesses paying their own dues. The central government had to take a virus and a 50-day lockdown to announce that it would clear its own dues for MSMEs within 45 days. Such lax commitment to action is clearly reflected in the World Bank’s Ease of Doing Business score – although India has grown from 142 to 63 in the last six years when it comes to contract enforcement, we rank 163 out of 190 countries But, it has increased. In 2015, only 20 out of 186 ranks came.
Much has been said about the high compliance burden that underpins our businesses. We, therefore, find that a small manufacturing firm that has about 10 returns per month to file in a factory, while a medium-sized manufacturing company spanning six different states is regulated by more than 5,000 compliance, about 100 License and registration – making for an average. The burden on small companies for two sawdusts a day is inherently large, as these are usually businesses run by a person.
There are three levels to overcome the challenges: First, the compliance landscape is very large, and contains rules set by the central, state, and local governments. Second, complex legal language consultants are required to be hired as ‘interpreters’. Thirdly, government departments have to submit a huge amount of paperwork for filing, licensing, renewal, etc.
A comprehensive approach is needed to rationalize, simplify, and digitize rules and procedures to reduce the burden on small firms and release their resources of time and expense for operational efficiency and higher productivity. In short, MSMEs must be brought within a mandatory architecture that dates back to the 21st century.
Although reforms in the labor law have been continuing for a long time, the knee-jerk reaction of some state governments deteriorated badly during the lockout. While businesses require flexibility, labor needs protection. For this, central and state governments have to recognize that it is not the spirit of the law that supports businesses; It is endless and mindless paperwork, archaic irrelevant rules with punitive provisions that define the current regulatory space due to Inspector Raj and corruption. It is one that needs to be changed for meaningful ease of doing business.
The proposed national easiness of trade policy in the form of a draft Cabinet note last year allegedly put a burden on bureaucrats, allowing them to meet their compliance requirements on businesses by actual cost and time, which is now Should have asked for it. At the forefront of the government’s agenda.
The Finance Minister had said that the stimulus package would not be “just a financial package, but a reform incentive, a mindset and an emphasis in governance”. Therefore, on this International MSME Day, India should pledge to move away from the policy paradigm that drives growth. With policies and procedures encouraging growth, the year 2021 MSMEs can blossom in India.