The Gist of Yojana: November + December 2015


The Gist of Yojana: November + December 2015


MSMEs in the Inclusive Growth Agenda: A Perspective

The concept of ‘inclusive growth’ is an add-on in the global debate on “growth vs distribution”. The consensus of the late- 20th century, and early 21st century is that, rather than ‘growth’ and ‘distribution’ being treated separately, there needs to be an approach where the two aspects meet each other. Thus comes the discussion on the so -called ‘inclusive growth’. While the global consensus and the level of polemics has settled down on the above lines, the practice among countries tell a different story. Depending upon the particular situation of countries, the theory, practice and common understandings of ‘inclusive growth’ vary.

The concern with the role of micro, small and medium enterprises (MSMEs) in India has significant political and social overtones. It began with the ‘Freedom Struggle’ in the country, wherein, the role of self reliant political units of administration and a decentralised economy that is based on local resources, business opportunities, and markets was articulated. In the model developed by economist Mahalanobis, the small enterprise sector in India was “ visualised as an engine of growth; but playing a subsidiary role to tile ‘core sectors of the economy, Though. the perception on ‘inclusive growth! Was there, from the days’ of the second Five Year Plan; the word was coined much later.

lrrespective of the rates, growth and diversification have significantly taken place in the Indian economy over the past several decades. While growth is a hard core economist’s concern, it is the challenge of policy to ensure that the fruits of growth are made felt to the majority of the people. It is in this context that social cushions are needed. Traditionally, this essentially social role has been visualised in the context of the MSMEs.

While, traditionally, this social role was perceived to be performed through an automatic route, the situation has changed drastically in the recent past. While the economy changes structurally, there are likely to be leaders and laggards in such a change. Strategy becomes all the more important in a discussion on inclusiveness. India’s strategy of MSME development has broadly undergone three generations of strategies: First, there was the traditional strategy of protection and reservation. This was followed by a strategy which was closer to a rights- based approach. Thirdly, and more recently, the country follows a capabilities approach. Under this approach, it is assumed that, given proper capabilities, the country can take its MSME sector into the mainstream of the development agenda.

The more recent policy announcement of the Government of India provides indication on this. On one hand, there are the flag-ship programmes that are meant for meeting the objectives of national policy. On the other hand, as a corollary, there is a focus on skilling and entrepreneurship creation. The synergy of these two aspects is capable of ensuring that the creativity and energies of the people of this country, are channelized into productive and socially meaningful activities.

The new public policy approach in India which distinguishes between ‘government’ and ‘governance’, has much significance against the debates on the policy process in the country.

Studies have shown that, public policy-making in India has frequently been characterized by a failure to anticipate needs, impacts, or reactions which could have reasonably been foreseen, thus impeding economic development.

According to Agarwal and Somanathan (2005), a “good policy-making process” would meet the following criteria:-

(i) The problems and issues confronting a sector are subjected to expert analysis;
(ii) Information on overlaps and trade-offs with other sectors is systematically gathered and made available to policy-makers;
(iii) Opposing points of view within and between sectors , are properly articulated, analyzed and considered and those likely to be benefited or harmed are identified and their reactions anticipated.
(iv) Those responsible for implementation are systematically involved in the process, but are not allowed to take control of it.
(v) Policy-makers and/or their advisers have the honesty, independence, intellectual breadth and depth to properly consider and integrate multiple perspectives and help arrive at optimal policy choices within a reasonable time.

The record of MSME development initiatives in the country over the last 6 years demonstrates the presence of varied programmes, targeting functional areas, subsectors and social groups. However, there is a general perception that the benefits of the programmes did not actually reach the intended beneficiaries in the manner and time they were envisage.

While there has been an accepted model of start-up promotion around the world today, India, with its significant demographic dividend, needs to give top priority on harnessing the motivational skills of the young people, than equipping them as wage earners. As indicated by the Union Budget and the Economic Survey, a beginning has been made in this direction by putting forward an integrated approach to start-up.

Thrust on Local Manufacture

India’s backlash on the manufacturing front ,over the last two decades, has caught significant policy attention. The National Manufacturing Competitiveness Programme (NMCP) and the National Manufacturing Policy were a response to that. However, an assertion on positioning the country as the world’s manufacturing hub, with clear milestones, is a remarkable development.

A New Understanding on Skill Development

Even against the major initiatives on technical and vocational education, the Indian economy suffers from a serious skill-gap. However, the dimensions of the problem have not been holistically understood and translated into policy interventions. Until recently, the policy approach was essentially one of strengthening vocational education one of strengthening vocational education infrastructure, and to provide add-ons to it.

A major departure from the above approach was introduced by the Union Budget 2014. The Budget has an integrated view of skill development. Beyond modular skills, it unravelled an integrated approach by which modular and motivational skills are harnessed side by side. The flagship programme, ‘Skill India’, if properly organised, can go a long way in triggering a vigorous start-up movement in the country.

Integrated view of Manufacture and MSME Niche

As noted already, the National Manufacturing Competitiveness Programme and the National Manufacturing Policy, have undoubtedly highlighted the importance of boosting manufacture in the country. However, on translating the Programme into schemes, the record so far has not been commendable. More recently, the identification and thrust given to three focal sectors is indicative of the more concerted effort that is likely to go into these subsectors. They are: (1) defence production; (2) electronics; (3) textiles.

Harnessing the Potential of Socially Marginal Groups

Managing multiculturalism is indeed a great challenge and opportunity in the MSME constituency. India, as a country, and more specifically in the rural setting, the configurations of caste and language get reflected in entrprise clustering and recruitment strategies. With India’s diverse groups of communities from different cultural backgrounds getting empowered and achieving educational attainments, the socially marginalised groups are likely to be increasingly absorbed by the MSMEs. But how far are MSMEs equipped to manage such diversity? It is, at the time, a question of social engineering and public policy.

Critical Areas of Concern

Despite all the changes, as outlined above, there are critical areas that deserve special mention:

1. use of knowledge for development;
2. entrepreneurship as a critical resource;
3. a massive capacity building in an integrated manner;
4. integration of social consciousness with a business case (eg: promotion of social enterprises)

The rapid changes in the so called ‘developed economies’, are associated with a new dynamics, new rules, and new drivers for success. These countries are changing from an industrial economy based on steel, automobiles, and roads to a ‘new economy’ built on silicon computers and networks. The ‘new economy’ is all about competing for the future, the capacity to create new products or serviices, and the ability to transform businesses into new entities.

There are some important, but overlapping themes that differentiate the ‘new economy’ from the old. They are:

(1) Knowledge
(2) Digitization
(3) Virtualization
(4) Molecularization
(5) Integration/Interent working
(6) Dis-intermediation
(7) Convergence
(8) Innovation
(9) Prosumption
(10) Globalization
(11) Discordance, and
(12) Boom of self-employment

In a knowledge economy, the sustainability of MSMEs cannot be expected on a stand-alone basis. It needs the benefits of inter-sectoral linkages. Here, the old concepts of development dependent essentially on imported technology, have a lesser role. In the ‘new economy’, space and time are crucial, need they need be best used through local knowledge systems. India’s track record relating to knowledge systems specific to the MSME sector needs much more improvements. Such a knowledge system needs to be integrated and should touch upon and nourish the whole value chain that is applicable to the MSMEs.

The word capacity building, in itself, is an integrated concept. In any economy, the prevailing features of labour market determines the type of capacity that need to be created. However, approaches to capacity creation may vary.

The country presently faces the challenge of a significant mismatch in the labour market. It leads us to the imperative for skilling India’s young population on a war footing, so that their absorption into the productive sectors of the economy can be enhanced. This solid argument was put forward by the Prime Minister, in his Independence Day Speech last year. He announced the flagship programme called ‘Skill India’, which provides an outline for the country’s labour market policy. However, the details of such a policy need to be worked out. The ministry for Skill Development and Entrepreneurship has been set up in November 2014 to give fresh impetus to the ‘Skill India’ agenda and impart employable skills to its growing workforce over the next few decades.

It is estimated that, during the seven-year period of2005-2012, only 2.7 million net additional jobs were created in the country. This indicates that the supply of wage employment in the country is much shorter, in relation to the demand. Therefore, at least a part of the job seekers, given the right motivation and orientation, can be channelized into the entrepreneurship stream. This necessitates provision of proper business development services (BDS), which includes training in entrepreneurship and mentoring as well. Recognizing the imperative for skill development, the National Skill Development Policy was formulated in 2009. The National Policy on Skills and Entrepreneurship Development 2015 supersedes the Policy of 2009. The objective of this policy is to provide a framework for labour market interventions at scale, with speed, standard (quality) and sustainability. It aims to provide an umbrella framework to all skilling activities being carried out within the country, to standardize them and to ensure them that they are market-driven. In addition to ‘laying down the objectives and expected outcomes, the Policy also identifies the institutional framework which will be the vehicles to reach the expected outcomes. Skills development is the shared responsibility of a multi stakeholder platform, including government, employers and individual workers, with NGOs, community based organizations, private training organizations and other stakeholders playing a critical role.

Social enterprises are defined as enterprises that operate like a business, produce goods and services for the market, but manages there operations and redirects then surpluses in pursuit of social and environmental goals; They are revenue-generating businesses with a twist. Whether operated by a non-profit organization or by a for-profit company, a social enterprise has two goals: (1) to achieve social, cultural, community; economic or environmental outcomes; and, (2) to earn revenue. On the surface, many social enterprises look, feel, and even operate like traditional businesses. But looking more deeply, one discovers the defining characteristics of the social enterprise: the mission is at the centre of business, with income generation playing an important supporting role ignored (or inadequately fulfilled) by the private or public sectors. By using solutions to achieve not-for-profit aims, a social economy has a unique role in creating a strong, sustainable, prosperous and inclusive society. Defining the limits of a social-economy sector is difficult due to shifting politics and economics; at any time organisations may be “partly-in, partly-out”, moving among sub-sectors of the social economy.

Successful social enterprises playa role in fulfilling governmental policy objectives by:

  • increasing productivity and competitiveness;
  • contributing to socially-inclusive wealth creation;
  • enabling individuals and communities to renew local neighbourhoods;
  • demonstrating new ways to deliver public services; and
  • developing an inclusive society and active citizenship)

Despite India’s remarkable GDP growth over the last two decades, one-third of the country’s 1.2 billion population still lives below the poverty line. Besides, more than 40 per cent of children under five are malnourished, while the World Health Organisation says some 620 million people are forced to defecate in the open. Therefore, responding to these issues through socially targeted investments, or ‘impact investments’, is a major challenge. Social enterprises can play a key role in India’s agenda of inclusive developments. However, just like in many other countries, they are not officially or legally recognised as a sector in India, even while they play an important part in the fight against poverty.

While the challenges lie in defining what a social enterprise is, once defined, it could pave the way for strong policies to help such businesses go from idea to innovation. This could include investments, loans and grants for start-ups, incentives such as tax-breaks, subsidies on land, power and water. Currently, most start-up social enterprises get their funding from foreign investors. However, there is enough capital in India, particularly with the government and big corporations, to act as important investors.

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