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
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
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
(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
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
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
There are some important, but overlapping themes that differentiate the
‘new economy’ from the old. They are:
(5) Integration/Interent working
(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
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
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
- 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.