The full piece can be found here. The author is responding to the "Make in India" policy agenda launched by India's Prime Minister over the last few weeks/months.
Prime Minister Narendra Modi’s ‘Make in India’ campaign is creating waves both in India and abroad. Given the government’s intention to boost domestic manufacturing and create new jobs, its proposal to introduce a new policy for Micro, Small and Medium Enterprises (MSMEs) deserves a closer look. While Mr. Modi’s invitation to international companies to make investments has been receiving a lot of attention, the government’s close interaction with industry associations from different regions and sectors within India to discuss specific problems inhibiting domestic enterprises deserves equal consideration.
India’s MSME sector has recorded more than 10 per cent growth in recent years despite the economic slowdown. MSMEs contribute nearly eight per cent to the national GDP, employing over eight crore people in nearly four crore enterprises and accounting for 45 per cent of manufactured output and 40 per cent of exports from India. Thus, the focus of the government on MSMEs at this juncture is justified given their potential for providing growth and employment.
In view of the significance of the sector, the government had announced a number of measures in its first budget. Some of the significant initiatives were setting up of Rs.10,000 crore of venture capital fund and establishing a nationwide, district-level incubation and accelerator programme for encouraging entrepreneurship.
Other important budgetary announcements included establishing a network of Technology Centres; revising the definition of MSMEs for providing higher capital ceiling, friendly legal bankruptcy framework to enable easy exit, a programme to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery to be put in place, and launching the Skill India movement for youth with an emphasis on employability and entrepreneurship. A committee was also proposed to examine the financial architecture with a view to removing bottlenecks and creating new rules and structures for the sector.
The government recently inaugurated a holistic, innovative and low-cost National Small Industries Corporation’s online e-commerce shopping portal for buying and selling of products produced by MSMEs.
In general, there is need for tax provisions and laws that are not only labour-friendly but also entrepreneur-friendly. More importantly, there is need for skill formation and continuous upgrade both for labour and entrepreneurs. While the government has to strengthen the existing skilling efforts for labour, there is an urgent need for managerial skill development for entrepreneurs running MSMEs — an area that is considerably neglected. These programmes for entrepreneurs could be offered in a structured way in Industrial Training Institutes and management schools to include modules on management, labour laws, accounting, financial markets, procurement and marketing skills.
Further, the government could consider dedicated television and radio programmes, similar to agriculture, to help educate entrepreneurs running small businesses.
I don't have any particular problem with the Op-Ed; it is a good general overview, and summarizes some widely shared opinions about problems faced by India's MSME sector.
However, as just one month of intensive reading up on research about these issues (+ just 2 years of working on ground on micro-enterprise development have already proved to me), the MSME sector is far more complex than appears at first glance, and it is very it is important to keep the following points in mind:
Distinctions to to keep in mind:
(1) Micro Enterprises ≠ Small Enterprises or Medium Enterprises
Micro enterprises are classified as those with a value of no more than INR 25 lakhs. This is a HUGE amount of investment, and the socioeconomic difference between people who fall into the lower tier of this category and those that fall into the upper tier of this category is also HUGE! Our entire project's snack food training-&-production program was less than 5 lakhs; even INR 1 lakh is still such a high value of investment that it precludes all the really poor entrepreneurs who are at the "mini" level but often mistakenly thought to belong in the "micro" category.
As our own experience with the District Industries Centre shows, even at a value of about INR 5 lakhs, the cost of running after government officials to get paperwork done is so enormous that even government officials discourage us from running after them to apply for MSME subsidies; even they think that the trade-off isn't worth it.
(2) Informal Micro Enterprises ≠ Formal Micro Enterprises
Which means that a number of the labour law reforms, tax policies etc. are not going to affect the informal sector which is outside the realm of these policies and their reforms.
Which means that significant number of entrepreneurs/enterprises incubated under the "Skill India" initiative launched with much fanfare by the government, will also not be impacted by these regulatory reforms because the demographic they target (poor, marginalized) will most likely operate their enterprises in the informal sector.
(3) Really poor entrepreneurs in informal Micro Enterprises ≠ Other MSME Entrepreneurs
The author suggests that a critical gap is the supply of managerial skill training. This fits very well with theory, and also with practice... when it comes to higher income MSMEs. Unfortunately, research shows that for the very Bottom of Pyramid entrepreneurs, this theory doesn't hold.
Managerial training specifically, and business training in general, have been shown to have some [limited] effect at the point when very poor/low income entrepreneurs are just starting out (i.e. in the "start up" stage), and have non-significant effect at a latter stage of the enterprise. Which means that such training can most likely help a micro enterprise start but not sustain.
Even this is not necessarily a bad thing. Perhaps. In a Silicon Valley context, starting up a business and demonstrating your entrepreneurial courage and creativity, can allow you to sell your business for a large amount, cash out, and then get hired by a top firm because you have demonstrated your potential.
This is not true of the very underprivileged entrepreneurs who struggles to earn a livelihood for themselves and their families, and for whom, it is more about self-employment than about entrepreneurship, more about earning an income than about demonstrating an idea, more about sustenance than about the startup.
It seems to me that in the current brouhaha about "Make in India", these key socioeconomic distinctions about the different categories of enterprises and entrepreneurs, are being glossed over. Access to credit is a critical piece of the puzzle, but research and the real world have shown over and over again that it is not everything.
Social networks, long term experience (versus condensed information and "Entrepreneurship Development Modules"), continuous opportunities to experiment with business ideas, social protection should your business fail and should you be very poor, accessible information about legal and regulatory rights and obligations (rather than the typical method of running after government officials and waiting outside their office for days at end), careful analysis and breakdown of the societal power structures that restrict the marginalized (woman, certain "castes") from participating in business, childcare for women since we can expect the largest share of domestic responsibilities to be borne by women for many decades more......
ALL of these are part of an entrepreneurship development agenda. IF, of course, the goal is to make this agenda as egalitarian and effective as possible.