MSME Sector in India

MSME Sector in India

• India’s Micro, Small, and Medium Enterprises (MSME) sector is set for a massive change in 2020
• An Alibaba-like e-marketplace is being made, along with trendy, affordable khadi products
• Digital data-based credit ratings will help entrepreneurs get loans
• MSMEs contribute about 29% to India's GDP
• MSMEs contribute 48% to Indian exports
• Reforms and policy changes are needed to ensure low-cost credit is available on time
• They must improve the ease of doing business and technological upgrades
• They will tackle the challenge of creating jobs, ensure equal national income distribution, and achieve large-scale import substitution
• The World Bank approved a $750 million loan to meet the immediate liquidity and credit needs of India's MSME sector, which was hit hard by COVID-19
• This will help the government's Atmanirbhar Bharat vision

MSME Advantages and COVID-19 Impact

• MSMEs are useful for using local resources
• MSMEs help create job opportunities
• MSMEs ensure fair income distribution in the country
• The MSME sector suffered significantly during the COVID-19 pandemic due to liquidity crunch

Small Scale Industries

• Small-scale industries ensure a more equal distribution of national income and wealth
• The ownership of small-scale industries is more widespread than the ownership of large-scale industries.
• Small Scale Industries are not the largest labour force employers in India.

Indian Economy (1950-1990)

• India’s economy performed satisfactorily during the first seven five-year plans (1950-1990)
• India’s industries became more diverse, with emphasis on public investments
• Import substitution protected domestic industries against foreign producers, but India failed to promote a strong export surplus
• The public sector expanded but did not bring desired level of improvement
• Excessive government rules hindered entrepreneurship growth
• Many Public Sector Undertakings (PSUs) had big losses because of inefficiencies, red-tapism, and bad technology
• It was hard to close a government company, even if it was draining resources
• The Green Revolution helped India become self-sufficient in food production
• Economic policy reform was needed because of the changing global economy

Public Sector Role

• Private entrepreneurs lacked sufficient capital for investment
• The government wanted to protect local producers from foreign competition

Economic Strategies and Agriculture

• Inward-looking trade strategy aimed at import substitution
• The mechanization of Indian agriculture was not one of the causes of the Green Revolution in India

Public Sector Undertakings (PSUs)

• Many public sector undertakings had big losses due to operational inefficiencies
• Red-tapism was not one of the reasons for the continuation of such enterprises.

Sustainable Development

• Sustainable development means social and economic human progress cannot be separated from environmental protection
• Sustainable development involves health, education, jobs, and ecosystems
• It requires inclusion, movement away from decisions eroding democratic space, and addressing social inequality, intolerance, and violence
• It includes changes that transform impoverished people into informed, educated, healthy, and productive societies
• It focuses on wealth creation that generates equality and opportunity
• It involves consumption and production patterns that respect planetary boundaries, and increasing tolerance and respect for human rights

Sustainable Development Measurement

• Economists like Amartya Sen and MahbubUlHaq oriented the human development legacy
• The first Human Development Report was captured in 1990
• The United Nations Development Programme (UNDP) has promoted alternative ways to measure human progress, including the Human Development Index (HDI)
• The goal is to adjust the index to reflect environmental sustainability
• The goal must be our collective objective

Goals of Sustainable Development

• Use of traditional knowledge and practices
• Spreading awareness
• Education and health are not the broader issues of human development as per the UNDP Report
• Sustainable development and economic growth are directly related

Infrastructure

• Infrastructure is the economy's lifeline
• It includes power, telecom, ports, airports, roads, civil aviation, railways, and road transport
• Adequate infrastructure is needed for economic activities to be efficient, smooth, and timely
• Infrastructure deficiencies cannot be solved through imports
• Infrastructure must be created within the domestic economy for higher growth
• Building infrastructure requires large investment and has a long gestation period
• Infrastructure facilities are built or run by the government and public sector enterprises
• Private sector investment in infrastructure projects must be regulated to ensure quality

Infrastructure Aspects

• The main category of infrastructure is economic
• The demand-supply gap of infrastructure-like power and transport can be met through the active role of public and private sectors.
• Infrastructure helps increase productivity and enhance the quality of life
• Infrastructural facilities are not mostly built or run by the government and public sector enterprises
• Higher investment requirements/longer gestation period of the project.

Budget and Spending (2021-22)

• The Budget Estimate of total spending for 2021-22 is ₹34.83 lakh crore
• The Revised Estimate for total central spending in 2020-21 is ₹34.5 lakh crore
• The GDP deflator, with a 14.4% nominal GDP growth projection and 11% real GDP forecast, is 3.4%
• Central spending should have increased to at least ₹35.7 lakh crore to remain unchanged in real terms
• The 2021-22 budget entails a negative fiscal stimulus to the economy
• The government is justified in rolling back its welfare spending push

Economic Welfare and GDP

• With the rise in real national income, the economic welfare of the people rises.
• If GDP Deflator = 125 and Nominal GDP = ₹15000 crore, then Real GDP is equal to ₹12,000 crore
• Real GDP is not always equal to Nominal GDP
• Real GDP is the better measure to make periodic comparison

GDP Deflator

• GDP Deflator is a tool that shows changes in the price level of the economy over a given period of time