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India’s policies have incentivised firms to remain micro & small: ILO

MSMEs in India are the second largest employer after agriculture with more than a million jobs created annually. The International Labour Organization (ILO) is mandated to promoting social justice and internationally recognised human and labour rights. Talking to ET, Dagmar Walter, Director, ILO, Decent Work Technical Support Team for South Asia and Country Office for India, talks about the unique challenges confronting Indian MSMEs and why the country needs to do more to get a large chunk of informal enterprises to shift to the formal economy. “When the benefits of formality outweigh the costs, rates of informality are likely to decline,” Walter says. Edited excerpts: ET:

On the occasion of World MSME day, tell us about the philosophy behind the Decent Work Agenda of the ILO. Dagmar Walter (DW): For the ILO, enterprise development is not just about unleashing entrepreneurship; it is fundamentally about creating decent jobs. The potential of sustainable enterprise development has often not been fully realised due to external factors over which businesses may have no control as well as internal factors relating to the capacities and knowledge of entrepreneurs. ILO’s strategic framework for sustainable enterprises for the creation of decent work is built around three crucial and mutually reinforcing elements: creating the right conditions for sustainable enterprises to thrive and create jobs; stimulating entrepreneurs to fulfil their ambitions to build businesses; and nurturing sustainable and responsible workplaces that combine increased productivity and a smaller environmental footprint with improved working conditions and industrial relations. ET: What are your thoughts on the potential of Indian workforce involved in the MSME sector? To what extent do you find them future-ready? DW: MSMEs in India are the second largest employer after agriculture with more than a million jobs created annually.

However, the incidence of mortality andreporting sick is also high among MSMEs. Poor management practises in Indian firms has been documented in many research studies and is attributed to the poor productivity and competitiveness of MSMEs. While there is major attention on technology adoption, access to finance and market access, for optimal results there is a need to strengthen the entrepreneurial skills including their resource management ability and other soft skills such as analysing market trend to respond to market changes, communication, problem solving and others. However, this is not enough. Investing in the capability of employees is equally important as resource efficiency and productivity of firms is dependent upon the soft skills of the employees and the cooperative relationship they enjoy as a team. Labour attrition and unavailability of skilled workers are often cited as major constraints by MSMEs in India. But they often miss recognising that people are at the heart of competitive enterprises and think that workforce management is a subject that needs special attention only in large firms. ET: According to you, how unique are challenges being faced by Indian MSMEs? DW:

The challenges of MSMEs are unique and apart from skill development of the workforce in India through trainings, work-based learning, including apprenticeship opportunities in MSMEs is essential if we have to match the skills needed by MSMEs. Similarly, MSMEs also need to match with the aspirations of youths by providing good working conditions and performance-linked remuneration. Attracting talent is a challenge for MSMEs and it is therefore critical to invest in the workforce for better retention especially with many now dependent upon migrant workers, often first-time job workers from rural areas or other states. Gender equality is another area for MSMEs to work upon to reap the benefits of productivity due to diversity in the workforce. In India, policies are often found to have incentivised firms to remain micro and small by giving them preferential treatments, subsidies. Thus, the potential to reap productivity through economies of scale from the expansion of firms is also often held back.