The chamber said that the government should resist the “allure of a one-size-fits-all policy, particularly in manufacturing which shows more heterogeneity across states. Such an approach could inadvertently stifle the adaptive capabilities of MSMEs in manufacturing.”
National MSME Policy: Industry body PHD Chamber of Commerce and Industry has urged the government to relook at the proposed national MSME policy in order to address the unique interests and needs of MSMEs in each state and region by considering the diverse structure across the states. The report noted that many Indian states have distinct policies for supporting MSMEs and about one-third have developed comprehensive strategies to boost MSME growth. Hence, it has suggested aligning national and state-level MSME structures into a unified and comprehensive MSME policy.
The chamber said that the government should resist the “allure of a one-size-fits-all policy, particularly in manufacturing which shows more heterogeneity across states. Such an approach could inadvertently stifle the adaptive capabilities of MSMEs in manufacturing, forcing them into inefficient strategies when faced with the distinctive circumstances of their respective states. The path forward lies in blending the pursuit of common goals with the flexibility to adapt to state-specific requirements.”
For instance, the unique composition of MSMEs in the northeastern states, where trade-related enterprises account for 50 per cent or more, calls for a specialized focus on those involved in trade activity and policies and schemes tailored to these regions.
As per the NSSO 73rd survey round in 2015-16, India had a vast and varied MSME ecosystem, with approximately 63 million enterprises. However, the structure of these enterprises was far from uniform, particularly in the manufacturing sector, and exhibited notable variations across states.
The report further highlighted that the states broadly share similar structures in trade and services but have significant differences in the manufacturing sector. Also, a majority of states including Himachal Pradesh, Punjab, Haryana, Delhi, Rajasthan, Jammu and Kashmir (UT) and Gujarat, exhibited dissimilarity in their MSME structures when compared to the national level. Thus, state-specific approaches are likely needed to cater to the unique needs and conditions of MSMEs in these regions.
“This highlights the need for policymakers to recognize regional disparities and formulate state-specific policies that can effectively promote the growth of the MSME sector,” the report noted.
On the other hand, MSMEs currently need to register under various schemes which adds to their administrative burden and creates confusion and duplication of effort, according to the report.
The current state of affairs presented a multifaceted challenge, the chamber said in its report explaining the issues: first, despite 31 per cent of unorganized firms that are registered under various schemes such as GST, the Ministry of Corporate Affairs and Udyam, make it challenging to consolidate information for government support and this also adds to their administrative burden and creates confusion and duplication of effort.
Second, registered enterprises represent less than 1 per cent of all enterprises, and the presence of small and medium-sized enterprises is minimal. Third, a significant majority of enterprises are own-account enterprises (OAEs), constituting a vast segment, often overlooked in policy discourse. Additionally, small-sized enterprises, while numerous, contribute insignificantly to the overall enterprise landscape.
“This structural pattern signifies that firms start at a micro-level and rarely scale up, primarily due to historical policies favouring small-scale industries. Moreover, government schemes and incentives have inadvertently hindered the expansion of small and medium firms. Correcting this structural imbalance poses a substantial challenge to policymakers,” the report noted.
In February last year, the MSME Ministry had released the draft MSME policy inviting feedback on the measures suggested to promote competitiveness among MSMEs, boost technology upgradation, cluster and infrastructure development, procurement of MSME products and provide dedicated credit support.
The key focus areas in the draft policy included setting Standard Operating Procedures (SOP) for the registration of MSMEs, creating more facilitation councils, having uniformity in various loan application formats, setting up a “focused institution” to encourage technology development among MSMEs, enabling data analytics for MSME related data, linking clusters with the transport infrastructure, establishing a Cell in the District Industries Centre to gather information from various training entities about the training programmes to be conducted by them, and aligning MSMEs with a Fast Track Corporate Insolvency Resolution Process.