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Economic Survey 2022: Initiatives taken by govt will promote competition, avoid dwarfism among MSMEs

Samir Sheth, Partner and Head
Deal Advisory Services

31 January 2022

Ease of Doing Business for MSMEs: Over 99 per cent of 6.33 crore MSMEs in India are micro units while 0.52 per cent and 0.01 per cent are small and medium respectively.

Ease of Doing Business for MSMEs: Various initiatives taken by the government to promote micro, small and medium enterprises (MSMEs) such as revision in definition, preferential procurement in the public sector, cluster development programme and more will promote competition and avoid dwarfism among such enterprises, said Economic Survey 2021-22 on Monday.

“The modified definition of MSMEs will facilitate expansion and growth of these enterprises. The resulting economies of scale can enhance productivity without the MSMEs losing out on several government incentives…This enabling environment will promote competition and avoid dwarfism among MSMEs,” the survey noted.

According to the survey, market support, export promotion, preferential procurement in the public sector and incentives through the Micro Small Enterprises- Cluster Development Programme (MSE-CDP), Prime Minister Employment Generation Programme (PMEGP) and Scheme of Fund for Regeneration of Traditional Industries (SFURTI) and enabling of IT ecosystems were measures undertaken by the government to support MSMEs.

Out of the total 6.33 crore MSMEs in India, micro enterprises comprised over 99 per cent share with 6.30 crore units. In comparison, there were only 3.31 lakh small and 0.05 lakh medium enterprises that accounted for 0.52 per cent and 0.01 per cent of total MSMEs, as per data from MSME Ministry 2020-21 annual report. Consequently, out of total MSMEs registered on the Udyam portal, the majority were micro-units. As of January 17, 2022, 66,34,006 enterprises had registered on the Udyam portal, of which 62,79,858 were micro; 3,19,793 were small, and 34,355 were medium enterprises. 

Experts had also opined for a separate ministry for micro-enterprises for dedicated measures to support their growth. “How can we have the same lane on a highway for a cyclist and a lorry? That’s exactly what’s happening in the name of MSME. A company doing a turnover of Rs 1 lakh a month and Rs 20 crore a month are both called an MSME…For example, we offer the same stimulus scheme for a company engaged in running a salon or a transporter or a manufacturer, or an exporter or a training institute. Giving one medicine for all issues makes it impossible to expect any cure unless strong luck saves the patient,” KE Raghunathan, Convenor, CIA had told Financial Express Online. 

Apart from this, other recent MSME measures highlighted in the survey were the launch of the new Udyam Registration Portal in July 2020, including retail and wholesale trades as MSMEs and allowing them to register on Udyam Registration Portal along with street vendors as well, the latest economic survey added. 

“While the economic survey details steps taken by the government to help MSMEs tide over the impact of the pandemic, these steps are largely on the supply side. It needs to be seen in the budget what steps the government will take to enhance the demand side. Also, over the last few months, MSMEs have been affected by increasing raw material and fuel prices. These businesses are usually not in a strong position to pass on these price rises to their customers, and this could severely affect their profitability,” Samir Sheth, Partner and Head – Deal Advisory Services, BDO India told Financial Express Online.