Microenterprises deserve a better deal from Modi government

Small is beautiful. The tiny industries in India are not so tiny in terms of their overall weightage in the economy. There are 63 million microenterprises in India. They contribute 14% to the GDP. They account for 45% of the manufacturing output and 40% of the country’s exports. Above all, their share in the country’s employment (excluding those in the construction sector) is 11%. They may be small but taken together they are not insignificant.

But the small is sick. Between 2010 and 2015, employment in non-farm microenterprises (excluding construction) grew from 108 million to 111.3 million, a compound annual growth rate of a pathetic 0.6%.

Timely report

This is one of the main findings of a report brought out by the Center for Sustainable Employment (CSE) together with Global Alliance for Mass Entrepreneurship (GAME). The report titled, ‘Microenterprises in India: A Multidimensional Analysis’, authored by researchers Amit Basole of CSE and Vidya Chandy of GAME was released on 16 October 2019. When the country is crippled by a creeping economic slowdown and the government struggling with major measures to revive the economy, such a report offering a well-documented analysis and suggesting useful steps to overcome the employment crisis in such a crucial sector of the economy could not have been timelier.

MSME is an engine of growth

The MSME sector, of which microenterprises comprise more than 95%, has been widely acknowledged as the main engine of growth in the Indian economy. A report with meticulous fact-based analysis showing that this sector could create hardly 6 lakh jobs per year between 2010 and 2015 and the trend more or less continued ever since as against Modi’s promise of creating 1 crore jobs per year in 2014 is really a wake-up call. The MSME employment potential remained stagnant and Modi’s promise remained a mirage. It is time to act on war footing. It is not just a matter of GDP numbers but a question of livelihood for millions.

In this era of jobless growth, India’s structural crisis is a well-established fact that the increase in GDP rate in India now creates far lesser jobs than it used to in the past. Therefore, if we need more jobs we will need a far greater GDP growth and even UPA benchmarks have to be exceeded to realise even those growth rates that we had then. But growth in Modi years is approaching half of what it was during the UPA period.

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Renu Shukla, an established trade union leader in Lucknow, says besides the high number of chikkan embroidery workers who have lost jobs in small units, the job-work orders for many women who do home-based chikkan work have also drastically come down this festival season. A silk handloom saree worker from Varanasi also says that the work orders have come down by a third and the situation is as bad as demonetisation days. Kiran Singh from Kanpur, an activist, says that the footwear workers in Kanpur usually work long hours till late in the night in the months before the festival season but this year they remain idle as orders have come down by half.

The scourge of unemployment

So not just unemployment, this underemployment, with its resulting income-stagnation, is the other facet of the traumatic crisis of the microbusiness sector. According to the CSE study, not a single industry among the large MSME employers showed average monthly wages of even Rs.10,000 per month in 2015, with the majority lying between six and eight thousand rupees. Considering the very large numbers in the microenterprises sector, the aggregate revenue in this sector is bound to constitute a huge segment of the consumption demand in the economy. Stagnation and very low wages in this sector is bound to have a macro-economic fallout and it is clear that without growth and income levels in this sector going up there is no way out of the overall economic slowdown.

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The real stimulus for growth should be primarily targeted here. But contrarily, finance minister’s priority seems to be 1.45 lakh crore tax concessions to the corporates. But microenterprises, by definition, are those having an investment of less than Rs 25 lakhs. Official data shows that 96% of the MSMEs are proprietary concerns with low revenues most of which do not pay corporate tax. Many MSMEs don’t pay GST either as the exemption for GST now has been raised to Rs 40 lakh of annual revenue. Many MSMEs are own-account enterprises (meaning not employing labourers but mainly home-based workers) which fall under the Rs 5 lakh income tax exemption limit. So not much of Nirmala’s 1.45 lakh bonanza for corporates or the August GST cuts would reach the tiny units. The need for a special and exclusive stimulus package for this sector needs no emphasis.

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MSMEs account for 40% of the manufacturing output but only account for 14% of the non-agricultural credit and their share in total credit declined in a decade from 17.4% in 2007. The outstanding credit by MSMEs is around Rs 3.59 lakh crore and they are struggling unable to pay even interest for that. The government, of course, has announced a token 2% interest subvention for MSME loans. Ironically, this has only led to 2% less credit offtake by MSMEs over 2016 and 2017. A total interest waiver and moratorium on repayment until the economy picks up could have given them some real relief.

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Acute unemployment was a major campaign issue during the 2019 Lok Sabha polls but that might not have dented Modi’s electoral prospects much. Likewise, despite the BJP-ruled states in north India having larger unemployment rates than the southern states, the BJP governments keep getting re-elected as well. This only goes to show that the electoral dynamics building up over acute crises in the economy is quite complex. The very crisis and the overriding security concerns appear to be leading to desperation among the voters driving them towards the party of a “strong man”…until the situation reaches an inflection point when the crises of unemployment and income-stagnation would turn the political tide against an apparently stable incumbent government.