Inject Blood into Anaemic MSMEs?

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 Inject Blood into Anaemic MSMEs?

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• Small vs. big: A central idea of Indian policy-making is that small enterprises make for a more equitable society and big enterprises are exploitative. However, data shows that in India micro, small and medium enterprises (MSMEs) are unproductive, inefficient, and do not meet environmental, labour and social security compliance. Some have existed for decades because current policies allow them to. 
• Four metrics to focus on: Scale or capital investment, value added per employee, total factor productivity, innovation.
• Size-based distinction disincentivises scale: Size or investment in capital has been the key criterion for classifying enterprises as micro, small, medium or big. This disincentivizes capital investment and scaling up. GoI revised the limits and added turnover as a criterion of classification in May this year. 
• Low value addition per employee indicates need for upskilling: Average value added per worker for non-farm manufacturing enterprises was only 8% of the value added per worker for organized manufacturing in 2015-16. Even Delhi’s value added per worker, the highest in the country, is only 19% of the gross value added (GVA) for organized manufacturing.
• Low total factor productivity (TFP) indicates need for investment in learning, technology and knowledge management: TFP represents growth in output not accounted for by land, labour or capital. From 2000 to 2020, the growth in TFP in informal manufacturing has been lower than that of formal manufacturing.
• A few sectors where MSMEs are not performing badly: In pharma, 9456 MSME units contribute 87% of production and 40% of value of total Indian pharma sector. Paper, rubber, and plastic are some other industries where informal manufacturing has not been less productive than organized manufacturing. 
• Investment in new machinery not right indicator of innovation: The 2014 National Innovation Survey (NIS) on trends and technology adoption in MSMEs showed that investment in new machinery than product innovation is the dominant form of innovation in the sector.
• How MSMEs in Germany differ from those in India:

1. Classification: Germany defines SMES as enterprises with less than 500 employees and turnover less than €50 million. Enterprises with 0-9 employees are micro enterprises which account for 83% of all MSMEs there. 
2. GVA per employee: Micro sector’s GVA per employee is 60% of the GVA for enterprises with more than 250 employees. 
3. High productivity
4. High expenditure on research

• Summary: Low productivity, value, scale, investment in learning and research plague the Indian MSME sector. GoI revised the classification criteria recently which might cause an increase in capital investment and scale but other areas also need to be improved. MSMEs must invest in upskilling, technology, research, knowledge management and move up in their respective value-chains. 

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