Mitigating the economic contagion: A window of opportunity for Indian MSME’s

In the post Covid-19 worldorder,India can position itself as an alternative to China as a preferred destination for foreign companies to invest and set shop providing the necessary imetus to micro, small and medium enterprises and reinvent itself as a manufacturing hotspot.

Recently, the announcement by Japan to set up $2.2 billion stimuli to help out Japanese companies moving out of China followed by the United States of America also expressing a similar sentiment to sift its manufacturing companies out of China indicates retaliatory wave or mindset against the country. There is a strong anti-business sentiment against the Asian giant building across various countries that can unwittingly work in India’s favour.
 
What India needs to do is come out with the comprehensive policy to replace red-tapism with a red-carpet for these fleeing foreign giants to set shop in India. This would help put the country on top of the global supply chain and benefit domestic MSME sector, which contributes almost 30 percent to the county’s GDP and employs around 11 crore people. The MSME segment would thus push the economy out of the dual crisis of sluggish growth and economic fallout of the COVID-19 pandemic.
 
India’s long-term growth potential

India has several advantages in going its way. Firstly, as compared to other countries, India is less battered. It is one of the few countries that stand to post positive growth this financial year, where as developed nations like the US and the UK are expected to register negative growth. It has a robust and steady inflow of foreign exchange reserves coming-in every year due to the remittances from expatriates. It has a stable government and investor-friendly policies. Countries prefer to invest in countries with strong growth potential.
 
Owing to the conducive business environment, the country has lured several top global companies looking to set up their manufacturing base in India over the last few years. The country has also jumped several places in its ease of doing business index, which is attracting foreign investors here. Another advantage that India offers is that it is a ready market to sell its finished goods to the growing middle-class segment of the country.
 
The Make in India scheme,launched in 2014, aims to promote India as a manufacturing hub in varied sectors ranging from defence, leather, agro-products to space and create 100 million additional jobs by the year 2022. Also, several other initiatives, such as Skill India, Digital India, are ensuring a ready stream of industry-ready workforce prepared to do productive work from day one of employment.
 
India’s ability to support bulk manufacturing, assembly and processing will tilt the balance in its favour. Though a large portion of the MSMEs is currently unorganized, the segment has the potential to contribute almost 50 percent of the GDP in the next ten years, if given proper impetus by the Government.
 
Proactive State Governments

Several state Governments have been taking additional initiatives to woo investors and give a boost to local businesses that would assist these forein companies. For instance, the Uttar Pradesh Government recently held video conferencing with more than 100 top companies of the US who are eager to shift base from China. The state government also offered tailor-made solutions including capital subsidies, availability of abundant land in special economic zones, land subsidies, and other incentives to woo these foreign companies in UP. The Government believes that these initiatives would help their 90 lakh MSME units who would assist these companies in multiple purposes. These measures need to be adopted on a pan-Indialevel.
 
Expectations from the Government

There has been a constant demand for a policy overhaul from various industry bodies’ time and again. Initiatives like a single-window clearance, tax reforms, and changes in labour laws are some of the measures needed to make this country a preferred Investment destination.
 
India needs to aggressively push itself in the immediate future in areas where healthy ecosystems of the domestic supply chain already exist. Domains such as engineering works, pharmaceutical, mobile phones, among other sectors are among India’s strengths, and it would be beneficial to build upon the existing value chain of MSMEs in these sectors.
 
India is home to 75 million MSMEs, and at the moment, most such firms are facing an acute liquidity crunch. Though the Government and the Reserve Bank of India have initiated several policy measures, the same has not been percolated down to all targeted beneficiaries. RBI should ensure banks provide easy access to credit for the MSME sector.
 
Secondly, outstanding payment related to Government, public sector undertakings, refunds related to income tax, VAT and GST should be cleared on an urgent basis. This would act as a stimulus package to these small erentrepreneurs and give them the much-needed liquidity to run their businesses.
 
Also, if the Government does away with 50 percent of the GST for six months which would come to around Rs 3 lakh crore through deficit financing,this would help in propelling demand creation. It will help restart the economic cycle, and MSME business operations will start. The Reserve Bank of India should also think about giving a one-time rollover of all outstanding loan amounts for a period of at least one year to provide some breather to them to conduct their business.
 
Recent support measures announced by the Government, including liquidity infusion and change in definition, have been a welcome step. The focus on becoming an ‘Atmanirbhar Bharat’ will propel the MSME segment to create a robust ecosystem that can provide seamless domestic support and also serve the global vale chains.
 
Deepak Sood, the author, is the Secretary-General of the national industry body, ASSOCHAM