MSMEs are at the front and center of government’s policy measures: Chief Economic Advisor

“India can emerge as a dominant economy in the world by pursuing the invisible hand of market economy along with ethical wealth creation by private sector. The economic reform measures announced since the outbreak of the COVID pandemic can propel India’s economic growth to 7.5% in the coming decade. The growth can reach upto 8% when we implement the simplified labour laws, the proposed Development Finance Institution and other financial sector reforms announced in the Union Budget 2020-21. If the external environment is favourable, India can attain 10% GDP growth in the next decade. In a major shift in the policy mindset of the last 30 years, Government of India decided to empower and enable ethical wealth creation by the private sector. By empowering private sector wealth creation under the Atma Nirbhar Bharat, India is returning back to its DNA. Historically, Indian economy contributed 1/3^rd of the world economic output until1750 AD because of the role of private sector wealth creators. At the same time, the government does not endorse private sector wealth creation through unethical profiteering,” said Dr. Krishnamurthy Subramanian, Chief Economic Advisor, Ministry of Finance, Government of India at a webinar organised by All India Association of Industries (AIAI).

Speaking about the MSME sector, Dr. Subramanian pointed out, “MSMEs have been the key focal point of the central government’s policy measures. The Rs. 3 lakh crore emergency credit line, revision of MSME definition and simplification of labour laws are aimed at supporting the growth of MSMEs. The consolidation of 29 labour laws into four labour codes is the historic reform announced since 1991. The relationship between MSMEs and the government is similar to that of parent-child. Government should support MSMEs till the infancy and growth stage; once firms attain maturity stage, they should reduce their reliance on government support.”

Sharing views on reforms in the agriculture sector, the Chief Economic Advisor said, “India needs reforms in the agriculture sector by opening market and creating more choice for farmers to sell their produce. Such reform measure will benefit farmers by creating more market opportunities and help us realize the aim of doubling farmers’ income.”  According to him, market reforms in the agriculture sector will not create monopoly and exploitation of farmers at the hands of the corporate sector.

Dr. Subramanian emphasized that Indian industry should compete with the best performers of the world to build their capability and thus pave the way for a Self-Reliant India. He said, “India has around 100 start-up enterprises that attained unicorn status of USD 1 billion valuation through technology innovation, without much support from the government.

Dr. Subramanian mentioned that the government has hiked capital investment by 35-40% in the recent budget to increase investment on power, road and railways. This will reduce cost of power and cost of logistics for the industry.

He finally suggested MSMEs to increase their scale of production and create more jobs, so that it will grow the nation’s GDP and tax collection, which can be re-distributed for welfare schemes.

Earlier in his welcome address, Vijay Kalantri, President-All India Association of Industries (AIAI) welcomed the government’s reform measures that facilitated V-shaped recovery and increased GST revenue collection.

At the same time, Kalantri flagged some of the key challenges of the MSMEs. He said, “MSME is the vibrant sector that contributes 30% to GDP, 40% to exports and manufacturing sector. However, timely access to finance at reasonable interest cost is still a challenge for many MSMEs. Bank credit to MSMEs as a share of total bank credit has declined in recent years. Government and Reserve Bank of India should infuse adequate liquidity in the hands of MSMEs and the general public to support aggregate demand.”

He added, “MSMEs are facing rising cost of steel and other raw materials because of imposition of anti-dumping duty. Therefore, the government should ensure that raw materials are supplied to small enterprises at globally competitive price.”

Also, the government should bring construction materials and petroleum products under the GST regime to prevent cascading effect of indirect tax and reduce the price for final consumers.

He suggested the government to review the Insolvency and Bankruptcy law, which has become a take-over code rather than a legal framework for resolution of stressed assets. The insolvency regime should facilitate resolution and rehabilitation of insolvent firms rather than becoming a take-over code.

Finally, Kalantri recommended the government to provide tax and non-tax incentives to the hospitality and tourism sectors, which have borne the maximum brunt from COVID crisis, as these sectors contribute substantially to employment and GDP.

Sangeeta Jain, Senior Director, AIAI delivered vote of thanks for the event.

The event was attended by senior officials from government, trade & industry, consular corps, consultancy organizations, economists and academicians.