MSMEs crisis: How to rescue India's businesses?

Researchers at the Council on Energy, Environment and Water (CEEW) and the National Institute of Public Finance and Policy (NIPFP) have proposed the creation of a nationwide, centralised digital platform to provide timely and sustained assistance to Micro, Small and Medium Enterprises (MSMEs) that are in trouble due to adverse market and financial conditions.

In a new report titled 'Jobs, Growth and Sustainability - A new social contract for India's recovery', the researchers have suggested the proposed MSME Information System for Holistic and Real-time Identification, Incentives and Support (MISHRII) system should collect data on the size, distribution, and economic contribution of MSMEs and their workers to the national output, and seed details such as occupation, days of employment and monthly income into their Aadhaar-linked profiles for this purpose.

"It should be linked with the goods and services tax (GST), value added tax (VAT), income tax, and other tax databases, and the banking network for direct benefit transfer (DBT). Access to real-time, credible information about MSMEs would allow their inclusion in formal business and banking systems; ensure efficient, targeted delivery of aid and incentives, and in the long run, allow tracking of compliances, such as goods and services quality, taxation, and environmental standards," the report authored by a joint NIPFP and CEEW team lead by Arunabha Ghosh and Shuva Raha points out.

The report also recommends the development of a vulnerability assessment framework of MSME sectors; measures to improve the creditworthiness of small businesses, and increasing the capacities of the MSME SAMADHAAN Delayed Payment Monitoring System to expeditiously clear government dues to micro and small enterprises, and the National Company Law Tribunal to efficiently manage insolvency cases.

Saying that the COVID-19 pandemic gives an opportunity to shape the economic recovery in a manner that would deliver a new social contract between the state, the citizen and the enterprise, the researchers wanted the new system to rest on two pillars: commitment to jobs, growth, and sustainability; and a razor-sharp focus on tail-end risks. "The government must, therefore, implement a survey-based rapid data collection and investigation strategy so that policy can be designed based on inductive analysis, learning from the impact of the crisis on different geographies and socio-economic conditions. This will also help repurpose public and private expenditure as the situation evolves", the report said.

On India's ambitions to reach out the world, the report calls for restraint. "For the time being, we must settle for de minimis multilateralism: What is the minimum on which our interests converge?", it says.

India must focus on chronic risks that all countries would have an interest in avoiding for the emergence of a new system, the researchers say. "When international cooperation is ebbing, renewed drive for collective action can come from how we organise multilateral institutions to respond to shocks, whether health-related, environmental, or financial. We must now develop the multilateral platforms that can prevent environmental crises of planetary scale and significance", they recommend.

The report also talks about the importance of launching an Environment and Health De-Risking Mission to focus on risks posed by climate change, air pollution, chemicals, and antimicrobial resistance.

"India must develop a Climate Risk Atlas covering critical vulnerabilities (coasts, urban heat stress, water stress, crop loss, vector-borne disease, and biodiversity collapse). De-risking strategies must be drawn up at the national level and, to begin with, for five most vulnerable states. Involving insurance companies in this process would help to secure investments in urban and coastal infrastructure once there is recourse against extreme events", the report says.

The researchers also call for a rethink of the structural framework of India's power sector including the setting up a multi-stakeholder National Electricity Council (NEC), making an Integrated Energy Resource Plan (IERP), establishing a National Renewable Energy Corporation (NREC), and eventually, notifying a National Renewable Energy Policy (NREP).

"CEEW's preliminary calculations show that a cumulative amount of approximately Rs 5,200 crore (USD 690 million) over 2021-28 could facilitate an economically viable market for 28 per cent of generation from onshore wind and solar PV by 2030, creating another 528,000 jobs", the report points out.

The report also proposes a support system for migrant workers. "Learning from the COVID-19 crisis, we recommend large-scale deployment of state supported canteens to provide hygienic, affordable and nutritious cooked food thrice a day to all urban migrant workers (approximately 30 million). This would require capital infusion of about Rs 26,500 crore (USD 3.5 billion) for an estimated 60,000 canteens and 8,200 kitchens. We estimate the price per meal to be about Rs 15 (USD 20 cents), which could cover operating expenses. Each canteen serving meals to 500 beneficiaries could employ 20 people on average, generating 1.2 million jobs to serve the 30 million migrant workers. This will also initiate demand for diversification of food production through assured procurement," the report suggests.

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