Encouraging MSMEs will pay rich dividends to the Telangana State

Micro, Small and Medium Enterprises (MSMEs) play a pivotal role in any country’s economy. The global numbers, which keep increasing, demonstrate this in no uncertain terms.

According to the United Nations, MSMEs account for over 90 per cent of businesses and 60-70 per cent of jobs globally. More importantly, they also account for 50 per cent of the global GDP. That means half of the world economy owes its existence to these industrial and business units.

It is a fitting tribute that the UN celebrates June 27 as the International MSME Day. Further, it identified the MSME segment as a key enabler for achieving its Sustainable Development Goals (SDGs), especially the Goal 8 and 9. While Goal 8 is linked to providing decent work and economic growth to people, Goal 9 focuses on industry, innovation and infrastructure. This shows the importance of MSMEs.

But how is India’s MSME sector doing? According to official data, the MSME sector, which employs over 15 crore people, accounted for 29.15 per cent of the country’s GDP in FY22, which is far lower than the global trend. However, its share in manufacturing is significantly higher.

MSMEs contribute a whopping 40.83 per cent to the country’s gross value addition (GVA) in the manufacturing space. Further, the sector’s contribution to the country’s exports stood at 43.59 per cent in FY23. Though this contribution has been on a gradual decline from the 49.77 per cent in FY20, it’s still decent enough.

But India needs to do lots of catching up if it wants to take the MSME sector’s share in the economy to the global average level of 50 per cent from the current levels.

And where does Telangana stand in the MSME domain? Visibly, the country’s youngest State lags behind on this front. This key segment’s contribution to the State Gross Domestic Product (GSDP) is far less than the overall India’s numbers. To be more precise, it’s very less now and the incumbent government wants to increase its contribution by at least 10 per cent.

The primary reason for less contribution from the MSME sector to Telangana’s GSDP is the apparent lack of manufacturing sector. A big push to the manufacturing sector holds the key to put the State’s MSME sector on a higher growth path.

Perhaps realising the relatively poor contribution from the sector and the need to enhance it, the Congress government in Telangana recently launched a new policy initiative, Telangana MSME Policy 2024.

This is the first policy targeted exclusively at the MSME sector in the State post-bifurcation in 2014. The Bharat Rashtra Samithi (BRS) did not come up with any exclusive policy for this sector during its over nine years rule. Instead, it launched Telangana Industrial Project Approval & Self Certification System (TG-iPASS) for both MSMEs and large companies. But the current government opted for a separate policy for MSMEs, which is a good move as the government can now increase its focus on the key sector, which generates more jobs compared to large industries.

The new policy rightly identified six thrust areas for fueling growth of the segment – improving affordability and accessibility of land, facilitating access to finance, enhancing raw material availability, improving marketing capabilities, technological upgrade and access to quality manpower. It also proposed 40 measures for helping new entrepreneurs from the start to sales.

Industrial land is expensive in Telangana when compared to other States. An affordable industrial land will obviously attract more investors into the State. But access to finance is not an easy task.

Let’s see how the Telangana government will go about handling this critical aspect. Marketing is another area where a lot needs to be done.

Though the State government has come out with a good policy, many in the segment say its success will depend on how effectively it will be implemented in the coming months and years.

MSME entrepreneurs are now awaiting the implementation of this forward-looking policy for their well-being.

If one goes by the reassuring way Telangana Chief Minister A. Revanth Reddy spoke at the launch of the new policy, it appears like he and his government have a clarity on the role of this sector in the newest State’s economy. He was categorical in saying that the MSME sector would hold key to Telangana achieving its dream of a trillion dollar economy. Also, he was forthright on the industrial incentives which, according to him, should be treated as investment and not as wasteful expenditure.

As Industries Minister Duddilla Sridhar Babu indicated, pending industrial incentives skyrocketed to a whopping Rs. 3,700 crore.

However, without clearing these at a faster rate, I don’t think Telangana’s MSME sector will get into a higher growth mode.

A major disturbing trend is that the State’s youth is hardly showing interest in working in the MSME sector. That’s the reason why most MSMEs in Telangana depend on other states like Odisha and Bihar for manpower requirements.

The State government should find a way to encourage local people to take up jobs in local MSMEs instead of migrating to other places like the Middle East.

The Department of Industries should carry out a comprehensive study to find out the reasons on why locals are averse to taking up these jobs and address the challenges accordingly. If the government succeeds in solving this key issue, both local youth and local MSMEs will stand to benefit immensely.

Dr. G. Malsur, Director of Industries, said at the launch event that his team worked for over four months under the guidance of Jayesh Ranjan, Special Chief Secretary (Industries and Commerce) to formulate the new policy. His team’s hard work is clearly visible in the 36-page policy document.

Nevertheless, one key dimension is that the entire three-hour launch event was conducted in the local language, Telugu. As a significant chunk of the MSMEs are located in rural areas, perhaps, the State government chose the state language to reach out to rural entrepreneurs. It is indeed a praiseworthy move. As a matter of fact, MSME entrepreneurs in urban areas are also more comfortable with Telugu as a language.

Hopefully, the new policy initiative will also bring in cheers to the MSME sector in Telangana. Encouraging MSMEs will most certainly yield rich dividends to Telangana State. At the end of the day that is what matters most.