Page 8 - CII Artha Magazine 2022

Focus Story

Scaling-Up Combining micro-enterprises (defined as Figure I: Distribution of Employment by Establishment Size medium and larger firms) and development policies can

between MSMEs and dynamic
play a crucial role in
those hiring one to ten
establishment-level data for
fostering such linkages.
markets. Effective cluster
workers) in total employment
the formal and informal
has declined by 8.5
manufacturing sector from
MSMEs the Annual Survey of percentage points, while that 45.0 44.8 41.8 36.8 36.3 22.6 26.0 30.3 EFFECTIVE CLUSTER
of large enterprises (i.e.,
Industries and the NSSO’s
40.0
those with 250 or more
DEVELOPMENT POLICIES
35.0
Enterprise Survey of
30.0
workers) has increased from
CAN PLAY A CRUCIAL
Unincorporated Enterprises
25.0
for the period between
30.3 per cent in 2015-16. The
LINKAGES BETWEEN
15.0
2000-01 and 2015-16, I seek 20.5 per cent in 2000-01 to 20.0 21.7 20.6 17.2 12.8 14.0 16.3 16.1 20.5 21.8 ROLE IN FOSTERING
to answer this question in a share of small enterprises 10.0 MSMEs AND DYNAMIC
5.0
recent study . (i.e., those with 10 to 49 0.0 MARKETS
2
workers) in total employment 1 to 9 workers 10 to 49 workers 50 to 249 workers 250 or more workers
It is noted that the has fallen from 21.6 per cent 2000-01 2005-06 2010-11 2015-16
to 17.2 per cent over the
H istorically, India has failure as the policy support distribution of manufacturing fifteen-year period while that
employment across firms of
provided to these enterprises
supported and
encouraged micro, small and has encouraged inefficient different sizes in India is of medium sized enterprises
(i.e., those with 50 to 249
medium enterprises (MSMEs) modes of production (in the marked by a bi-modal workers) has risen from 12.7 that for policies designed to difficult and warrants more
through various policy name of employment distribution wherein a large per cent to 16 per cent. support MSMEs to be creative research and thought.
initiatives by providing them generation) and diverted share of employment is effective in employment
with subsidized credit, scarce resources from concentrated in The rising employment share generation, they should seek In addition to helping
technical assistance, excise productive investment. micro-enterprises followed by in medium and large to identify the transformative ‘constrained gazelles’ expand,
tax exemptions and However, it can be argued large enterprises (Figure 1). enterprises (from 33.3 per enterprises, which have the MSME policy support must
preference in government that in an economy such as While the existence of a “U” cent 46.4 per cent potential to grow fast and not (inadvertently) penalize
procurement (Expert India where there is a large shaped (or bi-modal) cumulatively over 15 years) in provide them the necessary medium and large sized firms
Committee on MSMEs, RBI, pool of surplus labour distribution of manufacturing total manufacturing support to expand and in an economy. Further, it
2019). The Small-Scale (including household labour, employment by enterprise employment is a positive graduate quickly up the size should also avoid indefinitely
Reservation Policy (1967), whose opportunity cost is size referred to as the development as these distribution. Successful policy subsidizing subsistence
which attempted to shield close to zero) the promotion “missing middle” is widely enterprises offer more support to micro and small entrepreneurs i.e., those who
small scale units from of the decentralized methods recognised in the literature, productive and better paying enterprises must be able to are compelled to resort to
competition by reserving the of production may not only this study finds that over time jobs compared to smaller target transformative self-employment or own
production of a number of encourage greater use of there has in fact been an enterprises. Importantly, the entrepreneurs and help them account employment as a
products for them for over labour but also contribute to improvement in the improvement in the grow and not incentivize survival mechanism to eke
three decades stands out in greater equity . Additionally, employment distribution with distribution of employment is them to remain small. Given out a subsistence living.
1
this context. In recent times such policies promote the share of medium and seen not just at the aggregate scarce resources, policy OAMEs (i.e., those which
too, the MSME sector has entrepreneurship, lack of large enterprises in total level but also at a more support must ensure that it is operate without hired labour)
continued to remain a thrust which is often cited as a employment rising while that disaggregated state and equipping transformative have persistently accounted
area for policymakers as it is reason for inadequate of small and industry level. entrepreneurs with the tools for 85 per cent of total
believed that the sector is the competition in industrial micro-enterprises has been they need to succeed. As enterprises in the enterprise
‘backbone of the Indian markets. falling (Figure Further, examining stylized Jayachandran (2020) notes, landscape suggesting that such
industry’. 1). The facts across firms of different many of these enterprises, subsistence enterprises are
In this context, the share of also referred to as not transitioning to larger size
Policies designed to support question of whether it sizes and age cohorts, it ‘constrained gazelles’ in the categories and are unlikely to
appears that the shift in
MSMEs have been widely is in fact MSMEs or distribution of employment literature (defined as those become engines of productive
debated across developing large firms that have towards relatively larger entrepreneurs who have a job creation. The abundance
countries. It is often argued been significant enterprises is driven, amongst high empirical probability of of subsistence entrepreneurs
that in efficient markets, contributors to other factors, by the being top-performers given in fact reflects a failure of
productive firms remain in employment in India expansion of some dynamic their observable medium and larger sized firms
business and grow while and whether their MSMEs which are graduating characteristics) are perhaps to be more prevalent in the
unproductive ones leave the contributions have and moving up the size held back by policy-fixable economy and generate a
market. evolved over time distribution. An important constraints, such as imperfect larger fraction of jobs. Finally,
merits greater capital markets . However, the MSME policy should also seek
3
The predominance of a large attention. implication of the above is task of identifying these high to support and encourage
number of old MSMEs is often growth firms from the factory linkages between MSMEs and
cited as evidence of market Dr. Radhicka Kapoor, Senior Visiting Fellow, Indian Council level data available in India is more dynamic firms (typically
for Research on International Economic Relations (ICRIER)
1 Nagaraj,R (2018) “Of “Missing Middle” and Size-based Regulation A New Frontier in the Labour Market 3 Jayachandran.S (2020). “Microentrepreneurship in Developing Countries.” NBER Working Paper No. 26661, January 2020.
Flexibility Debate.” CSE Working Paper 2018-7, Centre for Sustainable Employment, Azim Premji University.
(http://icrier.org/pdf/Working_Paper_409.pdf).
2
08 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 09
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
MAY 2022 MAY 2022