Why Indian businesses prefer to remain small
Making a shift
With the focus on SMEs in India, Dagmar Walter, Director ILO, Decent Work Technical Support Team for South Asia and Country Office for India, believes more needs to be done to get a large chunk of informal enterprises to shift to the formal economy. For the ILO, enterprise development is not just about unleashing entrepreneurship; it is fundamentally about creating decent jobs.
Are we future ready?
MSMEs in India are the second largest employer after agriculture with more than a million jobs created annually. Poor management practises in Indian firms has been documented and is attributed to the poor productivity and competitiveness of MSMEs. While there is attention being paid to adoption of technology and access to finance, for optimal results there is a need to strengthen the entrepreneurial skills. This includes their resource management ability and analysing market trends to respond to the changes, communication and problem solving.
Why stay small?
In India, policies are often found to have incentivised firms to remain micro and small by giving them preferential treatments and subsidies. Micro enterprises dominate the MSME ecosystem in India and the number of employees is less than 5 there. Firms prefer to remain small as it does not bring them under archai and stringent labour laws. However, the flip-side to this being that productivity and working conditions in these places often fall short of expectations. Among these, many are owned and run by women, as home-based enterprises, which also reflects on the barriers for women participation in the labour force which includes low income for them.
ILO’s Recommendation 204 delves deeper into debate around transition from the informal to the formal economy. For this, it is critical to measure informality. A proper assessment should be done and diagnostics of factors, characteristics, causes and circumstances of informality in the national context to inform the design and implementation of laws and regulations to facilitate the transition to the formal economy.
Bottlenecks in MSME sector
The ILO in India has been working closely with its tripartite constituents to support MSMEs in this regard. Besides many initiatives, ILO's Sustaining Competitive and Responsible Enterprises (SCORE), has been working closely with enterprises. This programme enables them to upgrade their management practises and improve their bottom line. It helps them enhance the performance of their enterprise and also sharpen the supply chain competitiveness needed for employment generation and achieving decent work for all.
Since 2011 more than 100 MSMEs with outreach to 6123 employees (of which 28 per cent are women) have participated in the SCORE trainings in India. SCORE-trained MSMEs report on an average more than 30% of cost savings and improvements in areas such as material wastage, wait and idle time, energy consumption, defects, reduction in injuries, absenteeism, labour turnover and worker complaints.