Analysing the Annual Survey of Industries (ASI) data, the survey said dwarfs accounted for more than half of all organised firms in the manufacturing sector, but contribute only 14 per cent in employment generation and a “mere” 8 per cent to productivity.
“In contrast, large firms (more than 100 employees) account for three quarters of such employment and close to 90 per cent of productivity, despite accounting for about 15 per cent,” the survey said, emphasising that it is a misconceived notion that small firms are significant job creators as they are also responsible for job destructions because they “find it difficult to sustain the jobs they create”.
While large firms create permanent jobs in large numbers, according to the survey, young firms create more jobs at an increasing rate than older firms. As a possible solution, the survey called for a “sunset” clause for a period of five-seven years for policy incentives beyond which a small firm “should be able to sustain itself”. It further suggested re-orienting the priority sector lending norms to focus more on start-ups and “infants” in high employment elastic sectors dealing with rubber and plastic products, electrical and transport equipment, textiles, among others.
The survey’s chapter titled ‘Nourishing Dwarfs to Become Giants: Reorienting Policies for MSME
(micro small and medium enterprises) Growth’ made a larger point that policy incentives need to be provided to new firms, rather than older MSMEs, as it acts as a disincentive for firms to grow.
“With the appropriate grandfathering of existing incentives, they need to be shifted away from dwarfs to infants. When such incentives are provided to firms irrespective of their age, the incentives create “perverse” incentives for firms to stay small,” the survey suggested.
Age of the firm being the criterion, “such perverse incentives” would not be there, according to the survey. It mooted using Aadhaar to prevent misuse of age-based criterion.
“For instance, if a promoter starts a new firm, utilises the benefits for 10 years when the age-based policy is available and then closes the firm to start a new one to avail the age-based benefits through this new firm, then the Aadhaar of the promoter can alert authorities about this misuse,” the survey said.