It is instructive that, from as far back as the eighties, hapless representatives of this group have consistently lobbied not for the soft bank loans that successive dispensations have offered but a better operating environment. In pre-liberalisation days, it was all about getting basics such as an electricity and phone connections. Since the nineties it’s still been about infrastructure, but also about multiple regulatory hurdles, market access, and tax compliance rules.
Over the past year, however, things have gotten immeasurably worse for this sector — and because their activities are captured imperfectly in national statistics it is hard to understand the depths of their crisis. We can only guess their plight from the broad vital stats of slowing growth and rising unemployment (and even these dismal numbers may mask the real picture, some economists aver).
Demonetisation was a straight hit, especially for micro-enterprises that operate on a daily cash basis. Those who could afford it, paid a steep 30 per cent premium to the money mules, who miraculously emerged on the scene on November 8 evening, to launder cash hordes. With local markets dislocated for lack of cash, small units abruptly shut shop and sullen jobless youths were seen streaming back to the villages.
The goods and services tax (GST), with its imprudently condensed deadline, brought the double whammy. Sans any beta-testing, the shortcomings became evident within a month — and in less than two, Bihar’s trouble-shooting finance minister, Sushil Kumar Modi, was brought in to head a committee to sort out the glitches. IT snafus and flawed structure are only two nightmares for clueless businessmen and their foxed CAs. The MSME sector’s sufferings are worsened because the bulk of them are outside the cut-off for this single-market tax.
It’s Hobson’s choice. Inclusion means high costs and fiendish complexities. Exclusion means that MSME goods and services, especially those at the micro and small level, are unlikely to find a market because larger buyers cannot avail of an offset. Small oversights, such as taxing branded food products but not unbranded ones – the many pointless complexities introduced by the tax authorities – will discourage brand-building at this lowest level of the business value chain. As things stand, the food equivalent of Nirma is a distant possibility. MSME exporters are suddenly finding themselves saddled with costs owing to an oversight in GST planning.
Much of this angst was well in evidence at Business Standard’s round table on the GST on September 6, when traders and businessmen put their questions to a dispensation that was visibly disinclined to be sympathetic. If, however, senior ministers are trying to find ways to stoke the economy, they need look no further than easing the burdens on the MSME sector. What is more, with most states under ruling party governments or coalitions, the opportunity to encourage them to winnow out local constraints to business could never be better.
The problems of India’s MSMEs represent in miniature the problems of business in general. This regime has praiseworthy aim of bootstrapping India up the Doing Business rankings from 130 to 90. For big ideas, it need look no further than its smallest and humblest businessman.