In India’s macroeconomic policy and vision for 2047, the 100th year of Independence, the strategic role of the private sector is crystal clear. It is expected that given the constraints of the government on the investment front and capital formation, the private sector is expected to have a significant role.
Within the private sector, the role envisaged for micro, small and medium enterprises (MSMEs) is crucial. However, a strategic translation of such a policy approach into practice requires a clear perception of the present and potential role of entrepreneurship and the SMEs. Are India’s ambitions relating to the MSMEs and entrepreneurship a bit obfuscated? This question becomes relevant against the backdrop of the new policy approach being discussed at the NITI Aayog, wherein the “district” is going to be the focal space of programme implementation in the coming days.
The question and concern on entrepreneurship development and SME promotion becomes crucial against the current experience on policy perceptions in the States and of programme implementation within the overall framework of cooperative federalism.
India’s public programmes on entrepreneurship and SME development are uniformly implemented in all States, irrespective of the particular circumstance prevailing in each of them. This is essentially the reason that the SMEs and self-employment are considered to be major mechanisms for ensuring distribution of income and for bringing down regional imbalances. While appreciating this critical role, it raises some relevant questions on sustainability. Let us examine such issues against the backdrop of the latest experience.
The number of self-employed people in India stood at 333 million in 2021. On a year-on-year basis, self-employment in the country increased by 7.6% in 2021. Between 2010 and 2021, it increased by 8.1%. This includes individuals who are self-employed in agriculture, small businesses and other informal sectors.
There is mixed data on the trend of self-employment in India. According to a report by the International Labour Organization (ILO), the percentage of self-employed workers in India decreased from 55.9% in 1999-2000 to 44.8% in 2011-12. However, a study by the National Sample Survey Office (NSSO) found that the percentage of self-employed workers in India increased from 53.5% in 2004-05 to 55.3% in 2011-12.
Overall, it seems that the trend of self-employment in India is complex and influenced by various factors, making it difficult to make definitive statements about whether it is declining or not. Generally speaking, self-employment rate in India is quite high and it varies widely by State and sector. Some States with traditionally high levels of self-employment are West Bengal, Gujarat and Tamil Nadu. This raises questions as to growth in self-employment, ipso facto as an indicator of economic progress.
Self-employment can have both positive and negative effects on the economy. On the positive side, it can create jobs and stimulate economic growth by increasing the number of businesses in an area. Additionally, self-employed individuals often have more flexibility in terms of the types of products or services they offer, which can lead to more innovation and competition. On the negative side, self-employed individuals are typically less stable than those who work for larger companies, which can lead to economic instability. Additionally, self-employed individuals may not have access to the same benefits and protections as those who work for larger companies, which can lead to economic inequality. Overall, self-employment can be beneficial for the economy if it leads to job creation and innovation, but it can also be detrimental if it leads to economic instability and inequality.
According to the National Sample Survey Office (NSSO) report of 2018, the States with the highest percentage of self-employment among the working population are: Gujarat: 48.3%; Rajasthan: 47.9%; Andhra Pradesh: 47.7%; Maharashtra: 47.5%; and Tamil Nadu: 47.3%. But what are the highlights of the economies of these States?
Gujarat is known for its strong industrial base and business-friendly policies, Gujarat has a high growth rate in sectors such as textiles, chemicals and petrochemicals.
Maharashtra is home to India’s financial and commercial capital, Mumbai, and has a high growth rate in sectors such as automobiles, engineering and information technology. Tamil Nadu is known for its textile and automotive industries, Tamil Nadu has a high growth rate in sectors such as engineering, electronics and leather. Karnataka is known for its information technology industry. The State has a high growth rate in sectors such as biotechnology, aerospace and heavy engineering. Andhra Pradesh has a high growth rate in sectors such as pharmaceuticals, IT and ITeS and textiles.
What is common for all the above States is their high rate of economic growth? Among the States that have been growing economically at a faster pace than others are Maharashtra, Gujarat and Karnataka. These States have a high concentration of industrial and service sector activities, which have helped to drive economic growth and increase per capita income. Additionally, the States such as Tamil Nadu, Andhra Pradesh, Telangana and Kerala are known to have a high per capita income.
A high rate of GDP growth, obviously, throws up enhanced opportunities of wage employment. The States in India with the highest growth in wage employment are as follows:
Gujarat has seen a significant increase in wage employment in recent years, particularly in the manufacturing and construction sectors.
Maharashtra has a large industrial base and has seen a significant increase in wage employment in the manufacturing and services sectors.
Tamil Nadu has a strong industrial base and has seen a significant increase in wage employment in the manufacturing and services sectors.
Andhra Pradesh has seen a significant increase in wage employment in recent years, particularly in the manufacturing and construction sectors.
Karnataka has a strong industrial base and has seen a significant increase in wage employment in the manufacturing and services sectors.
A high GDP growth also creates forward growth linkages in the form of self-employment and ancillaries, providing both wage goods and intermediate goods. Which States in India have the highest rate of growth of MSMEs?
According to data from the Ministry of MSME, the States with the highest rate of growth of MSMEs, in the order of rank and growth, are: Gujarat: 18.9%; Maharashtra: 18.5%; Tamil Nadu: 18.4%; Andhra Pradesh: 17.9%; and Karnataka: 17.4%, Karnataka is the fifth-highest state in terms of MSME growth.
The above discussion indicates that the growth of the bottom layer of the enterprise system in the country, including SMEs and self-employment, is shaped and sustained by growth linkages rather than by policy inducement. Such a finding has significant implications for the new strategic approach based on districts, as outlined by the NITI Aayog. What are the learnings for the districts from the angle of programme implementation? Why two districts differ in terms of the implementation and outcomes of a national scheme?
Answers to the above questions need to come from a meticulous look at the dynamics of self-employment and the behaviours of key business demography variables. These can best be analysed and understood at the district level, rather than at the national or State level.
The author is Director, Institute of Small Enterprises and Development. He can be reached at email@example.com