Brief Notes On Present Economic Recession in India (2019)

-* Dr. S. Vijay Kumar

The National Bureau of Economic Research defines a recession as "a period of falling economic activity spread across the economy, lasting more than a few months." A recession occurs, when the economy declines significantly for at least six months. People often say a recession is when the GDP growth rate is negative for two consecutive quarters or more. But a recession can quietly begin before the quarterly Gross Domestic Product reports are out.  Economic Recession occurs, when there will be a drop in the following five economic indicators: Real GDP, Income, Employment, Manufacturing and retail sales. The data comes out monthly. When these economic indicators decline, so will GDP.

The following  are the reasons for present Economic Recession in India:

Demonetization: In 2016, due to the demonetization of Rs. 500 and Rs. 1000 currency notes, there was a shortage of cash in our economy. Due to this, sales were down in different sectors of our economy. Hence, it resulted  in the decline of incomes of  different producers, which in turn lead to cut in wages and jobs. This in turn reduced the consumption. Demonetization also had more impact on the real sector of our economy.

GST: Due to some loopholes in GST, most of the businessmen  experienced practical difficulties in obtaining licenses, in filing returns and in paying taxes. This led to delay in the payment of taxes and also evasion. Because of this, government revenue had fallen, and it had negative impact on the growth rate of our economy.

Consumption: Due to decline in the consumption behavior of people especially in the Automobile and Textile sector and in Fast Moving Consumer Goods (FMCG) Sector like Soft drinks, processed foods, Biscuits, cosmetics, soaps etc.

NBFCs: In India, due to increase in NPAs (Non-Performing Assets) of various banks in recent years. Banks decreased offering of loans to the  public. Hence, public are approaching NBFCs (Non-Banking Financial  Companies) like Chit fund Companies, Shriram Transport Finance Company  Ltd., Bajaj Finance Ltd, Muthoot Finance Ltd. etc. In 2018, due to crisis in IL&FS (Infrastructure Leasing and Financial Services), there was cash shortage problem, hence it reduced loans to NBFCs. Hence, this had impact on consumption, which in turn slowed growth rate.

Fall in Investments: Due to the decline in our growth rate most of the corporate companies from outside and  inside India have reduced their investments. They are also hesitating to invest. This led to slow growth rate.

Public Expenditure: In order to restrict fiscal deficit,  public expenditures must be contained. But, in our country it is increasing year by year. Recent tax concessions to Corporates has reduced government revenue. On one side government revenue has fallen and on other side government expenditure has increased. This has led to the widening of fiscal deficit. This in turn,  had negative impact on economic growth rate of our country.

Fall in Exports: There is 6.57% fall in our exports in September, 2019. Though, not to this tune, but fall in our exports continued. Global recession, economic uncertainties between different countries, trade war between USA and China are some of the factors which had led to fall in our exports. As our imports have also fallen, there is not much impact on our trade deficit. Anyhow, fall in our exports has led to slow growth rate in our economy.

Industrial Growth Rate:  In our Manufacturing Sector, between 2014-15 and 2018-19, the growth rate is ranging between 2.8% to 4.6%. If we have to achieve more than 8% economic growth rate, our manufacture sector growth rate should be double digit.

Trade War: A trade war is the result, when one country retaliates against another by raising import tariff or placing other restrictions on the opposing country's imports. A tariff is a tax or duty imposed on the goods imported into a nation. In a global economy, a trade war can become very damaging to the consumers and businesses of both nations and also other economies. Internal and External factors are equally responsible for economic slowdown.  Especially, in the present globalization context it is cent percent true. India is no exception to this.

Global Recession: Delay in the implementation of BREXIT (Brexit is an abbreviation for "British exit," referring to the U.K.'s decision in June 23, 2016 referendum to leave the European Union), Trade War between US and China; Economic, Geographical and Political uncertainties between different countries are some of the causes for global recession. Global recession also negatively impacted our growth rate.

Head & Associate Professor (Retd.), Department of Economics, Kakatiya Government (UG&PG) College (NAAC “A” Grade), Hanamkonda, Warangal District (Telangana State). The author was a Member of Board of Studies, Kakatiya University, Warangal – 506 009 (India).

Role of Micro, Small & Medium Enterprises (MSMEs) in the Rural Development of India A Way Forward

                                                                                                             - *Dr. S. Vijay Kumar

          Micro, Small and Medium Enterprises have been accepted as the engine of economic growth and  for promoting equitable development all over the world, especially in India in view of second highly populated country in the world. Micro and small scale enterprises have existed in rural India since ages in the form of traditional skills. Recently, rural entrepreneurship has emerged as a dynamic concept. There is lot of scope for rural entrepreneurship in SMEs (Small and Medium Enterprises) sector economy which plays a vital role in providing employment and income for the poor and unemployed in rural areas. As the population grows there will be pressure on land and the growth in the agricultural production cannot absorb the ever increasing rural labor force in agricultural employment. This leaves the rural non-farm sector in the form of rural SMEs to absorb those released from agriculture but not absorbed in the urban industries. The scope of rural industries is considered basically a question of properly utilizing the unexploited natural and human resources and tapping vast material existing in the countryside. The features of rural industrialization are low investment of capital, labour intensity and use of simple technology by employing local human and material resources. Thus, a judicious mix of local manpower with the local resource is necessary to bring about a viable development in these areas. In the era of globalization, entrepreneurship development in the rural context is a challenge. According to 2011 Census 68.84% people are living in rural areas of India. People in rural areas suffer with unemployment, poor infrastructure facilities which may be solved with the development of the rural entrepreneurs. “Rural Entrepreneurship can be defined as entrepreneurship emerging at village level which can take place in a variety of fields of endeavor such as business, industry, agriculture and acts as a potent factor for economic development”. But, these rural entrepreneurs are suffering with various problems like fear of risk, lack of finance, illiteracy, and competition from the urban entrepreneurs. Rural entrepreneurs increase the standard of living and purchasing power of the people by offering employment opportunity to the people in villages. This paper is an attempt to understand the problems and challenges of rural entrepreneurship in the context of rural development in India and possible suggestions are given to overcome the problems.

The MSME became operational on October 02, 2006. As per MSME Act-2006, MSMEs are classified into two categories. They are:

1. Manufacturing Enterprises-The enterprises engaged in the manufacture or production of goods (as per Development and regulation) Act, 1951 or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use.

2. Service Enterprises:-The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.

Head & Professor (Associate) of Economics (Retd.), Kakatiya Government (UG&PG) College (NAAC “A” Grade), Hanamkonda, Warangal District (Telangana State). Ex - Member Board of Studies, Kakatiya University, Warangal – 506 009 (India).

In February, 2018, the Union Cabinet chaired by the Prime Minister Shri Narendra Modi has approved changes in the definition of the MSMEs. Now, MSMEs will be defined on the basis of ‘annual turnover’ instead of earlier definition of investment in plant & machinery/equipment. It is expected that the changes made in the definition of the MSMEs will enhance the ease of doing business and very soon the contribution of manufacturing sector in the Indian GDP will touch to 25 percent. The revised classification of MSMEs is based on turnover has made it easier for both the government and industries to recognize a business as an MSME. The following table reveals the new definition of the MSMEs in India:

Goods & Services
Micro Enterprises	Annual turnover is less than Rs.5 Crores.
Small Enterprises	Annual turnover is between Rs. 5 Crores to Rs. 75 Crores.
Medium Enterprises	Annual turnover is between Rs. 75 Crores to Rs. 250 Crores.

2019-20 Budget Highlights for MSMEs:

1.      An all-time high allocation of Rs.7011.29 crore has been made in the Budget of 2019-20.

2.      The flagship scheme for employment generation of the Ministry, namely Prime Minister Employment Generation Programme (PMEGP) got an all-time high allocation of Rs.2327 crore. This reiterates Government’s focus on creation of sustainable employment in the non-farm micro enterprise sector.

3.      For ensuring seamless credit guarantee to Micro and Small enterprises, Rs.597 crore has been provided under the Credit Support Programme.

4.      To provide funding for the 2% interest rebate on incremental loan up to Rs.1 Crore for GST-registered MSME units, Rs. 350 crore has been provided under ‘Interest Subvention Scheme for Incremental Credit to MSMEs’.

5.      Under the recent announcements made on 2^nd November 2018, encompassing multiple initiatives and interventions for the MSME sector, 20 large and 100 small Technology Centres are going to be set up with a support of Rs.6000 Crore. This Budget has made allocation for this initiative.

6.      For setting up clusters in the manufacturing and artisan sectors, Rs.450 crore has been allocated. Allocation under National SCST-Hub has been increased substantially.

7.      Mission Solar Charkha has been launched in the current financial year, for which Rs.143 crore has been allocated under the BE 2019-20. The scheme envisages setting up production clusters, each employing 2000 youth in the rural area, at least 50% of which would be women.

8.      “Make in India”, with particular emphasis on Micro, Small and Medium Enterprises, is one of the major focus areas of the Union Budget this year.

9.      For the MSME sector, Rs 350 crore has been allocated for FY 2019-20 under the Interest Subvention Scheme, for 2% interest subvention for all GST registered MSMEs, on fresh or incremental loans.

10.  Lower rate of 25 % Corporate Tax extended to companies with annual turnover up to Rs 400 crore from earlier cap of up to Rs 250 crore.

11.  Under the Scheme of Fund for Up gradation and Regeneration of Traditional Industries’ (SFURTI) 100 new clusters will be set up during 2019-20 enabling 50,000 artisans to join the economic value chain. Focused sectors are Bamboo, Honey and Khadi clusters.

12.  The Scheme for Promotion of Innovation, Rural Industry and Entrepreneurship’ (ASPIRE) would be consolidated for setting up of 80 Livelihood Business Incubators (LBIs) and 20 Technology Business Incubators (TBIs)in 2019-20 to develop 75,000 skilled entrepreneurs in agro-rural industry sectors.

Role of MSMEs in India’s Rural Economic Development: The scope of rural industries is considered basically a question of properly utilizing the unexploited natural and human resources and tapping vast material existing in the countryside. The features of rural industrialization are low investment of capital, labour intensity and use of simple technology by employing local human and material resources. Thus, a judicious mix of local manpower with the local resource is necessary to bring about a viable development in these areas. MSME  are the backbone, vibrant and dynamic sector of the Indian economy. The estimated contribution of MSME sector (including service segment) to GDP during 2010-11, 2011-12 & 2012-13 are 36.69 per cent, 37.97 per cent and 37.54 per cent respectively. Based on the export data maintained by Director General of Commercial Intelligence & Statistics, Ministry of Commerce about the share of MSMEs in India’s total export, for the year 2012-13, 2013-14 and 2014-15, has been estimated as 43.00 per cent, 42.38 per cent and 44.70 per cent respectively. According to the assessments of the Ministry of MSME, Government of India, the sector generates around 100 million jobs through over 46 million units situated throughout  the country and contributes to 45% of India’s total industrial employment, 45% of India’s total exports and 95% of all industrial units of the country and more than 6000 types of products are manufactured in these industries (As per msme.gov.in). MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP from service activities. MSME sector has consistently growing at the average rate of 10% annually. The contribution of this sector to the country's Gross Domestic Product is about 8%. A study done by the Confederation of Indian Industries (CII) on the Indian MSMEs ministry reveals that the MSME's contribution will be around 50% in the India's GDP by 2025. Many units of MSMEs are located in rural areas, which are checking the migration from rural areas to urban areas. MSMEs are transforming into a new business environment characterized by the emergence of national and global supply chains where they share a symbiotic relationship with hefty corporations.

Factors which led to growth of MSMEs:

Campaigns like Skill India, Startup India, Digital India and Make in India aim to provide MSME players with a level playing field and a definitive push towards enhanced productivity.

Digitization: Increasing internet penetration, customer’s familiarization with digital payments fuelled by B2C ecommerce players facilitate MSME sector growth.

Tie-ups with new-age non-banking finance (Fin. Tech) companies allowed access to timely collateral free finance to MSMEs.

Changing employment patterns: Younger generation shifting from agriculture towards entrepreneurial activities creating job prospects for others.

Advantages of MSMEs:

Inclusive growth: MSMEs promote inclusive growth by providing employment opportunities in rural areas especially to people belonging to weaker sections of the society.

Financial inclusion: Small industries and retail businesses in tier-II and tier-III cities create opportunities for people to use banking services and products.

Promote innovation: It provides opportunity for budding entrepreneurs to build creative products boosting business competition and fuels growth.

Boosting Economic Growth and Development: MSMEs are boosting economic growth and development at regional, national and global levels. With its dexterity and dynamism, the sector has shown venerable innovativeness and malleability to survive economic shocks, even of the gravest nature.

Maximum Opportunities for both Self-employment and Wage-employment: Indian MSME sector offers maximum opportunities for both self-employment and wage-employment outside the agricultural sector and contributes in constructing an inclusive and sustainable society in numerous ways through making of non-farm livelihood at meager cost, balanced regional development, gender and social balance, environmentally sustainable development etc. As MSMEs are usually labour-intensive, they have the ability to create more jobs. Further, in view of the on-going implications of climate change, it is necessary that the MSME sector is prepared to absorb millions who may be rendered unemployed in the agriculture sector. Many more rewarding opportunities can be tapped by Indian MSMEs in the foundry industry, electronics industry, chemicals, leather, textiles, agro and food processing, pharmaceuticals, transport and tourism industries, etc. The globalization of industries has gradually drawn SMEs into global value chains through diverse types of cross-border activities.

MSMEs in India is of diversity: MSME sector in India claims diversity in terms of its size, level of technology employed, range of products and services provided and target markets. MSMEs have been credited to provide at least ten components that were used in India’s Mangalyaan (Mars Orbiter Mission probe) and in ISRO’s most ambitious mission like Chandrayaan I & II.

Decentralized Industrial Development, Better Distribution of Wealth and Investment: MSMEs expansion, especially in rural play imperative role in the economic expansion of the country and results in decentralized industrial development, better distribution of wealth and investment.

Reduction of Poverty and Unemployment: Most of the MSMEs are of labour intensive and creates large scale employment opportunities for the rural people. MSMEs provides a solution to the growing problem of large-scale unemployment and underemployment of rural India. Through rural entrepreneurship development programme, unemployed people can opt for self-employment. In this respect, several programmes like National Rural Employment Programme (NREP), Integrated Rural Development Programme (IRDP), etc. are in operation in India to help the potential entrepreneurs.

Check on migration of rural population: Rural population moves towards urban for various reasons like income generation, searching good job, utilize various facilities etc. MSMEs will bring in or develop infrastructural facilities like roads, power, bridges etc. It reduces the gaps and disparities in income between rural and urban areas. Rural MSMEs can avoid the migration of people from rural to urban areas in search of jobs.

Formation of Capital: MSMEs by placing profitable business proposition attract investment to ensure private participation in the industrialization process. The otherwise idle savings are channelized for investment in business ventures which in turn provides return. Again the savings are invested giving a multiplier effect to the process of capital formation.

Balanced regional development: MSMEs in rural areas controls the concentration of industry in urban areas by setting small scale units in remote areas, successful entrepreneurship development programmes can help in achieving balanced regional development.

Promotion of artistic activities: Rural industries also help protect and promote the art and handicrafts, i.e. the age-old rich heritage of the country.

Check on social evils: The growth of MSMEs in rural areas reduces the social evils like poverty, social tensions, atmospheric pollution, the growth of slums and ignorance of inhabitants etc.

Awaken the rural youth: MSMEs in rural areas encourages young and promising entrepreneurs to develop and carry out entrepreneurial activities in the rural sector.

Improves standard of living: MSMEs in rural will also increase the literacy rate of rural people. Their education and self-employment will prosper the community, thus improving their standard of living.

Proper utilization of local resources: MSMEs in rural  will help in the maximum utilization of local resources like raw materials and labour for productive purposes and thus increase productivity. Efficient and effective use of limited resources by the entrepreneurs leads to overall economic development of an area.

Improvement in per capita income: MSMEs generates more output, employment and wealth by exploiting new opportunities, thereby helping to improve the per capita income of rural people.

General Employment: MSMEs are  not the job seekers but job creators and job providers. With the globalization process the government jobs are shrinking leaving many unemployed. In the circumstances, the entrepreneurs and their enterprises are the only hope and source of direct and indirect employment generation. Employment is generated directly by the requirement of the large enterprises and indirectly by ancilliariation and consequential development activities.

National Self-reliance: They are the corner stores of national self-reliance. They help to manufacture indigenous substitutes to imported products which reduce the dependence on foreign countries. There is also a possibility of exporting goods and services to earn foreign exchange for the country. Hence, the import substitution and export promotion ensure economic independence and the country becomes self-reliance.

Planned Production: MSMEs are considered as economic agents since they unite all means of production. All the factors of production i.e., land, labour, Capital and enterprise are brought together to get the desired production. This will help to make use all the factors of production with proper judgment, perseverance and knowledge of the world of business. The least combination of factors is possible avoiding unnecessary wastages of resources.

Promote prosperity: Improvements in local productivity can promote prosperity.

Earnings of foreign exchange: MSMEs plays significant role in increasing the foreign exchange earnings of the country through export of their produce.

Challenges of MSMEs: Fiscal discipline, Support from Government Departments, Capital, Modern technology, Market Strategy, Skilled labour, Regulatory burden and Annual filings etc.

Problems of MSMEs: Lack of adequate capital and timely finance. Non-availability of suitable technology. Competition from MNCs. Low production capacity. Ineffective marketing strategy. Constraints on modernization & expansions. Inferior quality impact export competitiveness. Cumbersome government procedures and rules for establishing new units. Bureaucratic delays in getting clearances. Poor litigation system in the country. Non availability of skilled labour at affordable cost. Lack of training and skill development programmes.  Complex labor laws and red-tapism. Poor infrastructure. Access to modern technology. Getting statutory clearances related to power, environment, labour etc. Problem of quality raw material. Use of traditional machines results in low productivity. Under-utilization of installed capacities. Technological obsolescence. Lack of organized market channels. Imperfect knowledge of market conditions. Unorganized nature of operations. Deficient managerial and technical skills. Government schemes to promote MSMEs

• Udyami Mitra Portal : launched by SIDBI to improve accessibility of credit and handholding services to MSMEs.
• MSME Sambandh : To monitor the implementation of the public procurement from MSMEs by Central Public Sector Enterprises.
• MSME Samadhaan -MSME Delayed Payment Portal –– will empower Micro and Small entrepreneurs across the country to directly register their cases relating to delayed payments by Central Ministries/Departments/CPSEs/State Governments.
• Digital MSME Scheme : It involves usage of Cloud Computing where MSMEs use the internet to access common as well as tailor-made IT infrastructure
• Prime Minister Employment Generation Programme : It is a credit linked subsidy program under Ministry of MSME.
• Revamped Scheme of Fund for Regeneration Of Traditional Industries (SFURTI) : organizes traditional industries and artisans into clusters and make them competitive by enhancing their marketability & equipping them with improved skills.
• A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) : creates new jobs & reduce unemployment, promotes entrepreneurship culture, facilitates innovative business solution etc.
• National Manufacturing Competitiveness Programme (NMCP) : to develop global competitiveness among Indian MSMEs by improving their processes, designs, technology and market access.
• Micro & Small Enterprises Cluster Development Programme (MSE-CDP) - adopts cluster development approach for enhancing the productivity and competitiveness as well as capacity building of MSMEs.
• Credit Linked Capital Subsidy Scheme (CLCSS) is operational for upgradation of technology for MSMEs.

Other recent initiatives to promote MSMEs:

• In June 2019, RBI committee headed by former SEBI Chairman UK Sinha suggested a Rs 5,000 crore stressed asset fund for the MSME sector to provide relief to small businesses hurt by demonetization, GST, and an ongoing liquidity crisis.
  
  

·        It has also recommended doubling the cap on collateral-free loans to Rs 20 lakh from the current Rs 10 lakh extended to borrowers falling under the Mudra scheme, self-help groups, and MSMEs.

• MSME Ministry announced in June 2019 to lift the ban on entry of corporates and private players in the MSME sector to pave way for the formation of 700 clusters to reduce dependence on imports as well as for job creation.
• MSME Ministry is also planning to set up enterprise facilitation centres across the country to make smaller businesses more competitive and help them integrate with big enterprises.

Therefore, the government should continue to put concerted efforts for holistic development of MSMEs in key areas like human capacity development, knowledge services, access to finance, technology, infrastructure, market access, and ease of doing business.

International Experiences:

• According to World Bank, formal SMEs contribute up to 60% of total employment and up to 40% of national income (GDP) in emerging economies.
• 600 million jobs will be needed in the next 15 years to absorb the growing global workforce, mainly in Asia and Sub-Saharan Africa. In emerging markets, most formal jobs are generated by SMEs, which also create 4 out of 5 new positions.
• However, access to credit remains a major problem to the MSME sector globally.

·        In globalised world, it is imperative to enable MSMEs to adapt and thrive in a more open environment and participate more actively in the digital transformation, to boost economic growth and deliver a more inclusive globalization.

Way Forward:

·        Today enterprises need to adopt best practices and follow international standards to go forward for offering innovative solutions.

·        Focus should be on transfer of information and skill development to effectively use the transferred technology.

·        There is an urgent need to upgrade infrastructure utilities (like water, power supply, road/rail) for any enterprise to run its operations successfully.

·        Entrepreneurs need to develop quality conscious mindsets embedded in the organisational culture.

·        Sensitization and handholding of MSMEs at different and upgraded level of certification is the need of the hour.

Finally, as recommended by India MSME Report 2018, we need an entitlement approach that can have the potential of compelling all related stakeholders to work on a common national agenda and solutions under a scientifically structured framework. This approach demands the identification and analysis of major security threats to the MSMEs, and entrepreneurship at the grass root level.

Solutions:        

·        Utilization of limited resources (Human & Economic) in optimum manner.

·        Need to be educated and informed about the latest developments taking place globally.

·        Acquire necessary skills to keep pace with the global developments.

·        Grab the market opportunities and various key strategies need to be adopted to promote and support the MSMEs.

·        Appropriate technologies for the MSME sector  should  be developed and  made available to them.

·        Technological advancement and  guidance

·        Panel of experts and consultants should be prepared  to help MSMEs.

·        There should be detailed surveys  to assess the technical and  financial needs of the MSME.

·        Training and development, awareness programs should be provided to MSMEs.

·        Sufficient credit facility should be made available.

·        Relaxation in labor laws and eradication of red tapism.

·        Proper Research and Development should be developed for innovative method of  production, service rendering and marketing.

Conclusion: MSMEs plays a vital role in the economic development of India, particularly in the rural economy. It helps in generating employment opportunities in the rural areas with low capital, raising the real income of the people, contributing to the development of agriculture by reducing disguised unemployment, reducing poverty, migration, economic disparity, unemployment. Government should go for periodical appraisal of MSMEs development schemes and programmes in order to uplift rural areas. MSMEs finds it difficult to take off is due to lack of capital, risk taking and innovation. They are the way of converting developing country into developed nation. Promotion of MSMEs are extremely important in the context of producing gainful employment and reducing the widening disparities between the rural and urban. MSME’s provide self dependency and it is the only way to solve the problem of unemployment in a populous country like India. MSME’s are boon for reducing regional imbalances and a means  to utilize the natural and abundant human  resources available in India.

National Seminar (18 & 19th, 2019) Photos, ISEC, Bangalore, India