NEED FOR GOVERNING MICRO SMALL & MEDIUM ENTERPRISES (MSME'S) THE CORPORATE WAY: AJAY MUTHA

 Introduction

India has been through many downfalls in the past years. Many sectors in the market have safeguarded the economy of the country in several ways. The Micro, Small and Medium Enterprises were introduced in India by the Government through an agreement with Micro, Small and Medium Enterprises Development Act of 2006. Since then, MSMEs have played a vital role in different sector of Indian Economy. It has emerged as a platform to introduce business and manufacture and sell goods by the people on a small scale and at a lower price.

Apart from business, MSMEs have also worked for social welfare and have gained importance with time. The roles that MSMEs play in the socio-economic and economic development of the country needs a proper set of rules and regulations. The need for proper governance is the call of the hour because in the recent past years there have been many changes in the sector and also, they been governed. However, there exists a need for proper inspections and formulation of rules making MSMEs more successful and useful.

MSME had contributed to total manufacturing output with 33.4% in the year 2017-18 and this also included 49% of the total exports.[i] This means that MSME has a major role to play in the GDP of the country. The number of MSMEs is gradually increasing and in the year 2020 many have registered themselves with the Unique Identification Authority of India (UIDAI). This is evidence of continuous growth in the sector of MSME. It has become more like a widely growing sector in the Indian Economy. From being a small sector to being a major source in the GDP country, MSME has come a long way and needs a proper way of governance.

Difficulties and Schemes during COVID-19

The growth in the sector of MSMEs has been positive in the past years. However, COvid-19 has created a situation for the corporate sector and especially for MSMEs as they already have limited sources. The scheme that has been introduced by the government this year i.e. Aatm Nirbhar Bharat, has emerged as a ray of light for MSMEs. The various schemes have been introduced to keep MSMEs constant and save from a major downfall.

The schemes include the provision of collateral-free loans, moratorium period of 12 months, repayment period of 48 months, consideration and the servicing and manufacturing MSMEs as same etc. these are some of the schemes introduced for MSMEs.[ii] It was important for the introduction of such schemes to save one of the major sources of the Indian economy. These schemes will work in the difficulties being faced because of the outbreak of a pandemic. Such situations have been stressed to the whole sector and have forced many of the people to come down with their ideas and many have also faced unwanted and unexpected losses. The introduction of such schemes will prove to be a saviour for the MSME sector.

Call for the governance of MSMEs

The generation of 70 million, 30 million units, more than 6000 products that too of different kinds come from the MSME sector in India. along with the production of goods and services, MSME also contributes to providing employment majorly in the country. Also, the help was provided to the entrepreneurship skill development programme a great contribution. [iii] however, in the year 2015, MSME Development (Amendment) Bill, 2015 was introduced with various additions to the facilities of the MSMEs. This also continued in the year 2018 with another Amendment.[iv] Such amendments have led to the development in the sector of MSME. The Act of 2006 was introduced because it was noticed by the various committees and the Government that there many loopholes in the management of the MSME sector. The Act of 2006 bought in many new agendas for regulations of MSME. 

The Procurement Preference Policy was one of the main reforms bought. It stated that it was mandatory for other bodies to source their at least 20% goods and services from MSMEs. Dispute Resolution was also the main problem existing at that time and the Government established councils at State level to resolve disputes and have proper look over them. Apart from these, many other facilities were added to make MSME well organised. This paved a way for the organisation of MSME in a better manner. After the establishment of Act; amendments were done. However, the need to have proper governance over MSME still exists. This shows the loopholes in the act of 2006.

The target that Central Government aims at achieving in the next 4 years is partially dependent in the MSME Sector. This means that the MSME sector is no less than any other corporate sector. It is evident from the different data and calculations that MSME has proved to be a major part of the economic, socio-economic, corporate and many other sectors of the country. Along with this, the way of governance in this sector has also witnessed better ways. Such ways have uplifted the sector and boosted it to the next level. These sectors need to keep the economic growth of the country consistent.

Managing MSMEs in Corporate Way

There are many problems that the MSME sector faces and this is also leading down to slowing down the success. It is becoming a hurdle in the pathway of MSMEs for growing more. The major problems that are being faced by this sector are:

·      Infrastructure

·      Technology

·      Proper knowledge

·      Credit facilities

·      Capital formation etc.

These are some of the major problems that this sector is facing from 4 to 5 years majorly. Such problems are major because the governance of MSMEs is different from that of governance of other corporate sectors. The benefits that other corporate sectors have are way too different from that of MSMEs. Such facilities are important to be given to this sector too. The facilities and schemes that need to be implemented in the MSME sector are as follows:

Ø  The formulation of the proper legal structure of defining the rules, regulations and working schemes for the MSMEs. This is a major step because the other companies are governed under the Companies Act, 2013 and this is leading to the differentiation between them and another sector. Therefore, for dealing with MSMEs more corporately, it is important to have legislation having regulations that of like other corporate sectors.

Ø  The providence of better technical assistance because the world is shifting more towards technology and to keep up with the pace, MSMEs also require assistance to it. This will fasten the process of the sector which will, in turn, lead to having more productivity and profit out of the sector shortly.

Ø  The governance over maintaining a healthy infrastructure. Business entities with good infrastructure tend to have more consumers and profits than others. Despite lacking behind in this, MSME has come a long way and having a proper infrastructure will serve as a cherry on the cake.

Ø  The regulations for employers and employees in a proper to remove frauds and difficulties and management. This will serve as a proper formulation of teamwork and division of work at different tiers. This will provide for the division of labour work according to capabilities and talent.

Some of the major governance issues that need to be resolved. Along with this, there are many more criteria in which governance should in a more corporate way. 

Conclusion

The government has implemented many schemes and techniques so far. However, these are not enough for fulfilling the needs of the MSME sector. There are many more things needed to make MSME a proper corporate sector. MSME has contributed a lot to India as a whole and it’s the responsibility of the government to have proper governance over it. At times, it happens that other major sectors work as a curtain and hide the needs of these small sectors. They also need such governance to keep working fluently.

The governance of MSME in a corporate way is making them more arranged with more stringent rules and regulations. This will in turn lead to more success in the sector. The outbreak of COVID has been a way for providing many schemes to MSMEs so far. The schemes that have been provided were much needed. Along with them, some other facilities for loans and capital formation will also give support to the sector. This is important because the positive growth of the sector without such schemes so far has proved them as self-sufficient. The more will the governance, more will the growth of the sector which will, in turn, contribute to the growth in different sectors of Indian Economy.

 

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[i] Annual Report 2018-19, Government of India, Ministry of Micro, Small and Medium Enterprises https://msme.gov.in/sites/default/files/Annualrprt.pdf.

[ii] Anonymous, what is MSME? Meaning, Features, Role and Importance in India

, LendingKart https://www.lendingkart.com/msme-loan/what-is-msme/. 

[iii] Dr. Niranjan Hiranandani, A lot done but more needs to be undertaken for MSMEs to boost their liquidity, skill development, Financial Express https://www.financialexpress.com/industry/sme/cafe-sme/msme-eodb-a-lot-done-but-more-needs-to-be-undertaken-for-msmes-to-boost-their-liquidity-skill-development/2006499/. 

[iv] Anurag Vaishnav, Definition of MSMEs, PRS Legislative Research https://www.prsindia.org/blog-category/legislation.