SUPPLY CHAIN DISRUPTION AND THE NEED FOR GROWTH IN MSME SECTOR IN INDIA
Before coming to the issue of supply-chain disruption due to factors including Covid-19 pandemic, the attention needs to be drawn towards the speech of Honourable Prime Minister Shri Narendra Modi, in the recently held G-20 summit in Bali, Indonesia. While stressing upon other things, including climate change, Russia-Ukraine conflict, he also emphasized upon crisis of essential commodities all over the globe and this crisis has made the availability and affordability of these commodities more difficult for the poor in different countries.
The pandemic exposed the country’s under-developed manufacturing sector and also the lack of infrastructural development. Presently, the manufacturing sector in India contributes only 15% to the G.D.P. in 2021. On the other hand, the services sector has the highest contribution to the national income followed by the primary sector. If we observe the contribution of manufacturing sector to the national income of countries like Japan, China and South Korea, it is approximately 20, 27 and 25 percent respectively as per the data by world bank.
The supply chain disruption happened due to lockdowns and shutdowns of factories which was done for the prevention of the spread of the virus. The manufacturing went down whereas the demand did not reduce proportionately which led to dearth of commodities in the market and hence rise in prices of commodities. The fear of shortage of commodities in the market led to hoarding of commodities by the people and even traders started to hoard commodities with the mal-intention of selling the commodities at an exorbitantly higher price later.
Though, to tackle the problem of, the government implemented the Essential Commodities Act, 1955. As per the act, essential commodity implies a commodity which is specified in the schedule under the act. The government can add/remove a commodity in the said schedule in consultation with the state governments.
The government, deriving powers from Section 3 of the act, which states that if it seems necessary for the union government to maintain the supplies of essential commodity and for securing supplies of essential commodities at fair prices, may regulate or prohibit the production and supply of such commodities, regulated certain products during the pandemic.
The 2020 Amendment lifts limitations on stockpiling a number of necessities. It stipulates that the central government may only control the supply of food products in exceptional situations, such as war, famine, exceptionally high price increases, and severe natural disasters.
Other than these legal actions which were taken through the implementation of the acts, the annual report 2021-22 published by the ministry of micro, small and medium enterprises reviewed the performance of the MSME sector in the country. The report observed that the MSMEs are venturing into different sectors and are producing diverse range of products and services in the market. But this is not sufficient enough to give manufacturing sector the necessary impetus to grow at a rapid pace. The growth of MSMEs will not only prevent the disruption of supply chain but will also generate employment and raise the purchasing power of the people. As per Section 9 of the Micro, Small and Medium Enterprises Development Act, 2006, the central government may introduce such programs, rules or guidelines for promotion and development of MSMEs. Not only that, the Chapter four of the act talks about the development of the sector and the ways for it.
The MSME sector is facing some bottlenecks which is hindering its growth in the country. Though we can say that the government is working on improving the ease of doing business in the country and India’s rank has jumped to 63rd position in 2022 from 142nd in 2014 but the cumbersome regulatory process for setting up the MSMEs is affecting its growth negatively.
Another problem which the MSME sector is facing is of technological advancement. Lack of technological know-how and investment from the side of the government makes these ventures less efficient. Also, due to low attraction of foreign investment in the venture, foreign technologies are also not being adopted at a rapid pace.
Another big impediment which is standing in the way of MSMEs growth in this country is the lack of financial support and the problems related to availing loans. When small industries approach banks for loans, there is always a problem of collateral which restricts their capability to avail these loans. Also, lack of financial capital restricts them from indulging into new sectors or industries.
The government though, through several schemes like production-linked incentive schemes among others, has tried to financially aid the MSMEs but this has not been enough till now. Schemes like Aatma-Nirbhar Bharat has introduced ‘Self-Reliant India’ Fund to provide with equity funding to the MSMEs.
The MSMEs are heterogenous in nature in India and there is a need for a reformed, transparent and easy tax compliances under GST. Not only that, the government should come up with amendments in the anachronous MSME Act of 2006 to remove certain tax and permit related compliances for newly established MSMEs so that to flourish their growth. The growth of MSME sector in India will help the country lessen its dependence on vital commodities including medicines in other countries and the economy could recover faster from the after-effects of the breakage of the supply chain which happened during the pandemic.
M/s Aura & Co.