‘It’s high time India creates systematic, periodic database of MSMEs, given latter’s employment potential’

Given the significance of MSME sector from the employment perspective, it is imperative to gauge the size of the sector, in terms of enterprises and employment periodically. (Express File/Gurmeet Singh)

MSMEs in India account for a considerable proportion of national employment, national income, and national exports. Approximate estimates identify them as the second-largest employer (after agriculture), one-third GDP contributor, and almost half exporters. Therefore, their steady emergence, survival, and growth must be facilitated on a continuous basis. Indian policymakers define and refine the definitions of MSMEs periodically to exclusively support and promote them through varied policy measures at national and state levels. However, a precise description of the size of the MSME sector has always remained a challenge, in the absence of a periodic data generation system in the country (similar to Index of Industrial Production (IIP) and Annual Survey of Industries (ASI) for the organized industrial sector). Therefore, measuring the change in the size of the MSME sector from time to time is next to impossible. Periodic measurement of the size of the MSME sector in terms of the number of enterprises and employment (and even income) is of paramount importance to any growing economy. This assumes critical significance in times of crisis such as the current Covid-19 pandemic, afflicting the nation through a wave after a wave.

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Till recently, we used to have annual estimates for the number of enterprises, employment, production, and exports of MSMEs (for the sector and nation as a whole) from the Ministry of MSME, which are barely sufficient to capture the magnitude of impact that an unforeseen and unexpected crisis would make on MSMEs. They are not available anymore. The other statistical source for the sector is SSI/MSME Census. We had four Censuses for the sector so far: three Censuses for Small Scale Industries, prior to the MSMED Act 2006, and the fourth one was done for MSMEs as per the new definition of the sector in 2006. The Census, of course, covered only the registered sector and therefore, estimates were made for the unregistered sector.

The other official source is the National Sample Survey Organization (NSSO) which carries out a nationwide survey of unorganized enterprises twice a decade (but it excludes registered enterprises). Economic Census is another official source that covers all the enterprises across the country but classifies them under two broad groups: (i) Own-account enterprises, and (ii) Establishments. The former employs only household labour and does not hire any external labour whereas the latter is run by employing at least, one hired labour. But the establishments are not identified or classified further into small, medium, and large ones. Further, none of these sources comprehensively identifies the MSME sector in totality, periodically. Finally, given the nature of the sector, not all of them need to be/are GST registered. This poses a major challenge for any meaningful assessment of the change in the size of the sector from time to time, particularly in times of crisis such as the current one.

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This brings out the need for putting in place a reliable statistical data collection system by the policymakers. Given the significance of the sector from the employment perspective, it is imperative to gauge the size of the sector, in terms of enterprises and employment periodically. The system must cover the entire country and it must be periodically done. Obviously, a sector with a huge unorganized sub-sector within will pose serious data collection challenges. But this can be overcome by adopting the following strategy. As of 2021, there are 741 districts spread across 28 states and 8 union territories in the country. Excluding the four metros – New Delhi, Mumbai, Kolkata, and Chennai – each district is supposed to have a District Industries Centre (DIC). DICs are supposed to provide a variety of support services for the promotion of entrepreneurship under a ‘single umbrella’ in each district. Some of them have developed and maintained District Industrial Directories comprising the addresses of MSMEs registered with them. It is this nationwide network of DICs that need to be revitalized for the purpose of periodic data collection of MSMEs in the country.

Each DIC must be staffed with well-trained field personnel who should gather field data on the number of MSMEs (by NIC codes) and the number of persons employed, once/twice a year. This may be appropriately supplemented with data on (i) Investment in plant & machinery, (ii) Annual turnover, (iii) Technological – product/process – innovations, (iv) Patent applications submitted and/or patents obtained, and (v) Quantum of exports. To begin with, this can be done on an experimental basis in key SME clusters across the country. Large cities like Bangalore, Hyderabad, Ahmadabad, and Pune may be provided with multiple DICs, for the cause. Based on the lessons learned, the strategy can be revised and finalized for its nationwide application. Following the IIP and ASI of registered industries, an exclusive IIP and ASI can be planned for MSMEs. While IIP can be bi-annual, ASI of MSMEs can be an annual exercise. This will prove extremely beneficial for policymakers at the national and regional levels in policy planning as well as distress management, apart from empirical researchers, in the future.

M H Bala Subrahmanya is the Professor, Department of Management Studies at the Indian Institute of Science, Bangalore. Views expressed are the author’s own.