Congress leader Jairam Ramesh emphasised on Tuesday that the upcoming Union Budget's success will largely depend on its ability to revive and rejuvenate India’s Micro, Small, and Medium Enterprises (MSMEs). He attributed the decline of MSMEs to several factors, including demonetisation, the Covid-19 lockdown, GST implementation, and an influx of Chinese imports.
In a statement on his official social media handle, Ramesh highlighted the critical importance of MSMEs to the Indian economy, noting that they account for 30% of India’s GDP and about 45% of exports. He emphasised their role in job creation, employing 12 crore people, second only to agriculture. Ramesh also pointed out that MSMEs promote balanced regional development due to their wide geographic dispersion.
Ramesh criticised the central government, stating that its policies over the last ten years have systematically harmed MSMEs. He pointed out five major issues that have led to the sector's decline: demonetisation, GST, the Covid-19 lockdown, oligopolization, and cheap Chinese imports.
Regarding demonetisation, Ramesh explained that the sudden halt of economic activities forced many MSMEs to close as they were unable to pay employees or repay debts. This shift benefited larger, more organised firms at the expense of smaller businesses.
On GST, Ramesh stated that its high compliance burden, punitive enforcement, and slow refund processes continue to strain MSMEs. He noted that smaller enterprises often lack the resources to manage these burdens, leading to financial instability.
The Congress leader also criticised the handling of the Covid-19 lockdown, claiming that its haphazard implementation and mismanagement severely impacted MSMEs. He noted that these businesses were particularly hard hit by the sudden and unplanned nature of the lockdown measures.
Ramesh accused the government of fostering oligopolisation through favourable policies such as corporate tax cuts, Production Linked Incentives (PLIs), and selective awarding of government contracts. He argued that these measures have allowed large corporations to dominate key industries, pushing MSMEs out of the market.
He also highlighted the impact of Chinese imports on MSMEs. Since 2014, the percentage of imports from China has increased from 11% to 16% of overall imports. Ramesh stated that the influx of cheaper Chinese goods has made domestic MSMEs uncompetitive, leading to widespread closures. He cited the example of Gujarat, where 80% of India’s stainless steel MSMEs are based, but 35% have shut down due to cheaper Chinese steel imports.
Ramesh further outlined the challenges faced by MSMEs, including high tax rates, a severe credit crunch, high input prices, and widespread closures. He claimed that their contribution to GDP is currently the lowest it has been in decades.
To address these issues, Ramesh presented Congress’s pro-MSME agenda. This includes extending the Non-Performing Assets (NPA) classification period for MSME loans from 90 days to 180 days and establishing GST 2.0, which would feature a single, moderate rate and provide relief for small taxpayers like MSMEs.
Other proposals include reducing the tax burden on MSMEs owned by individuals and partnerships, abandoning the policy of oligopolisation, and dedicating funds for MSME export capacity creation and startup funding.
Ramesh also called for addressing the $530 billion credit gap in the MSME sector through a dedicated credit fund and lower interest rates. He advocated for recognizing and supporting MSME clusters across the country, greater use of anti-dumping duties to protect domestic industries, and enhancing funding for start-ups.
In his concluding remarks, Ramesh urged the central government to revisit its economic agenda related to MSMEs. He criticised what he called whimsical policymaking and cronyism, urging the government to adopt more supportive and consistent policies for the MSME sector.
Ramesh’s statements underscore the significant challenges facing India’s MSMEs and the need for focused and sustained policy support to ensure their recovery and growth.
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