USENET could help MSMEs scale up

Potential to create 56.9 million new jobs and impact 80 million microenterprises in ten years.

By   |  Published: 23rd Jan 2021  6:23 pmUpdated: 23rd Jan 2021  6:24 pm

Hyderabad: Realising that India’s demographic dividend requires a focused policy approach for employment generation, Azim Premji University, FICCI and Tata Institute of Social Sciences have jointly made a policy proposal to create Udyog Sahayak Enterprises Network (USENET) for employment generation and scale-up in the MSME sector. USENET also aims to improve ease of doing business for micro entrepreneurs.

T Muralidharan from FICCI, Prof Amit Basole from Azim Premji University and Prof Bino Paul from Tata Institute of Social Sciences (TISS) came out with a proposal developed for the Working Group of Ministers (WGoM) on Employment and Skill Generation, convened by MoS Home Affairs of Government of India in October 2020.

The proposal has been submitted to the Prime Minister along with other proposals developed by the group.

In a collaborative proposal, they recommended creation of Udyog Sahayak Enterprises (USEs), which will provide services such as digitisation and formalisation, avail government loans, subsidies or other benefits, ensuring compliance with local, regional, and national regulation, aiding partnership with digital platforms to the Micro and Small Enterprises (MSEs) at their doorstep.

There are multiple factors identified that work against employment growth in India from both the supply side and the demand side. It is proven that large enterprises create very few jobs. Even these few jobs are created for educated youth. Only MSEs can create a large number of jobs across India for workers with a wide range of skills and education.

Presenting the policy proposal, chairman, FICCI Telangana State Council and co-author of the report, T Muralidharan underlined the problem of “jobless growth” and pointed out that the country is in danger of losing demographic dividend and called for giving micro-entrepreneurs their due recognition in the making of the nation.

Out of a total of over 63 million enterprises in the MSME sector, 62 million are informal MSEs. Of these, single worker firms are 40 million, firms with 2 to 5 workers are 22 million and firms with more than five but less than 10 are estimated at 1 million.

About 107.6 million workers (97 per cent of all employment in the MSME sector) are in the MSE segment. These MSEs are more rural than urban – 51 per cent are in rural India. Women-owned firms accounted for 20 per cent of all enterprises. There is a huge potential to grow these women-owned enterprises.

MSME scale-up

MSEs play a pivotal role in linking the formal and the informal sector through value chains. And their scale-up can be achieved by creating a support system which will make these MSEs go digital and increase their productivity. This will create jobs. USENET has been proposed to be that support system.

Anurag Behar, vice-chancellor of Azim Premji University, observed that this endeavour is remarkable as the proposal is putting a possible solution out there, not only identifying a problem.

Report co-author and faculty member at Azim Premji University, Amit Basole, noted that rather than creating more nano-entrepreneurs, existing MSEs need to be helped to grow in size.
As per the proposal, 18 lakh Udyog Sahayak Enterprises (USEs) can be created over five years with the aim of scaling up these MSEs and improving the Ease of Doing Business (EoDB) for MSEs.

Till date the EoDB was focused on the large and medium enterprises. It is important to take EoDB to the most important segment of the Indian economy – MSEs, the experts note.
USENET is proposed as a complete entrepreneurship model, with the government catalysing the enablement of the factors that would lead to self-sustenance of the USEs.

It is envisaged as a service/transaction-oriented model with a large bouquet of services made available to the MSEs.

TISS director professor Shalini Bharat noted such a system can also help micro-enterprises emerge from the shock of Covid-19 which has hit this sector particularly hard.

Role of USEs

Each USE will be allotted 15 MSEs initially to work with on a continuing basis. Every year thereafter a few more will be added till each USE will reach a capacity of 50 MSEs that they have a relationship with. Total reach through the 18 lakh USE network will be 4.4 crore MSEs in five years and will reach 8.1 crore MSEs in 10 years.

It is estimated that an additional one crore (10.3 million) jobs can be created over five years going up to nearly 6 crores (56.9 million) over 10 years. These jobs represent an additional economic value of 2,16,000 crores at the end of five years and over 19 lakh crores at the end of 10 years.

USEs will be supported by a National Digital Ecosystem for MSMEs (NDEM) that will be built on the principle of technology as a public good. It will operate with the help of a single window access to enterprise support services & schemes of Central and State governments. A new special purpose vehicle can be created under the MSME ministry to be the implementing agency for USENET.

Financial modalities

Each USE will require a capex of Rs 1,14,000 of which 50 per cent is a grant from the Government of India. Almost 80 per cent of working capital requirements will come in the form of a MUDRA loan.

Youth will invest 50 per cent of the initial investment required and also 20 per cent of the margin money required for a working capital loan from MUDRA bank.

Each micro entrepreneur will pay Rs 300 per month to the USE for their services of which 50 per cent or Rs 150 per month will be reimbursed by the government. This GoI reimbursement will be withdrawn after six years.

Total government pay-out in Year 1 is Rs 4,200 crores, and average over 5 years is Rs 6,000 crores per year. Government spending per job created falls from Rs 84,000 in Year 1 to R 27,000 in Year 2 to Rs. 3,000 in Year 10.

At the end of five years, government investment shows a return of 712 per cent over five years and nearly 30 times over 10 years. After six years, the Government financial support is withdrawn and the USE will operate on its own.

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