atmanirbhar meaning

Why India’s MSME Sector Needs More Than a Leg-Up

The current package and reclassification are not sufficient to shield the sector from the pandemic’s assault.

The Narendra Modi government two months ago announced the ‘Atmanirbhar’ stimulus package to reboot India’s micro, small and medium enterprises (MSMEs) sector, which was recently reclassified on the basis of turnover and investment.

With effect from July 1, 2020 as per the latest redefinition, a micro enterprise is reclassified as one in which the plant and machinery investment does not exceed one crore rupees and turnover does not exceed five crore, a small enterprise would be that in which investment shouldn’t exceed ten crore with turnover up to fifty crore and in a medium enterprise the investment shouldn’t exceed Rs 50 crore with turnover at Rs 250 crore.

Announcing this on May 13, Union finance minister Nirmala Sitharaman stated that this new classification was being made under the ‘Atmanirbhar Bharat Abhiyaan’ Economic Package to assuage India’s economic predicament amidst the pandemic. Under this ‘abhiyan’ (scheme) the government has decided to provide Rs 3 lakh crores in collateral-free automatic loans to MSMEs aimed at providing additional working capital to existing customers of banks and NBFCs. Additionally, on July 2, 2020 World Bank announced a US $750 million budget support to 15 crore MSMEs to increase liquidity access for viable small businesses impacted by COVID-19.

The ‘Atmanirbhar Bharat Abhiyaan’ is being hailed as major fiscal policy and relief measure package to assuage India’s economic predicament amidst the pandemic with specific emphasis on MSME revival. But how far can this reclassification resuscitate the Indian economy which is barely recovering from the effects of the COVID-19 pandemic and has now been hit by the effect of a ban on Chinese products? Will these measures decrease the stress in the MSME sector?

Employing over 11 crore workers MSMEs contribute 29% of India’s GDP and comprise almost half of its exports. While there are about 90.19 lakh registered MSMEs, there may be actually more than 6.33 crore MSMEs out of which 6.30 crore or 99.4% are micro-enterprises while 0.52% — 3.31 lakh are medium and 0.007% — 5,000 are medium enterprises. Despite holding 48% share in India’s exports, the significance of MSMEs in creating sufficient opportunities or employment for the country’s teeming millions has always occupied a secondary status.

Ostensibly brought in to create five crore job opportunities and further refine the business scenario for Indian enterprises, these new limits are a major change to the classification of MSMEs. The earlier criterion, based on the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006 was very low in terms of financial limits and did not include the turnover. The new classification has also ended the hitherto division of the enterprises into Manufacturing or Service industries.

Also read: To Rebuild the Economy, India Needs to Be Atmanirbhar in Ideas

The MSME sector has been facing a credit crunch for some time but nothing like the present freeze. Former SEBI chairman U.K. Sinha led expert committee on MSME sector had submitted its report exactly a year ago in July 2019, suggesting in the main that the (MSMED) Act, 2006 needs to be reimagined with focus on market facilitation and promoting ease of doing business. In the recent amendments, some of the suggestions have been adopted but others having a direct bearing on improving the ‘ecosystem’ for the MSME sector appear to have been disregarded. For example, the U.K. Sinha report recommended that since Micro and Small Enterprises (MSEs) face problems of delayed payments, all MSMEs must upload their invoices to an Information Utility. States must have more than one MSE Facilitation Council to cater to the high number of delayed payment cases. It had also recommended making 25% procurement from MSEs mandatory for PSUs through the e-market portal.

While the current stimulus will ensure adequate flow of credit, a major bottleneck that the MSME sector is facing, the fact remains that this is not entirely a novel initiative. The majority of the MSME sector comprises of the micro players which simply do not have the experience or resources, to use bank finance or engage in product promotion to ensure adequate returns. Real stimulus is possible only if credit flow is discernible. The ‘59-Minute loan Programme’ that was launched by the government did ensure that loans were sanctions in at the earliest but the actual disbursement was simply not there. Further the ‘PSBLoansIn59Minutes’ portal as of now caters only to existing entrepreneurs GSTIN, Income Tax returns, bank statement, but doesn’t cater to new entrepreneurs.

Special insolvency resolution framework for MSMEs has been envisaged under the Atmanirbhar package. Now if an MSME finds itself incapable of meeting its financial obligations, the insolvency resolution process could be initiated at default of at least Rs 1 lakh. But this may not find financial creditors coming on board and cooperating. So those creditors that are falling below the Rs 1 crore limit, or are owed upto Rs 1 lakh by larger private firms (or public sector undertakings) cannot invoke insolvency. Under these circumstances, bank managers would rather not lend.

A worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Credit: Reuters/Anindito Mukherjee/FilesA worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Credit: Reuters/Anindito Mukherjee/Files

A worker operates a lathe machine as he makes a steel cutter at a manufacturing unit in Noida, on the outskirts of New Delhi November 3, 2014. Photo: Reuters/Anindito Mukherjee/Files

Under the Rs 3-lakh-crore loan scheme for MSMEs, guarantee will be provided by the National Credit Guarantee Trust Co. Ltd (NCGTC). However, this facility is extended only for the existing borrowers with revenue of up to Rs 100 crore. While banks can charge a fixed interest rate of 9.25% with no guarantee fee to be given to NCGTC, the interest rate for non-banking financial companies (NBFCs), is fixed at 14% which is equivalent to their cost of funding preventing cost cover for the spread in a collateral free scheme. NBFCs continue to be the go-to lender among MSMEs, and they should be restored as the priority lending list. Further restrictions such as closely watching repayment ability of those who have taken the three-month moratorium on loan repayment, or no loan extension till the interest for 2-3 months moratorium period is serviced will become hinderances for MSME borrowers.

Earlier the government had tried to encourage disbursement of collateral free loans under the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMCE). Although the intention was commendable the ground reality was that no bank or NBFC would be willing to lend under this scheme because you can only apply to government to refund a guarantee after 18 months. No bank would be willing to take that hit in its balance sheet. The waiting period needs to be reduced to six months from the present 18 months.

According to Fitch ratings liquidity and asset-quality challenges to remain as key sector issues, as companies navigate the pandemic-led disruption in the months ahead. “The performance of India’s non-bank financial institutions (NBFIs) in the financial year ending March 2020 (FY20) was characterised by muted asset growth, funding challenges and the coronavirus pandemic-related slowdown, which started in March 2020.”

The current package and reclassification are not sufficient to recuse the MSME sector from the assaults of the COVID-19 pandemic and the ban on the Chinese products along with a hugely decreased demand. The #RebootIndia campaign will not succeed until the entire ecosystem for micro players with the MSME sector is simplified to the encourage even undergraduates to boldly venture into initiating a business.

The compliance framework at present is far too elaborate. While conceptually it is a commendable idea, and it has simplified interstate business the fact remains that it has mushroomed paperwork. Small players usually do not have the required documents nor do they have the capital to get the expertise services. For the MSME players only one identifier ex. Aadhar or company GST should be obligatory; all other identifiers like import export number, registrations with various entities such as Udyog Aadhaar portal, GSTN, NSIC, etc should be dispensed with in order to free up the time of the entrepreneurs, who get enmeshed in this paperwork. UK Sinha report had suggested making PAN the Unique Enterprise Identifier (UEI) for the MSME.

Another factor that should have been considered is the MSME player’s exposure towards share market to raise capital for business expansion. Lack of Equity capital restricts the growth momentum of MSME delaying the market opportunities in an increasingly competitive global market. To really thrive MSME players operating in an informal manner need support in terms of infrastructure.

Also read: From Disruptive Covid Chaos, Comes an Opportunity for India’s Pharmaceutical Industry

The government should invest in providing more back-end services to improve performance of the MSME segment which in turn are suppliers for big industrial houses. The sector also suffers from lack of technology-based production activities. Without technological application and low investment in R&D activities the sector simply cannot become competent. Globally available technology could be subsidised by the government so that the product quality of the MSME players can be improved using existing resources. This also requires the help of academic institutions as.

Apart from these bottlenecks are the issues of low demand in the economy in large measure because of the COVID19 pandemic and the ban on the Chinese goods. Amidst a border standoff with China, Union minister Nitin Gadkari announced that China will not be allowed to invest in India’s MSME sector and imports from China will be discouraged. This appears to be an impulsive reaction in response to China’s military aggression and can have devastating impact on Coronavirus-hit MSME businesses. A hike in import duty or placing of non-tariff barrier on items can make input cost expensive by 10-40%.

On the bright side domestic MSMEs are known for producing expensive but better-quality products in comparison to the poor-quality Chinese products which dominate the unorganised retail sector. Despite the many issues that the sector is facing, a committed credit provision, simpler compliance framework and technology upgradation will succeed in #rebootinginda as manufacturing units contemplate shifting their operations from China to India.

Vaishali Basu Sharma has worked as a consultant with the National Security Council Secretariat (NSCS) for several years. She is presently associated with the think tank Policy Perspectives Foundation.

Being ‘Atmanirbhar’ and Proud When It’s Hard to Differentiate Between Native, Non-Native

The secret sauce of ‘Atmanirbhar’s’ fame lies in the eyes of the beholder.

The word ‘atmanirbhar‘ (self-reliance) made a sizzling debut a few weeks back. But this new star word, unlike others, is a lambi race ka ghoda for its lineage. After ‘kolaveri di‘ it is the first word of “native” origin that has managed to criss-cross India in no time. The hegemony of “non-native” English words doing so in the past is finally broken.

“Atmanirbhar’s” English cousin – “self reliance” – in fact, first made a debut in the 1950s and ran for a good two decades before it was relaunched in 1970s. Its re-launch also had a decent run for another two decades before it lost to “liberalisation”. Though “atmanirbhar” has the same lineage, it is groomed by a different political family. This family has ensured that “Atmanirbhar’s” launch is more macho, more native and with a sidekick “Local pe Vocal” to accompany it. All this was missing with its English cousin.

“Atamnirbhar’s” sure shot fame lies in its vagueness. After all, words like “migrants” are handicapped with specificity. But, “Atmanirbhar” can be equally effective to convey a point to a person seeking casual employment or to a company seeking a new vendor.

The secret sauce of “Atmanirbhar’s” fame lies in the visualisation ability of the user. “Atmanirbharta” consumers may start “DIY hair-cuts” instead of visiting a neighbourhood saloon, poking holes in the efforts to revive the consumption cycle post-COVID. They may demand “Atmarnirbhar” toothpaste from the kirana store.

Also read: For India to Become Atmanirbhar in 10 Years, Do Indians Have to be Atmanirbhar Now?

The kirana owner, who stopped keeping Patanjali products for a while now because of payment delays, will then have a harrowing time to explain to them that Ved Shakti by Colgate, Ayush by HUL and DantKanti by Patanjali are all made in India, by Indians using Indian water and Indian electricity. He may use his part timeshare trading experience to recommend that they should buy Ved Shakti or Ayush because their stocks are listed, and they can earn back their expenditure via. dividends whereas there is no visibility on Patanajali’s shareholding or listing plans. But his recommendation may be shot down under the combined power of “Atmanirbhar” and “Local pe Vocal”. In this commotion, they may settle for Dabur’s Lal as a compromise because it is both “native” and dividend paying.

But, in this loss of face, the Kirana store owner may seek his revenge by selling lentils to them from the batch that was imported into the country because India’s domestic procuring cycle goofed up buying it from the Indian farmers in the previous season.

After receiving such feedback, brands may engage in an“Atmanirbharta” audit. “Native” brands may say that barring a few “critical” raw materials that are imported, they are “Atmanirbhar”. Non-native brands, on the other hand, may state that with the exception of repatriation of dividend and license fees that is a fraction of sales, they are as “Atmanirbhar” as any native brand. These claims may pose a moral dilemma to the “Atmanirbharta” seeking consumer while buying underwear when he confronts a local brandshowcasing “non-native” fashion model or an expensive car and sees a non-native luxury car showcasing his favourite “native” film actor.

Foreign investors may start to seek covenants for investment in “native” companies

Funds may toy with the idea of launching an “Atmanirbharta” index fund. Mandarins may realise that India is in fact already “Atamnirbhar” in most of the product categories. Seeking “Atmanirbharta” in most businesses is nothing but a zero-sum game. In promoting one type of “Atmanirbharta” they will merely doing so at the cost of some other “native” cluster.

But, India is not “Atmaniarbhar” in raw material supplies needed for quite a few products like the palm oil that is needed to manufacture soap, creams, frozen desserts etc. It does not matter if “Atmanirbharta” seeking consumer buys a “native” brand or a “non-native” brand of frozen dessert because while both were manufactured in India, the palm oil that was used in both most likely came from Malaysia.

On this scandalous realisation, will the “Atmanirbhar” fan give up eating frozen dessert? But, his “Atmanirbharta” zest will be severely tested in the case of jewelry because whether it is a branded store chain or a neighbourhood. Jewelers both sell jewelry made in Indian workshops using gold that was imported into the country. He will then face a tough call of conscious to give up his “Gold” addiction to practice “Atmanirbharta” via the abdication route.

Also read: To Rebuild the Economy, India Needs to Be Atmanirbhar in Ideas

The mandarins will then realise the need to narrow the use of Atmanirbharta in the context of securing supplies of strategic raw materials or intermediary products like semi-conductors, technologies, specialised products like lithium for EV batteries, defence and healthcare equipment and away from the glare of general public. They will then realise that during the COVID-19 crisis India’s import dependence was in the matters of healthcare, technology and related areas in intermediary functions. They will realise that India also has many of its own advantages that are available for bilateral trade discussions and appreciate that Atmanirbharta is a mirage. No country can address all its needs in-house and need other countries as friends and bi-lateral trade partners that becomes the basis for diplomacy.

They will then recognise the urgency to bring Atmanirbharta back within the confines of file notes rather than to expose it to the imagination of general public. Perhaps they will then appreciate that “Subtlety” or “Nuance” are the needed sidekick of Atmanirbharta.

The overt use of Atmanirbharta achieves little except that it creates restrictive trade practices that yield monopolistic outcome for sub-optimality. What to sell and what to buy are better left to the market and consumer to decide in this complex web of interdependency. State’s role should be to create parity and rule of law for all types of trade opportunities to seek markets.Surely, the state can buffet it with barriers to protect special interest groups and needs through covert means.

But by the time this realisation kicks in, Retailers would have launched Atmanirbhar range of products, while struggling to define it. “Non-Atmanirbhar” brands and consumers would have been trolled by the Atmanirbhar fan base via “Non-Atmanirbhar” digital platforms.

With so much excitement in store, this new star word offers an exciting joy ride for us voyeurs. Enjoy the flick.

Ankur Bisen is Sr. VP, Technopak Advisors & Author of WASTED. He can be reached on Twitter @AnkurBisen1.

To Rebuild the Economy, India Needs to Be Atmanirbhar in Ideas

India has for too long adopted imported ideas such as the recommendations of the Washington Consensus without assessing their intrinsic worth or suitability.

The people of India have by now come to expect the announcement of a new programme from the government at periodic intervals. Thus in the past six years, we have had Make in India, Swachch Bharat and Less Cash. Now there is something larger, a goal. In his address to the nation on May 11, Prime Minister Narendra Modi called for an Atmanirbhar Bharat. Actually, self-reliance was the stated goal of economic policy in India in the early years after 1947. The architect of this plan was Jawaharlal Nehru, whose record as prime minister – especially economic – intellectuals associated with this government have trashed relentlessly. Now, over half a century after his death, the fulcrum of his vision for India has been ceremoniously brought back with nary an acknowledgement.

Both the facts of economic development across the world and advances in the methodology of empirical research would help us make sense of the economic policies of early independent India. History suggests that India did not pursue a strategy entirely out of line with what was adopted elsewhere. More importantly, we have evidence that growth here first accelerated in the early 1960s. This could only have been a consequence of the policies adopted in the earlier decade, notably the ‘Nehru-Mahalanobis Strategy‘ of investing in capital goods production via newly formed public enterprises. This evidence cannot be jettisoned easily. It is based on a statistical procedure that is free from the predilections of the practitioner. It conclusively disposes of the stance that nothing really changed in India after 1947, a view once held at both ends of the political spectrum but now the preserve of the right-wing. The same procedure also reveals that growth did not accelerate after the Modi government has come to power.

Jawaharlal Nehru. Photo: Wikimedia Commons

However, while we know that the 1950s were literally path-breaking, we also know that the performance of India’s economy has for far too long left much to be desired. This is apparent when we look to our east, where all countries have surged ahead of us, raising national income and spreading it widely. We also know exactly how this has been achieved. Even as they had accumulated physical capital, our East Asian counterparts developed their human resources. The question staring at us is why a society with a highly educated elite in power failed to observe this as development played out over decades.

Swaraj in ideas

The answer may be found in the work of an Indian philosopher who showed us exactly where the problem lay. In an address to the students of Hooghly College close to a century ago, Kalidas Chandra Bhattacharya spoke of “swaraj in ideas”. By this, he had meant the importance for a people to aim for self-determination in thought. Implicit in this was the idea that political freedom, at that time seen as the liberation of India from colonial rule, was insufficient; Indians must free themselves from the yoke of Europe’s premises. He was not advocating cultural chauvinism but an intellectual autonomy when choosing what is best for India.

Also Read: Will India’s Economic Recovery Be Quick? Modi Says So, But This Can’t Happen in a Vacuum

In a striking demonstration of what can go wrong if we do not keep our own counsel, today India finds herself saddled with an economic model of unbounded growth that destroys natural capital and a political model based on the vision of a majoritarian nation-state that promises endless social turmoil. It is not clear that a course correction will emerge from India’s political parties competing for power. Only a collective effort can achieve it. However, India is severely challenged in doing so, and this stems from the absence of self-determination in the realm of ideas. It has meant that we are unable to see the intrinsic strengths that have served us so well for so long.

From a narrow economic point of view, it is easy to see that the failure to spread education has led India to the cul-de-sac where she finds herself. But the answer does not lie in expanding a flawed model unsuited to India. In his book Constructive Programme, Gandhi had already pointed this out when he said:

“Foreign rule has unconsciously, though none the less surely, begun with the children in the field of education. Primary education is a farce designed without regard to the wants of the India of the villages and for that matter even of the cities. Basic education links the children, whether of the cities or the villages, to all that is best and lasting in India. It develops both the body and the mind, and keeps the child rooted to the soil with a glorious vision of the future in the realization of which he or she begins to take his or her share from the very commencement of his or her career in school.”

Gandhi was able to identify the immediate consequence of adopting imported ideas without assessing their intrinsic worth, leave alone their suitability to India. An area in which India has had to pay a high price for following this practice is the economy.

The Washington Consensus

At the implosion of the Soviet Union and the end of its East European empire, the view that the world has arrived at the end of history triumphed. While Francis Fukuyama, the author of this view, had had in mind the installation of liberal democracy as the sole model of governance, he could not have imagined the sea change that was to come in the sphere of the economic architecture of societies. There occurred at that stage a wholesale shift to a set of economic ideas termed the Washington Consensus, eponymous with the centre of global power.

Public policy now came to be interpreted almost exclusively as macroeconomic policy, and among its tenets were the avoidance of budget deficits, flexible exchange rates and the pursuit of low inflation. The absence of microeconomic goals was not an accident, it merely followed from the view that there should be no interference with market forces represented by the actions of individuals. From the Washington Consensus emerged the idea of inflation targeting underpinned by central bank autonomy, which meant that there would be explicit inflation targets but none for employment. This implies that monetary policy must remain tight out of fear of stoking inflation even if a more accommodative stance can increase employment. It is not easily seen that this in effect privileges the owners of financial wealth, set to lose from inflation, over the aspiration of workers, who would gain from an expansion in output.

For fiscal policy, the Washington Consensus recommended low budget deficits, though the idea of fiscal deficit caps appears to have come from the architecture of the European Union. By the mid-90s, these ideas had reached India’s shores but it is the government of Narendra Modi that has adhered to them most closely by championing fiscal consolidation, the reduction of deficit, and institutionalising inflation targeting through an act of parliament.

Prime Minister Narendra Modi speaks in the Lok Sabha. Photo: PTI/LSTV

While the US has shown itself to be willing to re-look at the tenets of the Washington Consensus when it faced a financial crisis in 2008 and now in the face of the COVID-19 pandemic, India is locked into them. The principal indicator of this is the unwillingness to budge from a previously announced fiscal deficit target. It is, of course, difficult to conclude from this whether the government is motivated by the desire to adhere to the pre-announced fiscal deficit target on economic grounds or if it uses this arrangement as a convenient alibi for adhering to a non-interventionist stance that is its ideological lodestar. In any case, the so-called stimulus announced by the PM and detailed by finance minister Nirmala Sitharaman reflects the ideas contained in the Washington Consensus.

Also Read: For India to Become Atmanirbhar in 10 Years, Do Indians Have to be Atmanirbhar Now?

India has paid highly for having abandoned the self-reliance in ideas that was the hallmark of its economic policy in the 50s. That experiment had drawn the best economists of the world to the country so that they could observe first-hand what was being attempted here. Right now, we are nowhere near regaining that situation as economic policy here is merely derivative of what was considered kosher in the US 25 years ago. It is striking that education did not figure among the five pillars that the PM identified as the foundation of an atmanirbhar Bharat: economy, infrastructure, system, democracy and demand. This could well turn out to be a momentous omission. Without overhauling our educational system, the prospect for self-reliance is limited.

Pulapre Balakrishnan is professor of Ashoka University, Sonipat and senior fellow of IIM Kozhikode.