The Micro, small and medium enterprises (MSMEs) are the backbone of the Indian economy, but the country’s myriad laws, regulations and bureaucracy have led to a peculiar problem where enterprises prefer not to scale and remain small.
The sector contributes around 8% of the gross domestic product, 40% of exports and around 45% of manufacturing output. The sector consists of 40 million units (which is 2nd largest after China) and provides employment to over 120 million people especially in the rural areas.
India’s labour-capital ratio has been lower than other countries at similar levels of development. The very opposite is needed for job creation in a developing economy. India’s rigid labour laws are the leading cause of these anomalies.
MSMEs can play a vital role in creating jobs, but they are constrained by a complicated regulatory environment and labour market rigidity. Archaic and multiple labour laws impede the ease of doing the business of MSMEs and limit their growth potential and employment generation capability.
Measures such as the Random Inspection Scheme, the Shram Suvidha Portal, etc. introduced by Prime Minister Modi are moves in the right direction to rationalize and simplify the labour law framework in the country. However, the labour legislation in the country still lacks uniformity and exhibits considerable rigidity and duplication, especially for the MSME sector.
Source: Economic Times