Big ideas for small business

Funds for MSMEs have the potential to create many jobs. But this innovative idea should have been packaged better

comment Updated: Jul 14, 2014 22:54 IST
Hindustan Times

Union finance minister Arun Jaitley’s much-awaited maiden budget speech on July 10 has earned its fair share of analysis and criticism. Yet, buried in the nearly 130-minute speech was a proposal, which, if implemented well, has the potential to have a transformational influence on India’s economic policy thinking. Let us examine what he said: “In order to create a conducive ecosystem for the venture capital in the micro small and medium enterprises sector (MSMEs) it is proposed to establish a Rs 10,000-crore fund to act as a catalyst to attract private capital by way of providing equity, quasi equity, soft loans and other risk capital for start-up companies.”

Let us now examine what he left unsaid. An over-simplistic analysis shows that the plan itself can directly create about 100,000 jobs in the short term, along with additional employment that will spin from it. This is how: 10,000 start-up entrepreneurs, on average, get Rs 1 crore each from this fund under the condition that their venture will necessarily employ at least 10 new people. The result: 100,000 new jobs. India’s small enterprises — the domestic industry’s lifeblood — is in desperate need of government handholding through tax breaks, easier loans, financing support through venture capital funds and simpler labour laws.

There are about 30 million small, micro and medium enterprises in India. Put together, these factories contribute to half of India’s factory output, 45% of exports and employ more than 60 million people (India’s organised service sector employs about 33 million). About 8% of India’s GDP is accounted for by small enterprises. There was a great opportunity to hard-sell the Rs 10,000-crore fund as the next big idea that would shift the focus from job-seeking to job-creation. If the decades of the 1970s and 1980s were about seeking jobs in the public sector, the 1990s and the first few years of the new millennium were about jobs in the private sector. This could well be the decade of entrepreneurship. Jaitley’s maiden budget identifies the problems and has the right solutions. What was needed was better packaging and some extra detail about its immense prospects.

First Published: Jul 14, 2014 22:52 IST