MSMEs employ about 110 million workers and contribute to about 40% of exports (MSME census, 2006-07), and have a huge role to play in creating quality jobs, improving export competitiveness, and increasing aggregate productivity.(Sunil Ghosh/HT file photo. Representative image)
MSMEs employ about 110 million workers and contribute to about 40% of exports (MSME census, 2006-07), and have a huge role to play in creating quality jobs, improving export competitiveness, and increasing aggregate productivity.(Sunil Ghosh/HT file photo. Representative image)

Need focus on removing obstacles to ‘good’ jobs

As businesses struggled to stay afloat, the government announced a number of measures targeted towards the so-called Micro, Small and Medium Enterprises (MSMEs). Many of these measures, part of the Atmanirbhar Bharat Abhiyan package, are aimed at easing financial constraints faced by businesses.
By hindustantimes.com
PUBLISHED ON JAN 21, 2021 04:25 AM IST

By: Kunal Dasgupta, Srinivasan Murali and Vidhya Soundararajan

The Covid-19 pandemic brought into sharp focus the plight of thousands of small businesses in the country. As businesses struggled to stay afloat, the government announced a number of measures targeted towards the so-called Micro, Small and Medium Enterprises (MSMEs). Many of these measures, part of the Atmanirbhar Bharat Abhiyan package, are aimed at easing financial constraints faced by businesses. But there are a multitude of obstacles facing businesses, not just financial; easing some of these obstacles could go a long way in raising worker productivity and ultimately lead to the creation of good (high-paying) jobs.

1) Finance not the only constraint

Our argument is built on a unique survey conducted by the World Bank called the Enterprise Surveys. The survey draws a representative sample of businesses and collects a wealth of information, including measures that try to quantify different obstacles faced by such businesses. We use data for the organised manufacturing sector in 2014, the most recent year for which data is available for India. Interestingly, almost 70% of the firms covered in this survey fall under the MSME definition applicable during this survey, and the findings are therefore highly relevant for issues facing such firms. In one of the survey questions, respondents were asked to choose their biggest obstacle from a set of 15 that could potentially affect production.

Their response is summarised in Figure 1. Some of the obstacles are clearly more important than others. In terms of their importance, the top six are corruption, electricity, tax rates, competition from the informal sector, access to finance, and labour regulations. Hence, although finance is an obstacle for businesses, it may not be the most severe obstacle. Furthermore, the ranking of obstacles does not change much if we look separately at small and large businesses.


2) Many factors hurt labour productivity

Further analysis sheds light on each of the obstacles. Take electricity. On average, businesses faced roughly 27 power cuts per month, with the average duration of each power cut being around two hours. Of course, one can minimise the disruption from power outages by using generators. In fact, 80% of businesses that faced power outages in the previous fiscal year owned generators. Because power created through generators is significantly more costly, however, this clearly affects the bottom line. Lower profits, in turn, could limit their ability to invest in productivity enhancing technologies. While experts often suggest that the government should encourage technology adoption among MSMEs, this is impossible to achieve without an input as critical and fundamental as uninterrupted and reliable power. Figure 2 suggests that there might be some truth to the above hypothesis. For each of the above-mentioned factors, the plot shows the average labour productivity of businesses that reported the factor to be an obstacle versus those that did not (The survey asked respondents to assign a score between 0 and 4 to each factor, with 0 denoting no obstacle and 4 denoting a very severe obstacle. We assigned businesses with a score of 0 to the No obstacle group and the rest to the Obstacle group).

Out of the 15 factors, businesses that faced an obstacle for 13 of those factors had lower labour productivity compared to their counterparts that did not face an obstacle. The differences are especially stark for access to finance, labour regulations, tax rates and transport. Of course, Figure 2 simply displays correlations, and one needs to be careful before drawing causal inferences. For example, businesses that have lower labour productivity could be located in regions that have less reliable power supply. Nevertheless, a clear negative correlation between labour productivity and severity of obstacle for a wide range of factors is indicative of something deeper: it is likely that some, if not all of these obstacles, could be limiting the ability of businesses to hire more productive workers.



3) Labour productivity matters for wages

Why should policymakers care? Because, at the end of the day, labour productivity is intimately tied to wages. Intuitively, a more productive worker is more attractive than a less productive one. This results in higher demand for the former, ultimately pushing up their wage. This fact is borne out in Figure 3 which plots average annual wages paid by businesses against their labour productivity. It is clear from the figure that businesses with a more productive workforce also pay higher wages. In the aftermath of the Covid-19 pandemic, easing the financial constraints of MSMEs was the top policy priority, and rightly so. From a medium- to long-term perspective, however, help offered to the MSMEs must extend beyond finance.

MSMEs employ about 110 million workers and contribute to about 40% of exports (MSME census, 2006-07), and have a huge role to play in creating quality jobs, improving export competitiveness, and increasing aggregate productivity. To achieve these, policies should also focus on delivering critical infrastructure (electricity access, transportation, land), easing bureaucratic hurdles (courts, tax administration), and liberalising business-related policies (trade and customs, labour regulations, friendly and simplified tax rates). One popular approach for holistically achieving these is through the setting up of place-based policies that have been successful in the US, European Union, and China.

In India, evidence is limited, but some policies have had positive impact, for example, the 1994 tax exemption for backward districts , and the 2003 tax exemptions and capital subsidies for firms in Uttarakhand and Himachal Pradesh. The need of the hour is to design a focused policy in this regard that majorly overhauls the current Special Economic Zones (SEZ) framework (SEZ act, 2005) using learnings from the successes and failures from other countries, and our own past. The upcoming budget is a timely opportunity to think about these structural changes in initiating a transformation.


(The authors are faculty members at the Indian Institute of Management, Bangalore).

SHARE THIS ARTICLE ON
Close
The scenes that caused offence have since been deleted, and the makers as well as the OTT company have apologised.
The scenes that caused offence have since been deleted, and the makers as well as the OTT company have apologised.

‘No teeth’: SC wants stricter OTT rules

By Utkarsh Anand, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 04:25 AM IST
  • Giving two weeks to the government to come back with its response, the bench then formally recorded in its order that one of the issues that has caught its attention is “uncontrolled and unscreened viewing of films” on Amazon Prime Video and other OTT platforms.
Close
In all, India has given about 18 million doses of Covaxin and Covishield to people in three priority groups(HT photo)
In all, India has given about 18 million doses of Covaxin and Covishield to people in three priority groups(HT photo)

Widen network, say experts as India aims to boost drive

By Rhythma Kaul, Hindustan Times, New Delhi
UPDATED ON MAR 06, 2021 04:19 AM IST
  • The roughly 20,000 centres being used for the vaccine drive at the moment are hospitals, private as well as public, while many primary and secondary health centres at present are kept out of the programme.
Close
The report said India “appears to have abandoned its potential to serve as a global democratic leader”, and that the country’s fall “from the upper ranks of free nations could have a particularly damaging impact on global democratic standards”.
The report said India “appears to have abandoned its potential to serve as a global democratic leader”, and that the country’s fall “from the upper ranks of free nations could have a particularly damaging impact on global democratic standards”.

New Delhi rejects report as ‘misleading, misplaced’

By HT Correspondent, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 03:30 AM IST
  • The external affairs ministry, which too rejected Freedom House’s report, also took exception to the depiction of Jammu and Kashmir in the map used in the document.
Close
The OCI cardholders, including PIO cardholders, are foreign nationals holding the passport of another country and are not citizens of India.(Biplov Bhuyan/HT PHOTO)
The OCI cardholders, including PIO cardholders, are foreign nationals holding the passport of another country and are not citizens of India.(Biplov Bhuyan/HT PHOTO)

OCIs need nod for Tablighi, journalistic work: Centre

By HT Correspondent, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 03:23 AM IST
  • A home ministry spokesperson said these rules prepared by the Foreigners’ Division were part of a brochure issued on November 15, 2019. The rules were consolidated and notified on Thursday.
Close
All six ministers could not be reached for comment and text messages seeking a response went unanswered.(Twitter/@mla_sudhakar)
All six ministers could not be reached for comment and text messages seeking a response went unanswered.(Twitter/@mla_sudhakar)

K’taka ministers move court against airing of ‘defamatory content’

By Sharan Poovanna, Hindustan Times, Bengaluru
PUBLISHED ON MAR 06, 2021 03:18 AM IST
  • After the allegations on Jarkiholi, there were unverified reports of several similar videos and other sex scandals against other cabinet ministers.
Close
PM Modi on Friday received the CERA Week Global Energy and Environment Leadership Award instituted to recognise commitment of leadership on solutions and policies for energy access, affordability and environmental stewardship.
PM Modi on Friday received the CERA Week Global Energy and Environment Leadership Award instituted to recognise commitment of leadership on solutions and policies for energy access, affordability and environmental stewardship.

India set to achieve Paris pact targets before deadline: PM Modi

By Rajeev Jayaswal, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 03:11 AM IST
  • India is a signatory to the Paris Agreement under the United Nations Framework Convention on Climate Change.
Close
The two leaders are seeking re-election from the seats they won in the 2016 assembly elections.(PTI File Photo)
The two leaders are seeking re-election from the seats they won in the 2016 assembly elections.(PTI File Photo)

CM in 1st list; DMK-Cong hit stalemate

By Divya Chandrababu, Hindustan Times, Chennai
PUBLISHED ON MAR 06, 2021 03:02 AM IST
  • On the other hand, the DMK’s stalemate continued with its main and long standing ally, the Congress, on seat sharing.
Close
The EC announced the poll schedule for West Bengal, Tamil Nadu, Kerala, Assam and Puducherry on February 26.(HT_PRINT)
The EC announced the poll schedule for West Bengal, Tamil Nadu, Kerala, Assam and Puducherry on February 26.(HT_PRINT)

EC orders removal of PM’s images from vaccine certificates: Officials

By Deeksha Bhardwaj
UPDATED ON MAR 06, 2021 04:33 AM IST
  • The person said it was imperative that the photographs are removed from certificates distributed in the poll bound states, adding that the system can continue in other states.
Close
As reported by HT on Thursday, the Centre has decided to launch a grand celebration to mark 75 years of Independence with events, exhibitions, rallies and tourism outreach programmes.(PTI Copy)
As reported by HT on Thursday, the Centre has decided to launch a grand celebration to mark 75 years of Independence with events, exhibitions, rallies and tourism outreach programmes.(PTI Copy)

PM to head committee, Sonia and Tendulkar among 259 members

By HT Correspondent, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 02:39 AM IST
  • Lok Sabha Speaker Om Birla, former President Pratibha Patil, economist Amartya Sen, cricketer Sachin Tendulkar, spiritual leader Baba Ramdev, chief ministers of states and senior political leaders are among those included in the panel.
Close
The Jamaat-e-Islami came into existence in 1941, spearheaded by Moulana Abul Alla Madoodi and with its headquarters at Lahore.(ANI)
The Jamaat-e-Islami came into existence in 1941, spearheaded by Moulana Abul Alla Madoodi and with its headquarters at Lahore.(ANI)

NIA probes Jamaat-e-Islami’s J&K chapter

By Neeraj Chauhan, Hindustan Times, New Delhi
PUBLISHED ON MAR 06, 2021 01:21 AM IST
  • According to Indian agencies, the JeI has maintained that J&K is a disputed territory.
Close
On Thursday, the last day for filing of nominations for the six MLC seats under MLAs’ quota, only YSRC candidates filed their papers and the opposition Telugu Desam Party stayed away from the contest as it does not have enough numbers in the assembly to field its candidates. (TWITTER).
On Thursday, the last day for filing of nominations for the six MLC seats under MLAs’ quota, only YSRC candidates filed their papers and the opposition Telugu Desam Party stayed away from the contest as it does not have enough numbers in the assembly to field its candidates. (TWITTER).

YSRC bags all 6 MLC seats unopposed; silent on abolition of legislative council

PUBLISHED ON MAR 06, 2021 01:18 AM IST
  • Interestingly, the election of the six YSRC members comes at a time when a resolution adopted by the Jagan Mohan Reddy government in the state assembly in January 2020, seeking abolition of the legislative council, is still pending with the Union home ministry.
Close
Jagan Reddy also announced that a price stabilisation fund with <span class='webrupee'>₹</span>3,000 crore would be established in order to ensure remunerative price for farmers.(PTI)
Jagan Reddy also announced that a price stabilisation fund with 3,000 crore would be established in order to ensure remunerative price for farmers.(PTI)

Andhra CM Jagan Reddy urges SC to restart Amravati land scam probe

By Abraham Thomas
PUBLISHED ON MAR 06, 2021 01:05 AM IST
  • When the matter came up before a bench of Justices Ashok Bhushan and R Subhash Reddy on Friday, the bench adjourned it to April 7 as it had no time for a full fledged hearing.
Close
After Indore, the highest number of active cases have been reported from Bhopal, Jabalpur, Betul, Ujjain and Chhindwara on Thursday. (HT PHOTO)
After Indore, the highest number of active cases have been reported from Bhopal, Jabalpur, Betul, Ujjain and Chhindwara on Thursday. (HT PHOTO)

6 new cases of UK’s Covid-19 strain found in Indore, warning issued

PUBLISHED ON MAR 06, 2021 12:51 AM IST
  • Madhya Pradesh chief minister Shivraj Singh Chouhan also held a review meeting on Friday to discuss with the divisional commissioners the steps being taken to contain the spread of the infection.
Close
Official logo: Container Corporation of India (Concor).
Official logo: Container Corporation of India (Concor).

Container Corporation of India to push production, end dependency on China

By HT Correspondent, New Delhi
UPDATED ON MAR 06, 2021 12:30 AM IST
  • There is a cost difference of about 25-30 per cent in containers made in India and abroad.
Close
People’s Liberation Army (PLA) soldiers and tanks during military disengagement along the Line of Actual Control (LAC) at the India-China border in Ladakh. (AFP PHOTO).
People’s Liberation Army (PLA) soldiers and tanks during military disengagement along the Line of Actual Control (LAC) at the India-China border in Ladakh. (AFP PHOTO).

India pushes China for disengagement at remaining friction points on LAC

By Rezaul H Laskar, Sutirtho Patranobis
PUBLISHED ON MAR 06, 2021 12:18 AM IST
  • After an agreement last month on pulling back frontline troops along with armoured vehicles and artillery from strategic heights around Pangong Lake, the two sides have been unable to make progress on disengagement at other friction points such as Depsang, Hot Springs and Gogra.
Close
SHARE
Story Saved
OPEN APP