Employment : MSME holds the key

The spectre of rising unemployment has captured nationwide attention and has emerged as the centre-stage issue for the forthcoming federal elections. Although the exact numbers are debatable there is broad agreement that over 30 million people in India remain unemployed. The real numbers may be much higher.

According to statisticians, the unemployment figure in India has actually swelled over the last five years despite robust economic growth. Though ironic, this paradox is not without good reasons.

First, the unrelenting drive of large businesses to maximise productivity with automation is taking its toll on employment. Second, people do not have the requisite skill sets for jobs in a rapidly changing economic landscape. Third, as a nation we are focusing our investments on sectors which offer limited employment.

To address the issue we need to first consider the employment potential of major sectors, that is the government, organised industrial and service sector and the informal sector. Interestingly, 81% of India’s 480-million work force is employed in the informal sector, which includes agricultural. The government employs just about 3.5% of the work-force while the organised sector accounts for 12%.

Unemployment in India continues to rise despite fast economic growth mainly because the people intensive informal sector has not received the attention it clearly deserves. Made up largely of the MSME segment, the capital-light informal sector spans all areas of economic activity — agriculture, industry, construction and services — and has huge potential for entrepreneurship and self-employment. India’s massive rural economy comprising agriculture and allied industries is almost completely informal.

Therefore, instead of throwing its financial might behind large industries, India must try and actively promote and foster millions of micro and small enterprises across the country. This would not only open countless job opportunities but also promote the concept of self-employment as a way of life. The Father of the Nation, Mahatma Gandhi always championed self-employment, particularly in the rural sector.

The government of India doles out 100 billion dollars every year in subsidies to the urban and rural poor but most of it is in the form of one-time income support. From the perspective of generating employment (the only sustainable solution for mass poverty) wouldn’t it be much better if it spent a good chunk of this money on promoting startups and funding aspiring entrepreneurs? The existing norms for lending need to be more pragmatic and liberal.

For startups to take off and flourish as viable businesses they need a far more friendly ecosystem, which gives them access to inexpensive, low-interest capital and encourages private investments by freeing them from impositions like taxes on Angel funding. Financial incentives like tax exemptions and incentives may be offered to successful units.

Encouraging the growth of the MSME sector holds the key to future employment generation, eradication of rural poverty and the consequent exodus of people from the rural areas. India needs to create its own paradigms to meet the unique needs and aspiration of its citizens. Apart from financial incentives, the government can facilitate the growth of MSMEs by providing skilled manpower and creating affordable industrial infrastructure

New technologies may accelerate the growth of India’s economy but they would inevitably shrink job opportunities in traditional industrial and service sectors. We need to overcome this challenge by scripting and executing our own solution, which may emerge as a model for every developing economy haunted by the unemployment spectre.

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