Bringing MSMEs into global value chains (UPSC Current Affairs)

Relevance: GS3 - Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment-Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

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Why in the news?

• Every year on June 27, World MSME Day is celebrated
• It gives us the chance to recognise their important contribution to job creation and sustainable development worldwide.

What is the significance of MSME?

Widespread distribution across economic sectors

• One distinctive quality of MSMEs is their widespread distribution across economic sectors, which enables them to provide a wide range of goods and services to satisfy both domestic and international customers.
• As diverse as India itself, the phrase "MSME" unites a variety of companies, from little backyard businesses to cutting-edge IT and other technological start-ups.

Contribution to the Economy

• The MSME's provide 8% of GDP, 45% of manufacturing output, and 40% of exports of the nation, and that, uniquely, they require the least amount of investment for the highest returns.
• A thriving MSME sector has wider advantages for society as a whole, including more jobs, a larger tax base, higher economic growth, prosperous and productive communities, and a growth in domestic markets for goods and services.

Employment

• Agriculture is the industry that creates the most jobs, thus the MSME sector has the ability to attract people to participate in economic activities by way of Self-employment.

Potential

• India's small enterprises have tremendous potential.
• India is in the midst of a unique historical period with a potentially enormous demographic dividend.
• India must produce a lot of employment in order to take advantage of this opportunity, particularly for the one million young people who enter the labour force each month.

What are the challenges of MSME?

Diversity and complexity

• The diversity and complexity of Indian MSMEs cannot be fully addressed by any one narrative, policy, or strategy, but they do have certain significant things in common.
• While some MSMEs operate in accordance with the highest industry standards, the majority fall short of the current benchmarks for productivity, environmental sustainability, and employee health and safety.

Disruptions in the sector

• MSMEs, particularly those in the services sector, were significantly hit by the pandemic's disruption.
• Many of them were only just starting to make a fragile recovery due to their small size and lack of access to resources at a time when a new conflict, supply shocks, and skyrocketing gasoline, food, and fertiliser prices presented a slew of new dangers.
• The greatest disruption multiplier of them all, the ongoing climate crisis, serves as a backdrop to all of this.

High level of informality

• This is made worse by the high level of informality in the industry, where many businesses are not registered, and by the fact that neither employers nor employees are committed to following labour and environmental rules.
• Since full compliance with all relevant laws is required to engage in global value chains, informal businesses are unable to get formal MSME support and funding.

What are the steps taken by the government?

• The growth of the nation's MSME ecosystem has been correctly identified by the Indian government as a major priority for achieving Atma Nirbhar Bharat (self-reliant India).
• The ambitious "Make in India" initiative by India seeks to establish the nation as a centre for global manufacturing by propelling it up the manufacturing value chain.
• The sector is being promoted and boosted by programmes like the production linked incentives (PLI) schemes and the recently introduced zero effect zero defect (ZED) certification.

Role of international organisations

• The UN system in India is supporting these and other MSME development activities at the local, State, and national levels to aid in the acceleration of this process.
• Organizations like the International Labour Organization (ILO), United Nations Development Programme (UNDP), UN Women, IFAD, and others are assisting MSMEs in navigating the rapidly shifting post-pandemic economic landscape, which is being shaped by significant transitions, primarily digitalization, greening, and the reorganisation of value chains.

What needs to be done?

Digitalization

• Digitalization ,also referred to as Industry 4.0—concerns the incorporation of digital technologies—such as big data, artificial intelligence, and virtual reality—into business processes.
• The digitalization of smart manufacturing operations is still in its infancy, with few exceptions.
• Therefore, repeatable digital solutions tailored for MSMEs are required, including digital upgrades for already-in-use machinery and equipment.
• Targeted digitalization programmes hold promise, as seen by government initiatives like the Digital Saksham and the integration of the Udyam, e-Shram, National Career Service (NCS), and Atmanirbhar Skilled Employee-Employer Mapping (ASEEM) portals.

Environment

• "Greening" lessens the negative effects MSME operations have on the environment and encourages cleantech innovation and entrepreneurship to hasten the shift to a low-carbon, circular economy.
• A prime example of how environmental and business benefits coexist is energy efficiency.
• For instance, in 23 clusters spanning the brass, ceramic, dairy, foundry, and hand tool sectors, UNIDO and the Bureau of Energy Efficiency (BEE) provided energy efficiency consultancy services to 695 MSMEs.
• These MSMEs invested 157 crore of their own money during the cash-strapped COVID period, saving 13,105 tonnes of oil equivalent, 81 crore in annual operating costs, and averting the emission of 83,000 tonnes of greenhouse gases.
• Along with UNDP, the United Nations Environment Programme (UNEP), and the United Nations Institute for Training and Applied Research, UNIDO and ILO support government initiatives on inclusive and green transformation strategies for important manufacturing sectors as part of the Partnership for Action on Green Economy (UNITAR).
• In order to formalise municipal solid waste management for the value chains of clean food, textiles, and clothing in Odisha and Andhra Pradesh, ILO works in Pune and Ahmedabad.

Resilience

• Production locations for global value chains are relocating and diversifying across nations and regions in an effort to strengthen supply resilience in reaction to recent shocks.
• The PLI seeks to capitalise on the strategic potential this poses for India. When a supply chain is relocated, suppliers are frequently more actively involved in product development and innovation.
• UNIDO is leading the idea of manufacturing excellence in an effort to take advantage of this opportunity even further.

Innovation

• This entails encouraging a culture of innovation and constant improvement that decreases waste and raises productivity, safety, and quality.
• The participating SME component manufacturers in one partnership with the Automotive Components Manufacturers Association (ACMA) have reduced in-house and client rejections by an average of 82 and 73 percent, eliminated hazardous work environments, and generated cumulative annual savings of more than 4.2 crore.

What are the impacts of various steps taken by the government and various international institutes?

Employment

• Over 7 lakh micro firms are receiving assistance from the Prime Minister's Employment Generation Programme (PMEGP) to become economically sustainable, opening up prospects for self-employment and microbusinesses as well.
• Similar to this, the ILO is assisting MSMEs in the creation and maintenance of jobs, working with the Federation of Indian Chambers of Commerce & Industry (FICCI) and corporations.

Productivity

• Over 150 MSMEs have improved productivity, aligned with international standards, and integrated into global supply chains, and the Start and Improve Your Business programme has assisted over a lakh young people in five States in starting businesses.

Way Forward

• The MSME segment needs to be widely elevated in order to fulfil the compelling vision of India as a hub for world-class manufacturing and services, progressing toward upper middle-income status, and attaining the Sustainable Development Goals.
• Governmental efforts, backed by UN organisations and partners, have shown that this is feasible if scaled up further.
• The fundamental socio economic role that MSMEs play in India and around the world is one that policymakers and society at large must properly acknowledge and encourage.
• In turn, MSME owners need to further commit to formalising their businesses, investing in increased productivity, compliance, and most importantly, providing decent work and jobs for India's aspirant youth in order to fully unlock emerging opportunities in the rapidly changing global value chain ecosystem and maximise the demographic dividend.
• "Let us reassert our commitment to utilise the full potential of MSMEs, salvage the Sustainable Development Goals, and build a more prosperous and just world for all," UN Secretary-General Antonio Guterres has said.