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UPSC GS Paper – 3: Q.1 Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

Gaurav Soni September 30, 2023 04:02 4407 0

Daily Answer Writing DAILY UPSC ANSWER WRITTING 2023 General Studies-III

UPSC GS Paper – 3: Q.1 Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

Q.1 Faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs. Comment on the present policies of the Government in this regard.

How to approach the question

Introduction

●      Write the role of manufacturing sector in GDP, particularly of MSMEs briefly

Body

●      Write why faster economic growth requires increased share of the manufacturing sector in GDP, particularly of MSMEs

●      Write about the contribution of present policies of the Government in this regard

●      Write issues faced faced by these policies

●      Write suitable way forward

Conclusion

●      Give appropriate conclusion in this regard

 

Introduction

According to 2023 manufacturing industry outlook,The manufacturing sector is an important part of India’s GDP, accounting for around 17% in 2022. The MSMEs, contribute around 40% to manufacturing and are responsible for economic growth, jobs and growing exports. Given this, the government has initiated various programmes and benefits to support these sectors.

Body

Essentiality of increase share of the manufacturing sector in GDP for Faster economic growth due to following reasons

  • Rural Development: Manufacturing plays a pivotal role in rural development. Initiatives like the establishment of Agro-based industries and Rural Self Employment Training Institutes (RSETIs) foster rural entrepreneurship, empowering rural areas economically.
  • Economic Resilience: In economic downturns, diverse manufacturing sector, can offer economic resilience. Eg: during the COVID-19 pandemic, many small enterprises quickly adapted to produce essential items like masks and sanitizers.
  • Employment Generation: In India, for instance, according to a report by the Ministry of MSMEs, the sector has created around 11 crore jobs. Tailoring units, handicraft businesses, and small manufacturing units are examples where employment is generated at a large scale.
  • Innovation: MSMEs have been the cradle for many innovations. Companies like Flipkart and Zoho initiated as small enterprises and have brought about significant innovative solutions in e-commerce and software development sectors, respectively.
  • Exports: MSMEs contribute markedly to the export earnings; in India, it accounts for about 48% of total exports, showcasing products like jewelry, handloom, and spices which have a considerable demand globally.
  • Reduce dependence on other countries: It will reduce import from other countries and support to balancing the fiscal deficit.

Present Policies of the Government and Their Contributions

  • Make in India (2014) : It aimed at promoting India as a global manufacturing hub. Eg: the mobile manufacturing saw remarkable growth with companies like Samsung setting up its largest mobile factory in the Noida boosting manufacturing sector and creating numerous jobs.
  • MSME Samadhaan: This platform has provided a space for MSMEs to file their delayed payment grievances directly, fostering a prompter payment culture. Through this, many businesses have been able to alleviate their financial bottlenecks and sustain operations.
  • Udyam Registration: Initiated to simplify the registration process for MSMEs, it has eased the entry of numerous new ventures into the formal sector. Eg: home-based businesses have found it simpler to register and thereby avail government benefits and schemes.
  • GST: The inception of GST streamlined tax structures, which, for example, mitigated the cascading effect of taxes, potentially reducing the tax burden on MSMEs, and encouraging compliance due to a simpler tax regime.
  • Startup India: Since its launch, it has fostered a nurturing environment for startups, offering fiscal incentives and establishing a robust ecosystem, encouraging entrepreneurship. Zomato, a food delivery service, is a notable success story that blossomed under this initiative.
  • Cluster Development Program: It has boosted competitiveness and promote synergy through cluster development, offering infrastructural facilities. Eg: Leather clusters in Kanpur have seen significant improvements in terms of technology adoption and infrastructural development.
  • Government e-Marketplace (GeM): This initiative has enabled many MSMEs to reach out to government buyers, expanding their market reach and fostering a transparent procurement process, thus giving a considerable boost to MSME sector growth.
  • Digital MSME Scheme: Implemented to encourage digital literacy and facilitate the adoption of digital technologies in MSME operations. For instance, businesses have been able to automate inventory management, thus saving time and reducing errors.

Issues Faced by These Policies

  • Bureaucratic Hurdles: While the Make in India initiative aimed to streamline processes, many businesses still report cumbersome bureaucracy. For instance, Tesla faced challenges in setting up its operations due to rigid land acquisition policies.
  • Delayed Payments: Even with MSME Samadhaan in place, many MSMEs still grapple with payment delays. A recent report highlights that approximately Rs 10.7 lakh crore is stuck as delayed payments to MSMEs in India, amounting to 6% of India’s GVA (Gross Value Added) for FY 2020-21.
  • GST Complications: The GST, though a unified tax regime, brought with it complexities. Many MSMEs found the initial transition to the GST system taxing, given the technological challenges and understanding tax slabs.
  • Mismatch in Skill Training: While Skill India has trained many, there’s a notable mismatch between industry requirements and the skills provided. Eg: the textile industry often reports a lack of workers trained in modern machinery despite numerous training programs.
  • Limited Scope in Startup India: The Startup India initiative, though fruitful, has been criticized for being too tech-centric, leaving out traditional businesses that also require support and incentives.
  • Inadequate Infrastructure in Clusters: The Cluster Development Program shows promise, but many clusters still lack essential infrastructure. For instance, handicraft clusters in remote areas face challenges like inadequate power supply and transportation facilities.
  • Limited Outreach of GeM: The Government e-Marketplace is a powerful platform, but many MSMEs are unaware of its benefits or find it challenging to list their products due to complex processes and requirements.

Way Ahead

  • Smart Regulation: The government should introduce smart regulations that promote ease of doing business. For instance, implementing an AI-driven system could help in simplifying regulatory compliances, thereby speeding up the Make in India initiative’s objectives.
  • Simplified Documentation: The government could simplify the documentation process for Udyam Registration further, by allowing self-certification and reducing paperwork to encourage more MSMEs to register.
  • Prompt Payment Mechanism: The government needs to strengthen the MSME Samadhaan scheme by introducing a strict timeline for payment clearance and an online monitoring system to track payment delays transparently.
  • Community Microfinance Institutions: To overcome the credit accessibility issue, encouraging community microfinance institutions could be a practical solution. These institutions could collaborate with local bodies to identify potential MSMEs in remote areas.
  • GST Facilitation Centres: Establishing GST facilitation centers across districts can be a viable solution. These centres would assist MSMEs in understanding and adapting to the GST framework, with trained personnel providing necessary assistance.
  • Infrastructure Development Grants: The Cluster Development Program can introduce grants to encourage local bodies to develop infrastructure, such as roads and power supply, fostering a conducive environment for clusters to flourish.
  • Awareness Campaigns for GeM: The government could undertake massive awareness campaigns to educate MSMEs about the benefits of Government e-Marketplace, possibly collaborating with industry associations to conduct workshops and webinars.

Conclusion

These innovative suggestions could potentially accelerate the growth of the manufacturing sector and MSMEs, thereby contributing positively to the country’s GDP. It is pivotal to create a nurturing environment where policies are not just well-framed but are also effectively implemented to foster growth and development.

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