Editorial 2 : Small enterprises, big jobs
Context:
India’s employment challenge is not only about creating jobs but also about improving productivity and growth in its millions of small and unincorporated enterprises.
Introduction:
India’s employment landscape is dominated by small and unincorporated enterprises, which employ the majority of the workforce but operate with low productivity, limited capital, and minimal technological adoption. While policy discussions often emphasize large industries and government programmes as drivers of job creation, the real engine of employment lies in enabling these micro and small enterprises to grow, formalize, access credit, and adopt technology. Focusing on this segment is essential for sustainable, inclusive, and broad-based economic growth.
Key Insights:
- Employment Structure in India:
- Over 12 crore workers are employed across 7.3 crore non-agricultural enterprises in 2023-24.
- Own Account Enterprises (OAEs), which do not hire workers, form 87% of enterprises.
- Hired Worker Enterprises (HWEs), though a small fraction, contribute disproportionately to Gross Value Added (GVA), highlighting that self-employment is often driven by necessity rather than entrepreneurial dynamism.
- Enterprise Growth and Employment Generation:
- A 10% increase in GVA among small enterprises correlates with a 4.5% rise in hired workers, showing that productivity growth directly drives job creation.
- Upgrading OAEs into HWEs can significantly expand employment opportunities, given that nearly nine out of ten enterprises currently hire no workers.
- Challenges Faced by Small Enterprises:
- Low formalisation: Many micro-enterprises avoid registration due to perceived costs outweighing benefits, limiting access to government schemes.
- Limited access to credit: Only 10–12% of unincorporated enterprises have formal loans. Access to institutional credit can transform productivity—for medium-sized enterprises, GVA can rise by 72%, and for large enterprises, more than threefold.
- Technology adoption: Use of ICT tools improves efficiency, with gains more pronounced for larger firms. Micro-enterprises adopting digital payments, online marketplaces, or basic IT tools can enhance growth.
- Policy Implications:
- Enhancing ease of doing business to encourage formalisation.
- Providing differentiated and stage-appropriate credit beyond microloans to working and growth capital.
- Expanding digital inclusion programs like Digital MSME, ONDC, UDYAM, and DISHA, with skills training and local handholding support.
- Integrating vocational training and skill development into enterprise growth strategies to boost productivity.
Way Forward:
- Formalisation Drive: Reduce compliance costs, simplify registration, and incentivize enterprises to move from the informal to formal sector.
- Credit Expansion: Link credit to enterprise maturity stages, providing microcredit for subsistence, working capital for stabilization, and growth capital for expansion.
- Technology Adoption: Promote digital tools, e-commerce platforms, and digital payments for micro and small enterprises, with training and mentorship to maximize impact.
- Skill Development: Strengthen vocational education aligned with enterprise needs, including digital literacy, financial management, and market linkages.
- Monitoring and Evaluation: Regular data collection through surveys like ASUSE and impact assessment of schemes to ensure policies are results-oriented.
- Integrated Ecosystem Approach: Coordination between ministries (MSME, Skill Development, Finance, IT) to create an ecosystem that promotes enterprise growth, productivity, and employment simultaneously.
Conclusion:
India’s employment challenge lies not in creating more jobs alone, but in enhancing the productivity and formalisation of small enterprises. By focusing on credit access, technology adoption, skill development, and stage-appropriate support, OAEs can transition into HWEs, unlocking substantial employment potential and driving inclusive economic growth.