Focus On Small Business Vital

Focus On Small Business Vital
File Photo
Focus On Small Business Vital

There are signs of recovery on the industrial front, according to a section of experts. If demand from new segments like grocery and fitness equipment is pushing the e-commerce industry, preference for personal mobility drives the automobile sector and, of course, there is the rapid growth of the pharma industry. Demand for scooters and bikes has increased due to fear of the pandemic and preference is not to travel in public transport.

Certain categories led by health and hygiene are witnessing unprecedented interest and this is expected to grow further in the coming months. People have become conscious of health and even lower income groups are giving special attention to this sector. The need for boosting up immunity has witnessed increase in purchase of medicines and fitness equipment.

There can be no doubt that large companies have shown resilience during the crisis period and have responded in a positive manner, but the people that need to be given a thought are small businesses and traders who are under great stress. The most significant growth is the pharma industry, which has witnessed rapid expansion to ensure people remain safe. Apart from vaccines, the future will also see therapeutics. All the big and middle level pharma companies are playing a good role and will continue to do so due to increasing demand.

In fact, India reported a doubling of profit after tax in the last financial year despite a five per cent dip in the toe line on the back of a lower tax rate and a sharp drop in interest cost. The State Bank of India economic research department report has stated that around 4000 listed entities reported a five per cent decline in the top line, but their EBITDA (earnings before interest, depreciation, taxes and amortisation) rose by 24 per cent while their profit after tax jumped by 105 per cent.

The report also found that 15 sectors have reduced funds by around Rs 2.1 lakh crore during the pandemic year. Plus, the reduction in the effective tax rate in 2019-20 coupled with a prolonged period of low interest rate regime fuelled by the corona pandemic seems to have been a blessing for Indian industry during the year.

However, while most segments of the industrial sector are destined to grow, the economic condition of small business and traders are going from bad to worse. Moreover, employment opportunities are not growing with expansion plans being virtually stopped, resulting in economic hardships, even for a section of the middle class.

At the same time, other data collated from various sources, specially CMIE, showed that in 2020, the salaried class took a big hit with some professionals impacted harder than others and many self-employed, even some of those running bigger enterprises, sliding down the economic ladder. By the end of last year, nearly 30 per cent of salaried workers were self-employed, engaged in petty trade or small-scale business while 13 per cent of them were forced to move out of the workforce altogether. Only 41 per cent were able to remain salaried over the course of the year.

Regarding small businesses, 62 per cent were able to remain self-employed. However, for many this entailed a transition to other kinds of self-employment with farming emerging as a pre-dominantly fallback employment. Some of the small business owners were even found working as street hawkers or vegetable vendors or auto rickshaw drivers.

Experts have suggested devising a micro livelihood loan for MGNREGS cardholders. For 100 days’ work at Rs 200/day, the cost is around Rs 1.87 lakh crore. Commercial banks can advance, say 30 per cent of income or Rs 50,000 crore to 9.35 crore MGNREGS cardholders, all of whom have bank accounts. The key is that the economy will get an enhanced spending power. Assuming a marginal propensity to consume of 0.7 this should result in a consumption boost of over Rs 1.50 trillion. This will be purely subsistence-based and hence non-inflationary.

Another important area is giving livelihoods for the rural poor. Government can offer loans up to, say Rs 50,000 on an interest of say 2 or 3 per cent. Loan renewal may be linked to successful repayment record. These loans are expected to act as big consumption booster art subsistent levels.

As there is a great need for boosting up demand, which is at low levels, loan off-takes may result in increasing the purchasing capacity of the lower income sections. With the festive season expected to start in another two months, the purchasing capacity of the masses has to be given a boost. It can clearly be stated here that higher consumption will not affect inflation.

In such a situation, it is encouraging to note that the World Bank recently approved a $500 million programme to support India’s large informal workforce, including gig workers and migrants and create greater flexibility for States to cope with the pandemic, future climate and disaster shocks. The latest programme builds on the $ 1.15 billion to support schemes under the Pradhan Mantri Garib Kalyan Yojana. With the new programme approved, States will get greater flexibility and more money in their hands to spend for welfare of specified groups.

The larger question that government economists and planners need to deliberate on is how can small business and small traders be revived and nursed back to health. The help of panchayats needs to be taken to transform the situation at the grass-root levels. The onus is obviously on the party in power which has to take a positive stand, if they contemplate returning back to power.

There is need to generate enough demand in all categories — not just essential goods and medicines — for which the purchasing power of the common man needs to increase. Thus, income opportunities have to increase while small traders have to be encouraged to diversify and/.or expand operations. Avenues for self-employment as also opportunities for skilled employment and better opportunities for the informal sector have to increase for which the Centre and State governments too have to partly play an important role.

The trend towards mechanisation has, no doubt, increased productivity and operations as also profitability but reduced the scope of employment. Thus, there should be a broad-based national plan for supporting labour-intensive industries in a big way across the country with focus on more involvement of women workers, artisans, weavers etc. Moreover, instead of focusing on GDP growth, the government should extend all types of facilities to micro units and cottage industries in a big way, even by extending subsidies. Inclusive growth must be the target.


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Focus On Small Business Vital