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MCA invites comments on National Voluntary Guidelines for Businesses; draft outline significance of guidelines for MSMEs

Updated: Aug 21, 2018 08:50:21am
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MCA invites comments on National Voluntary Guidelines for Businesses; draft outline significance of guidelines for MSMEs

New Delhi, Aug 21 (KNN) The Ministry of Corporate Affairs has invited public comments on National Guidelines on the Economic, Social and Environmental Responsibilities of Business (Guidelines). This also outlines significance of MSMEs for Guidelines and the Business Responsibility Reporting Framework.

The draft National Guidelines (NGs) NGs will be available for public comment till August 31, 2018 only.

The draft outlines the significance of MSMEs for Guidelines, how MSMEs can adopt these guidelines and benefits of the guidelines for MSMEs. It says MSMEs contribute very significantly to the GDP, employment and social equity of India.

Recognizing that MSMEs are not a residual segment but a very significant component of the larger social & economic system, inter-connected with a variety of stakeholders, the draft states that for these Guidelines to succeed, widespread buy-in and adoption by the MSME sector is necessary.

The guidelines suggests that the Owners and Partners have to play a leadership role in understanding the Principles and Core Elements outlined in the Guidelines, adopting them and making their employees, customers and funders aware so that they derive full benefit from this commitment.

The draft says, “The Indian MSME sector that can be broadly categorised into two types:

   1.  MSMEs organised around local & regional value chains: These comprise a large number of very small enterprises and is estimated to contribute between half to two thirds of the total MSME output. Their share is however shrinking over the years making way for integration across national and global value chains.

   2.  MSMEs that are part of national & global value chains: These can be further broken into three distinct although not mutually exclusive sub-groups:

              a)  Global value chains linked: This group accounts for increasing exposure of MSMEs in global business environment since 1990s. Those in product categories like garments, sports goods, furniture, chocolates, beverages & other food products are well exposed to individual & collective buyer standards across environment, labour and other Issues and are hence reasonably in tune with guidelines such as these Guidelines

              b)  Vendors/ Suppliers for large buyers with domestic base: The MSMEs in this group are linked across several sectors where global players have significant manufacturing or sourcing base in India, such as automobiles, engineering goods, aerospace, defence, railways and large retail companies. There is also a large range of MSME suppliers for public procurement supplying to Railways, engineering companies, power sector companies and a wide range government services across hospitals, schools etc.\

              c)  Emerging high growth start-ups: The phenomenon of technology based high growth start-ups is beginning to surge that is significant not only for the growth of individual enterprises but also with their power to disrupt the way classical brick & mortar enterprises function. With a more positive socio-economic environment for spawning start-ups with support from academic institutions, private funding for risk capital and government support, this group is fast emerging as a significant one.

To illustrate there are technology based aggregators of MSMEs that include independent taxi operators, e-commerce platforms and credit facilitators. These entrepreneurs have joined the bandwagon of globally integrated Indian MSMEs.

Highlighting the Business Case for MSMEs to adopt Guidelines, the draft says there is no doubt that smaller businesses have fewer resources and abilities to adhere to multiple laws, regulations and guidelines.

But the fact that several of them already do clearly suggests that not only are they capable of doing so but it is worth their while –in other words, it makes business sense to do so. So, what are the business benefits of adopting these Principles and Core Elements?

   --- Increased access to markets and customers: MSMEs that are a part of national and global value chains know that for them to gain new customers and retain their existing ones, they have to conform to a number of sustainability codes and standards that go well beyond compliance with local laws. These codes and standards, typically relating to issues around environmental and labour, which are almost standard requirements for those exporting to western countries are increasingly becoming universal, with several Indian companies also expecting their supply chains to conform to sustainability requirements. Adopting the Principles herein may enable MSMEs to become preferred suppliers to the increasing number of customers who expect responsible behaviour from their value chains

  --- Better preparedness for compliance: India was a signatory to 2 global agreements in 2015 – the Sustainable Development Goals and Paris Agreement on Climate Change. As a consequence, businesses will be expected to do more in the social and environmental spheres, and this will, inevitably, lead to tighter regulations over the years. The MSME sector too will face this challenge. Further, there are already a multiplicity of buyer codes and standards that MSMEs are expected to align themselves with and these will only increase. Adopting these Guidelines will enable MSMEs to be better prepared for this future.

  --- De-risking operations: Adopting these Guidelines will enable MSMEs to reduce the risk of their operations being affected due to non-compliance with either regulations or customer expectations (as expressed in their own codes and standards).

  --- Cost savings and productivity increases: There is mounting evidence, even amongst MSMEs, that investing in processes that reduce environment footprint, waste, drudgery and increase the quality of life of employees provides benefits that pays back these investments quickly and in large measure.

  --- Access to funds. Several banks and financial institutions, including in India, are increasingly looking at businesses that do not conform to responsible business practices as risky and either fund them at a premium or do not fund them at all. The Indian Banks Association has recently come up with a set of National Voluntary Guidelines  for Responsible Finance which asks members to factor commitment to responsible business in their lending and investment decisions. MSMEs that adopt these Guidelines may find themselves better placed to negotiate better financial terms with banks and financial institutions to meet their growth plans.

Further, the draft elaborates the steps that MSMEs should take to adopt these Guidelines.

Recognising that some of those steps can be undertaken only by those businesses that are relatively larger and more mature, given below are what MSMEs must do at the bare minimum:

Prioritising the Core Elements. The first step in adoption has to be prioritising the Core Elements. In order to do this, the MSME must map all the Core Elements against: Its own vision, mission, values and business success factors: Those that align with or contribute to these must be considered priority.

        1.  Laws and regulations: All Core Elements that are governed by a law or regulation, current or emerging, have to be prioritised.

        2.  Buyer/Customer codes: All codes adopted by buyers/customers, current and potential, must be studies and understood and those Core Elements that cover these requirements must be prioritised.

Embedding Prioritized Core Elements: All the prioritized Core Elements must then be integrated into the core business. All MSMEs must set their ambitions at the Essential level but those that set themselves higher ambitions are likely to reap the benefits of this in the medium to long term.

The guidelines suggests that MSMEs can now  imbibe a method of preparing an aggregate report, i.e. the result of applying the Aggregate Reporting (AR) Methodology to combine data from individual units that belong in the same cluster (i.e. region/ location) in order to create one collective sustainability report.

The responses may be sent to garima.dadhich@gov.in All comments received till this date will be analysed by a Review Committee for updating NVGs before finalization of the National Guidelines, MCA said. (KNN Bureau)

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