New Delhi, 4 July (KNN) The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman, while tabling the Economic Survey 2018-19 in Parliament today, said the policies must focus on enabling micro, small and medium enterprises (MSMEs) to grow by unshackling them.

All size based incentives must have a sunset clause of less than ten years with necessary grandfathering, she said.

Job creation in India, however, suffers from policies that foster dwarfs like, small firms that never grow, instead of infant firms that have the potential to grow and become giants rapidly.

The Minister added, “Manufacturing of rubber and plastic products, electronic and optical products, transport equipment, machinery, basic metals, and fabricated metal products, chemicals and chemical products, textiles and leather, and leather products are the sub-sectors with highest employment potential.

It is possible to identify 10 tourism spots in each of the larger 20 states and 5 spots in the 9 smaller states and build road and air connectivity in these tourist attractions. This will lead to boost in economic activity along the entire route and would also reduce the migration of the rural labour force," she pointed.

Sitharaman gave an example, “if a promoter starts a new firm, utilizes the benefits for ten years when the age-based policy is available and then closes the firm to start a new one to avail the age-based benefits through this new firm, then the Aadhaar of the promoter can alert authorities about this misuse. Once small firms know that they would receive no benefit from continuing to remain small despite aging, their natural incentives to grow would get activated.  This will generate economic growth and employment”.

Firms with less than 100 workers despite being more than ten years old, account for more than half of all organized firms in manufacturing by number. Their contribution to employment is only 14 percent and to productivity is a mere 8 percent. Opposite to this, large firms (with more than 100 employees) account for three-quarters of such employment and close to 90 percent of productivity despite accounting for about 15 percent by number.

Infants and small firms that are small when they are young but can grow to become large firms as they age with having high productivity and higher value added in manufacturing.  This necessitates re-calibration of policy towards supporting infant firms.

As per PSL guidelines, 7.5 percent of Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of off-balance sheet exposure, whichever is higher is applicable to microenterprises.  Under MSME’s PSL targets, it is necessary to prioritize ‘startups’ and ‘infants’ in high employment elastic sectors.  This would enhance direct credit flow to sectors that can create the most jobs in the economy.