More manufacturing jobs are being created with the goal of helping the nation’s less educated and less skilled residents find gainful employment.
India is expected to have 1.1 billion people of working age (15-64) by 2047, which is 1.6 times more people than Europe. However, the country will only gain from this demographic dividend if there is enough work. If not, it might cause a social and economic catastrophe. Let’s say India doesn’t provide enough job opportunities and its workforce is underqualified for those positions. According to research published in April 2022 by CII, Harnessing India’s Demographic Dividend for Boosting Growth, in that event, its demographic dividend would become a burden.
The estimate suggests that if India’s population of working age successfully gains access to employment opportunities, its GDP might increase from $3 trillion to $40 trillion by 2047. Time, though, is of the essence.
A country experiences a demographic dividend when there are more adults of working age than children and senior citizens. This suggests that the government will start exporting more human resources than anyone else in India. Following is an explanation of this benefit: India has a competitive advantage in terms of employment thanks to its relatively young population (median age: 28.4 years), as well as the potential to unleash the purchasing power of a young population.
Analysts worry that the long-term prospects for India may be jeopardised by a shortage of employment. The impact of a manpower shortage on productivity growth is discussed in the CII paper. Additionally, the problem of skill mismatch is raised. Only 3% of India’s 542 million workers, or around 73 million people, had formal or informal vocational training in FY20, and only 13% of them were considered formally competent.
In order to put this into perspective, the percentage of formally skilled workers in the workforce is 24% in China, 52% in the US, 68% in the UK, and 80% in Japan.
According to Dun and Bradstreet’s analysts, India will need to create 231 million jobs over the next 25 years to support its expanding population, address historical inequalities like a low representation of women in the workforce, and lessen its reliance on agriculture for employment. By 2047, the country will have 1.1 billion people of working age.
So, between MSMEs and entrepreneurs, who will generate the jobs required to maintain the prosperity and stability of the nation? In a nation with a 90% unorganised workforce and a highly fragmented labour market, this issue is crucial.
Educated millennials benefited from the emergence of many white-collar jobs brought about by the rise of BPOs in the 2000s.
More manufacturing jobs are being created with the goal of helping the nation’s less educated and less skilled residents find gainful employment. In the country, this group is huge, and if they aren’t employed, there could be a lot of social and economic problems.
MSMEs and how important they are.
Over 10.5 crore business organisations are registered in India, according to a Dun & Bradstreet report. Numerous of these are, according to the study, non-permanent businesses without workers and street vendors. Only units that can be removed economically are taken into account; 95.5% of them are micro, 4.1% are tiny, 0.3% are big, and only 0.1% are gigantic. 55% of enterprises are micro-entities, 39% are small firms, 4% are medium-sized businesses, and 2% are huge corporations.
This therefore indicates that the government should develop more policies to support MSMEs since these businesses can boost the economy and create more jobs. Regarding employment, data from the Employees’ Provident Fund Organisation (EPFO) earlier in May showed that the company added over 1.39 crore net members in the fiscal year 2022–23, an increase of 13.22% from 1.22 crore in FY22.
According to figures from the Centre for Monitoring Indian Economy (CMIE), 15 million people joined the workforce in the previous three quarters, with over 75% of them obtaining employment, increasing India’s employment rate since July 2022.
The National Statistical Office (NSO) recently released data from the Periodic Labour Force Survey (PLFS) showing that the unemployment rate for people aged 15 and older in urban areas decreased from 8.2% to 6.8% between January and March 2023, the lowest level in more than four years. MSMEs contributed about 29% of India’s GDP in the previous year. The FY22 report from the MSME Ministry states that there are 6.34 crore MSMEs, which employ 11.10 crore people.
The MSME industry is the second-largest employer after agriculture, according to Sumit Sarabhai, Business Head-Emerging Vertical, TeamLease Services. In remote and rural areas, the industry has been crucial in generating employment.
The sector that creates the most jobs is personal and professional services (10%), followed by textile and apparel producers (9.4%), food and beverage producers (7.9%), wholesale and retail traders (6.6%), hotel services (6.4%), and other manufacturing companies (6.2%).
The data originates from the National Sample Survey (NSS), which was conducted 73 times between 2015 and 2016. In rural and urban areas across the country, the MSME sector has reportedly created 11.10 crore jobs (manufacturing, commerce, and other services are all lacking in 360.41, 387.18, and 362.82 respectively).
Businesses and jobs were badly disrupted by the Covid epidemic. The closure of 6,222 Udyam-registered MSMEs in FY22 led to the layoff of 42,662 employees. Similar to this, 724 jobs were lost and 175 units were closed between 01.07.2020 and 31.03.2021.
Some industry participants, though, think that things have changed for the better. They assert that, on average, over the preceding five years, MSMEs have steadily created over 60 lakh jobs. In fact, the sector hired nearly 90 lakh people for the fiscal year 2021–2022.
Incorporating that MSMEs must unleash their entrepreneurial drive and leverage the government’s thrust on small entrepreneurs to scale up and fill the “missing middle” of entrepreneurship, Yeshab Giri, Chief Commercial Officer-Staffing and RT, Randstad India, claims that this trend can be attributed to increased digitization in the sector, progressive government initiatives, increased capital investment, and the promotion of Make in India.
Without government support, MSMEs face challenges that may be challenging to overcome.
The government should take into account plans and projects to improve market connectivity and infrastructure, reduce regulatory burdens, provide marketing support, and aid in technology advancement. In addition, programmes to provide access to financing and aid small businesses in releasing liquidity will significantly support MSMEs. Late payments have been a problem for small businesses.
The government has reportedly made an effort to solve the issue by adopting a number of programmes in Budget 2023, according to Madan Padaki, Co-Founder of Global Alliance for Mass Entrepreneurship (GAME).
The startup industry is now requesting entrepreneurs.
In this aspect, it also seems that the government’s emphasis on startups has been fruitful. The creation of a startup environment has been supported by it. India is now thought to have the third-largest startup ecosystem in the entire globe. The Secretary of DPIIT, Anurag Jain, asserts that the nation’s 6.5 lakh employment are solely from startups that are registered with the government. DPIIT aims to add 20 lakh new jobs by 2025 by registering 50,000 new businesses.
The DPIIT has identified 60,000 organisations since launching the program’s flagship version in 2016. Almost 1.6 lakh jobs would be created by DPIIT-recognized businesses in 2020, close to 2 lakh jobs in 2021, and roughly 2.7 lakh jobs in 2022, according to the most recent Economic Survey.
Over 9 lakh people were employed by startups in the last five years. According to the report, there were 84,012 recognised startups in 2017 compared to 452 in 2016.
Additionally, almost 48% of these businesses are based in Tier II and Tier III cities. Thus, startups and MSMEs both broaden employment creation outside of urban areas. According to the survey, startups created 64% more jobs last year than they did on average over the previous three years. The pandemic dealt a serious blow to the entrepreneurial ecosystem. 20,000 employees were reportedly let go by startups last year.
Who triumphs in the struggle for funding?
The startup ecosystem has just experienced a financing winter. An analysis by Tracxn found that funding for Indian startups decreased by 75% in the first three months of 2012, from $11.9 billion to $2.8 billion, compared to the same period the year before. Indian startups are known for being more dependent on foreign investment than their international rivals. MSMEs are more experienced at obtaining financing from domestic sources or through government-backed loan programmes.
What differentiates MSMEs from startups?
A new business is considered a startup for 10 years, which is a characteristic shared by MSMEs and startups. A MSME, whether listed or unlisted, is what it usually becomes after that. There is a difference in the type of company, even though both provide direct and indirect jobs, according to Sarabhai: When compared to blue-collar jobs, which are predominantly supported by manufacturing, white-collar jobs are more dependent on services.
Due to their higher proportion of blue-collar jobs compared to startups, MSMEs outperform in this area. Business development, customer service, communications, human resources, and finance each employ between 5 and 10% of MSME workers, according to Giri.
Industry participants claim that while big businesses and startups may employ a sizable number of people on the shop floor, the majority of their staff is engaged in white-collar duties like finance, marketing, human resources, and customer service.
Regarding hiring, Sarabhai anticipates that thanks to government initiatives, the manufacturing sector would add more jobs. Industries like real estate, infrastructure development, steel and cement, as well as steel and cement products, will profit from the budget proposal to boost capital spending by 33% to Rs 10 lakh crore. He asserts that this will generate blue-collar employment. He thinks that over the next 25 years, as the government concentrates on the four Is of infrastructure, investment, innovation, and inclusion, more job opportunities in the manufacturing sector will be made possible.
This significant investment is anticipated to boost the economy and create jobs in adjacent sectors including shipping, logistics, warehousing, and the auto industry. Furthermore, jobs for qualified, unskilled, and semi-skilled people will be abundant in tier 2 and tier 3 cities thanks to developments like airports, metros, flyovers, and motorways.
According to Giri of Randstad India, “We expect between 10 and 12 million jobs to be created across these sectors based on the hiring intent expressed by these industries.”
Insufficient hiring.
Along with hiring, attrition must also be taken into account.
In Indian startups, there has been a reduction in hiring and a rise in attrition. Between October and December 2022, compared to the January-March quarter, startup hiring fell by 44%.
In addition, many people have shifted away from startups and towards more traditional industries as a result of the financing block.
Giri sees this as giving MSMEs yet another benefit. With an average employee duration of 2.5 to 3.5 years, MSMEs have hired millions of workers annually and have experienced less attrition. Startups and existing businesses had a reorganisation of 18,000–20,000 employees as a result of global cost pressures and worker realignment during the epidemic. By the end of 2023, he projects that these businesses would have hired anywhere between 50,000 and 100,000 individuals from various performing-arts industries.
A TeamLease survey found that 60% of businesses believe the PLI plan will result in more jobs being added over the next two years.
Employers are “extremely likely” (54%) to support investments in MSMEs if PLI is implemented.
Giri thinks that in the previous two years, R&D, investments, and job creation have improved thanks to the PLI plan and the government’s commitment on making India the world’s largest startup ecosystem. Companies in the manufacturing, hotel, banking, pharmaceutical, textile, and allied industries are currently putting themselves in position to become the biggest suppliers of products and services that are of a standard that is accepted across the world. According to Giri, “over the next three to four years, the scheme will increase hiring by 65-70% in MSMEs and established businesses.”
How Can Employment Be Created?
According to analysts, the government needs scale up 11.6 million microbusinesses into small businesses, 1.2 million small enterprises into medium-sized ones, and 0.6 million mid-sized businesses into large ones in order to create jobs in the MSME sector.
Arun Singh, Chief Global Economist at Dun & Bradstreet, estimates that this represents an investment of $11.5 trillion in fixed assets. Typically, 65% of new fixed capital investment spending is supported by retained earnings. Indian MSMEs therefore need at least $4 trillion in outside funding to expand these 13.4 million businesses. Given that India’s gross foreign capital was only $1.3 trillion as of 2021, this is a huge necessity.
By encouraging debt financing and alternative financing, pushing banks to switch to a cash-flow-based lending model, and bolstering the current public digital infrastructure to spur employment, the government must create an environment that is conducive to MSME finance.
Experts say that in order to locate and motivate businesses to hire startups, it is necessary to promote specialised resource allocation. The government has started several capital-raising funds as well as the Startup India project. Startups everywhere, though, need to be mindful of these actions. Enterprises that produce, invest in, or use indigenous product technology and innovation should receive more attention.
