Jairam Ramesh Criticizes Government Policies Affecting MSMEs in India

Congress leader Jairam Ramesh emphasized on Tuesday that the upcoming budget’s success will be measured by its potential to revive and rejuvenate India’s Micro, Small, and Medium Enterprises (MSMEs). He attributed the decline of MSMEs to factors such as demonetisation, the Covid-19 lockdown, GST implementation, and Chinese exports.

Taking to his official X handle, Ramesh said, “The Union Budget will be judged by what it does to revive and rejuvenate India’s MSMEs.” He also issued a statement related to the MSMEs on his X handle and added, “Our statement on the destructive policymaking of the last ten years, and the path forward to breathe new life into the MSME sector.”

Ramesh pointed out five things that led to the downfall of the MSMEs: demonetisation, GST, Covid-19 lockdown, oligopolisation, and cheap Chinese imports. He asserted that MSMEs account for 30% of India’s GDP and about 45% of exports. “They employ 12 crore people – second only to agriculture – and are responsible for most job creation. MSMEs, with their wide geographic dispersion, also promote balanced regional development. Yet, the Modi Sarkar has spent 10 years systematically bludgeoning India’s MSMEs through a combination of deliberate policy and wilful neglect,” he said.

Talking about demonetisation, he said, “The virtual cessation of all economic activity during demonetisation forced many MSMEs, unable to pay employees or repay their debts, to close. Business systematically moved from smaller firms to bigger, more organised players.”

Criticising GST, Ramesh said that GST continues to constrain MSMEs due to its high compliance burden, punitive enforcement, and slow disbursal of refunds. He added, “MSMEs do not have the resources to hire the lawyers and CAs to deal with the compliance burden. Delayed tax refunds have led to working capital blockages, jeopardizing their financial stability.”

Ramesh also criticized the Covid-19 lockdown, attributing its haphazard implementation and mismanagement of pandemic control efforts as factors to the devastating impact on MSMEs.

Talking about oligopolisation, Ramesh stated, “Through favourable policymaking – including corporate tax cuts, PLIs, and selective doling out of government contracts through the Chanda Do, Dhanda Lo scheme – the Modi Sarkar has sponsored the oligopolisation of key industries.” He further said that with governmental support and economies of scale, oligopolies have driven MSMEs out of the market.

Ramesh also talked about Chinese imports and said that since 2014, the percentage of imports from China has risen from 11% of overall imports to 16%. He added, “The uncontrolled dumping of these imports has rendered domestic MSMEs uncompetitive, forcing them to shut down. Gujarat, for instance, is home to 80% of India’s stainless steel MSMEs, but 35% of them have had to shut down due to China’s export of cheaper steel.”

Ramesh further said that MSMEs are faced with high tax rates, severe credit crunch, high input prices, and widespread closures. “Unsurprisingly, their contribution to GDP today is the lowest it has been in decades,” he added.

The leader also presented Congress’s pro-MSME agenda which includes an extension of the Non-Performing Assets (NPA) classification period for loans to MSMEs from 90 days to 180 days; establishing GST 2.0, with a single, moderate rate and relief for small taxpayers like MSMEs; lessening the burden of tax on MSMEs owned by individuals and partnership firms.

The other pro-policies that Ramesh presented include abandoning the policy of rampant oligopolisation that has crowded out MSMEs; dedicating funds for MSME export capacity creation, and enhancing funding for start-ups; fixing the $530 billion credit gap in the MSME sector through a dedicated credit fund and lower interest rates; recognising MSME clusters across the country and provide for their growth and expansion including through greater use of anti-dumping duties; and more effective use of anti-dumping duties is needed to protect domestic industries.

Ramesh also advised the central government to revisit their economic agenda related to MSMEs. “The self-anointed non-biological Prime Minister and his Government must revisit their economic agenda, shed their cronyism, and end their whimsical policymaking,” he said.