‘For poor, populous states like Bihar, MSMEs key to job creation': N K Singh

Indian Express

05-05-2025

In a recent report of its Development Committee, the World Bank laid out the global challenge of job creation, particularly in the developing world. Noting that 1.2 billion young people will reach working age in developing countries, the report said these economies may not be able to generate enough jobs for even 300 million.
In an interview with The Indian Express, former Finance Commission chairman N K Singh said for India to bridge this employment gap, Micro, Small and Medium Enterprises (MSMEs) are crucial. Singh, a BJP member and former JD(U) Rajya Sabha MP, spoke about India's efforts to boost MSMEs, the challenges faced by the sector, and how poll-bound Bihar in particular could benefit from an MSME-centric model. Excerpts:
* How do you view the World Bank jobs report?
In the Indian context, I feel jobs and MSMEs are central to many of our quests – for adoption of technology, for increasing the use of digital stack on which we have developed a mastery, for harmonising the adoption of high technology with high-quality jobs, and to really integrate the very large informal, unorganised sector.
We have roughly 63 million MSMEs – 99% of that is micro. (On April 1, the Centre revised the micro classification, which now involves an investment cap of Rs 2.5 crore and turnover cap of Rs 10 crore)… The bulk of these micro enterprises are in the informal sector and their formalisation is one of the big challenges.
Currently, micro enterprises employ at least 150 million people, which is 40% of our labour force, and constitute 30% of India's GDP and 45% of our exports. So it is a very significant part of the economy.
* What are some of the challenges facing MSMEs?
The definition and the challenges of MSMEs have kept evolving… A Reserve Bank of India committee identified the credit gap for meeting the needs of this sector at Rs 25 lakh crore. Only 14% of India's MSMEs have access to formal credit – in China, it is 37%, and in the US, it is 50%. So part of the problem arises over whether you would give credit in an unsecured way. The Union Finance Ministry has taken a number of initiatives, including that up to Rs 10 lakh can be unsecured loans.
MSMEs are an important focus both for Prime Minister Narendra Modi and the Finance Minister.
There are, of course, several other issues. One is to have much greater registration on online portals. The other is the inclusion of higher benefits through unsecured loans, through revamping of the credit line guarantee scheme, (and) access to digital technology becoming mainstreamed in the procurement policies of the government.
Another major factor here is the compliance culture. The PM's own concern was a committee under the Cabinet Secretary which will look into the issues of simplifying compliance – what may be called 'deregulating' government… MSMEs are hardly in a position to be burdened with the whole framework of intricate and complex regulation.
Then, of course, the usual issues of infrastructure and marketing access. Forget about the global value-added chain, how do you integrate MSMEs with the Indian value-added chain, and tap the huge potential they have via exports?
Compared to global averages of women's participation at an average of 23%, India's is much lower. So how do we get more women involved in the MSME programme?… How do we substantially improve the number of women entrepreneurs?
* What is India doing to address these challenges?
Some labour-intensive industries – toys, textiles, garments – can create millions of jobs… Among the best international examples is Kenya's M-Pesa, a mobile-phone based payments and micro-financing portal. Our technology stack – the Jan-Dhan (Yojana), Aadhaar and mobile trinity – is a very credible response.
On the credit guarantee scheme (too), we have done very significantly, as well as with the Skill India Mission… We have the National Skill Development Corporation (NSDC) and a cluster-based employment drive, but we can significantly improve on that. For instance, Vietnam is a great example of building clusters… Hosiery is a very important cluster in Tamil Nadu 's Tiruppur, there are auto parts clusters in Punjab. When it comes to some of these initiatives, not only do we have to learn, but the world has a lot to learn from us.
In terms of financing, I think the world perhaps has taught us much more. For instance, the South African example of blended finance – we have introduced it but we can do so much more in conjunction with the private sector.
The World Bank report focusing on jobs is an area where we have done a lot but as we look to provide gainful employment, the MSME sector is a very important sector… particularly in respect of some very endemically poor and populous states, one of which is Bihar, where I come from.
* Would an MSME-centric model work in Bihar?
Bihar now has about 125 million people. Per capita income is only Rs 59,000. Poverty numbers are 33%, compared to a national average of 14%. Unemployment rate is 17%, far in excess of the national average. And it has huge migratory pressures. So Bihar has a great deal to benefit from MSMEs.
As the (Assembly) elections approach, the issues of Bihar's developmental deficit, and how to overcome them would attract focus…
* What sectors should an MSME-led model focus on in Bihar?
One is a cluster-based approach where Bihar has a comparative advantage in terms of a fairly talented human resource. Second is harnessing the great latent potential of Bihar entrepreneurs, particularly women.
To saturate the total credit needs and upgrade skills, the cluster-based approach would be best utilised in the tourism and service sectors, small and medium industries, along with better integration with large industries.
New efforts have been made to develop Bihar's latent tourism potential through the Buddhist and other tourist circuits. North Bihar is full of these, what may be called 'soft power' hubs… The fact that the Finance Minister (Nirmala Sitharaman) for her Budget speech decided to wear a Madhubani saree shows the enormous artistic and cultural talent of Mithila and Bihar…
People tend to forget that Tussar silk was a global quest before the colonial period destroyed the silk industry in Bhagalpur… A recent big announcement was the Makhana Board. Who would have realised that the makhana has this huge potential? This is only one example.
* There is, however, a huge demand in Bihar for government jobs.
Several initiatives can be undertaken. One is the initiative of effectively harnessing technology for upgrading education and educational pedagogy. A focus on its health parameters will in turn lead to better education for girls, which will further have a dramatic impact on Bihar's own GDP and per capita income as more women join the labour force. All of which would also bring down the migratory pressures from Bihar… These initiatives have commenced and hopefully will be deepened.
* How do you view the performance of the JD(U)-BJP government in Bihar?
I really believe it's best designed to suit Bihar's developmental needs.. Bihar needs a continuation of this constellation of policies, deepening this process further by continuing with a government that is stable, that guarantees security of life and property… That this government focuses on development and not identity politics, I think is the path forward… There is a very famous phrase that would be very applicable for Bihar – guaranteeing what is known as a 'peace dividend'. Parties that are designed to give a peace dividend are also likely to be better placed to give development. The current leadership of the BJP and Nitish Kumar is well designed for this.