Micro enterprises play a vital role in a growing economy like India. Government of India defines micro enterprises as any industry whose annual revenue is less than 2.5 million and the total maximum investment is INR 100 million. In India, micro-enterprises consist of 99% of all medium, small and micro-enterprises (approx. 63.3 million)1, out of which 51% micro-enterprises are based in rural areas. In terms of jobs created, the whole MSME sector employs an estimated 110 million workers, out of which 44% are employed by rural micro-enterprises.
Rural micro-enterprises contribute significantly to job creation and local economic development. Rural micro-enterprises have salient features like, they are generally lower in terms of investment and revenue as compared to their urban counterparts. These enterprises are family-owned and run on traditional knowledge. A large part of their target customers are local. They work in an informal setting with lack of documentation, record keeping, registration or insurance, which often does not give them access to government schemes, bank loans etc.2 Owing to these factors, rural micro-enterprises often struggle with multiple challenges in their business. These vulnerabilities have been exposed through the current COVID-19 situation as well. There is little hope of any bailout in the near future, unless they formalise their functioning.
The lockdown since March 25th has broken the back of the already cash strapped rural micro enterprises. From across the country, the small rural micro enterprises are struggling with some immediate challenges like lack of cash, weak supply chain and market connectivity leading to unmet demands, misinformation, restriction on operations etc. Post the lockdown as well, the situation of the entrepreneurs is not going to immediately improve as macro-economic conditions and reduced purchasing power in rural areas will affect the recovery process. Almost 25% of MSMEs are going to be impacted heavily due to the cash crunch.3
This crisis is unprecedented in the modern economy of the world, and thus requires an immediate response as well as long term strategy for recovery. In terms of relief during the lockdown, the rural micro-entrepreneurs can take some of the following steps:
- Assess financial position: This is the right time to check books and start making calls to get money back from customers/ clients where owed. Cash in hand will be beneficial in evading any emergency. Financial discipline will play a significant role for the entrepreneurs to bounce back after the current situation.
- Connect to local administration and get the right information: Many schemes and relief packages are being rolled out by the government and various organisations. This is a good time to connect to the local authorities with updated documentation to assess eligibility for any such scheme. Check with the local authority whether the enterprise comes under essential services.
- Communicate clearly with the employees of the enterprise about the situation or any other critical information on salaries, so that they can be prepared accordingly.
In the post lockdown scenario, the focus should be on recovery, reimagining and redesigning. Few suggestions are:
- Re-evaluating the vision of the micro-enterprise and seeing how the enterprise can be relevant in the post lockdown economy.
- Ensuring financial discipline, strict planning and prioritisation will be beneficial. Primary focus should be kept on process optimisation and not job cutting. Innovative human resource management plan should be employed like four workdays instead of six, and adjusting salaries accordingly, avoiding any unnecessary travels etc.
- Reassessing the operation processes considering the social distancing norms and health and safety of workers and to find optimality in terms of efficiency which can benefit in saving resources.
- Innovation, collaboration and synergy: This will be the most crucial part of the redesigning phase. Innovations will be required right from minutest redundant processes to innovation in administration and financial handling. It is also important to understand that there are many other micro-enterprises who will be struggling as well. This is the right time to seek support in terms of resources sharing, finding symbiotic synergies can help weather down the economic slump at the macro level.
- New enterprise ideas: Millions of workers, abandoned by their employers and contractors in cities, found themselves in a desperate situation where basic necessities of food and shelter were taken away from them. This forced them to leave the very cities they had built with their sweat, toil and hard work. The experience that the millions of migrant workers could potentially bring with themselves, from having worked on urban construction projects can be capitalised upon in the next 6 to 12 months for rural housing projects and construction of water harvesting structures.
Rural entrepreneurs will also require support from the entrepreneurial ecosystem players in the process of recovery. These actors include government officials, National Rural Livelihood Mission, banks, micro finance institutions and skilling institutes like RSETI, universities etc. In order to expedite the recovery process and enable rural entrepreneurs to create inclusive jobs, it is imperative that these ecosystem actors coordinate their efforts.
Development Alternatives in its social innovation based programme Work 4 Progress has successfully demonstrated that these ecosystem meso-level players can play a vital role in accelerating the process of enterprise development, through its regional entrepreneurship coalition prototype. Along with bringing in multi stakeholders, the process can also be accelerated by the introduction of digital solutions like adoption of digital payment, innovative financial products, digital channel for last mile service delivery, tapping the e-commerce sector etc.
Rural enterprises in India can become the backbone of the country’s economy, as their decentralised nature and large customer base potential makes them resilient to global economic fluctuations. Post COVID-19, in order to create a systemic shift for rural economic development, to reduce migration and accelerate job creation, it is imperative to strengthen the rural microenterprises. This can happen by creating a robust ecosystem and easier access to enterprise support which in turn can unleash the entrepreneurial energies in rural entrepreneurs. ■
- Annual Report – MoMSME 2018-19
- Data from All India Manufacturers Association (AIMA).
and Debasis Ray
The views expressed in the article are those of the author’s and not necessarily those of Development Alternatives.
This blog first appeared as an editorial in Development Alternatives Newsletter May, 2020