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Deciphering Organised and Unorganised Sectors of India

Since small and medium-sized enterprises contribute a significant number in the economy, it is vital to know their reactions, challenges and recommendations on the government-led actions.
BY Jaspreet Kaur
Feature Writer, BusinessEx
Jul 23,2019

In the first term, the Modi government majorly concentrated on the consumer market and poor classes, and thus, introduced numerous schemes for them such as Digital  India, Mudra Bank Yojana and Atal Pension Scheme. Alongside that, while upholding general masses, the government made some missteps by not concentrating on the rising unemployment rate and decelerating economy.

Earlier in June, Periodic Labour Force Survey (PLFS) released a report, informing that the country’s unemployment rate was at 6.1 per cent in FY18. Further, the financial condition of the Indian banks worsened in the first term (of the Modi government) as the count of wilful defaulters surged by 12 per cent in the last fiscal year, the ministry told the Lok Sabha, as reported by the daily news, Times of India. 

Overlooked Organised and Unorganised Sector in India  

During the first term, several moves were made to improve the economy and bring ease to administer a business. While tracking the progress of these moves, different types of reports were generated focusing on prime businesses, business ecosystems and industrialists--NASSCOM’s report on startups and IBEF’s report on domestic investments, to name a few. 

Small businesses in the organised and unorganised sectors were majorly overlooked and thus, reviews of these groups were not gathered collectively. However, “MSME sector is the most vibrant and dynamic sector promising high growth potential for the Indian economy. There are close to 51 million MSME units in the country that employ about 117 million people across various sectors, constituting 40 per cent of the workforce. The MSME share to the GDP is about 37 per cent and they also contribute to 43 per cent of exports based on the data maintained by the Ministry of Commerce,” as reported by the Indian daily news, The Economic Times.  

Since small and medium-sized enterprises contribute a significant number in the economy, it is vital to know their reactions, challenges and recommendations on the government-led actions. 

Change in Taxation Policy for Industries 

To make taxation policy simple for the industry, the government introduced GST (Goods and Services Tax) in 2017 and subsumed various indirect as well as direct taxes under one tax. 

Telling the impact of GST on the medium-sized and small businesses, Manoj Kumar Poddar, a trader in ayurvedic industry, says, “ The implementation of GST has not borne major defects on the business. Instead, it has brought ease in managing the business. Earlier on, it was difficult to find goods from other states but after implementation of GST, it has become easier to purchase goods from other corners of the country and secondly, we (traders) don’t have to do a lot of paperwork.” 

Highlighting small problems in the new taxation system, Poddar said that the costing has increased a little bit but the tax slab is still low between the range of 5 per cent to 12 per cent. Nonetheless, risen costs are not as substantial as the profit that a company earns presently. 

Considering the F&B (Food and Beverage) industry, the impact of GST is somewhat different. 

“As far as GST is considered, we (restaurants) are not getting an input tax credit on it. GST, which was earlier around 18 per cent, has now reduced to 5 per cent. These policies have caused an increase in cost running of a restaurant,” Aashish Arora, owner of the family restaurant, Kutumb. 

Impact of Demonetisation

In 2016, PM Narendra Modi banned all INR 500 and INR 1000 rupee notes in an attempt to eradicate corruption and the use of black money in the country. The move caused a hiatus in the economy, targeting mainly poor and lower-middle classes. 

“Demonetisation led a transitory phase where the businesses slowed down. However, entrepreneurs, who are working in the organised sector, were not much affected by it. On the other hand, small-scale businesses were mainly hit by demonetisation as these enterprises majorly deal in the cash,” said Arshi Dhupia, who runs a 20-year-old eponymous bakery from her home. 

Accessibility to Funds 

In the past, the government has introduced some policies and programmes to uphold businesses such as Mudra Bank Yojana and Startup India programme. These actions have facilitated the businesses and gave entrepreneurs alternative lending options.   

“Today, expanding the business is not a hardcore job as bank loans can be quickly availed. Besides this, various government-led programmes give financial backing to small businesses by offering collateral-free loans at nominal interest rates,” said Vaibhav Arora, owner of a cafe named, Pub Ji Cafe.

For incentivising entrepreneurship in India, the government has initiated collateral-free loans wherein loan seekers don’t have to give assets or security to the lenders so as to avail loans. MSME Business Loans in 59 Minutes, MUDRA Loans, Credit Guarantee Fund Scheme for Micro and Small Enterprises, National Small Industries Corporation Subsidy and Credit Link Capital Subsidy Scheme for Technology Upgradation are programmes which provide collateral-free loans. 

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