Prof.R.Ramarao, Vignana Jyothi Institute of Management, Bachupally, Hyderabad,A.P.
Ph.No:09849946716
Out of the Box strategies for Generating Jobs through MSMEs
ABSTRACT
03-06-2014
The Indian economy is presently clouded by some slowdown in growth affecting the employment generation. Looming uncertainty in the global economic environment has adversely affected employment generating sectors like Trade. India’s economic performance is shifting gears to include the private sector in driving employment growth. A relook at the growth strategies of the country is essential to reverse the decreasing employment generation rate. The model adopted in 11 th
five year plan viz. achieving high growth rates through productivity led capital formation could have worked well then. A critical point that cannot be overlooked is the reduction in the long term employment growth rate from 2% per annum till the last decade to
1.5% over the recent years, though GDP grew at an average rate of 7%. Over the last decade contribution of employment generation to the growth of GDP has sharply declined to 20% and the share of productivity has risen to a whopping 80%. This might look good for less populated countries but is not the model suitable for a thickly populated and labour abundant country like
India. Even a steep rise in exports could not deliver the increased employment generation as expected. Rejuvenating the employment generation scenario in India is the need of the hour.
Suitable growth model, balancing the productivity and employment generation, is to be adopted.Rebalancing of growth with focus on manufacturing and greater domestic orientation is now necessary to improve its employment content. In order to achieve an average economic growth rate of 9.0 per cent, twelfth plan envisioned the rate of fixed capital formation to be around 34.5 per cent of GDP. A share of 12% by household sector (including realty, Micro and
Small Enterprises (MSEs)), 14% by Private sector and 9% by Public sector was visualized.

These ratios may have to be changed to make it capital formation oriented but focused on labor intensive sectors like realty, MSEs. The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries. Worldwide MSMEs account for
95% of firms with about 60% of employment generation. At the macro level, out of the box strategy will be to relook at the growth strategy of the nation as mentioned above. At the micro level many out of the box strategies can be formulated and implemented to make MSMEs the nation’s prime engine of employment generation. Strategies include, turning phenomenon like climate change, ageing population in the world into opportunities of growth. Green innovations,
Tourism, local innovations (Jugaad), development of village industry, fostering self- employment through entrepreneurship schemes, establishing production and marketing centers through Khadi and Village Industries Commission schemes, converting agricultural employment into agri-processing industry employment by household/small industry firms, revitalizing traditional labour-intensive products such as handicrafts, textiles, toys etc. Experience has shown that rapid growth in the recent past has been accompanied by shortages of specific skills especially hitting the the MSME sector hard. A lot needs to be done in the area of skill development to adequately complement the potential expansion in the level of economic activity.
This paper discusses these and many other strategies to improve employment generation through innovative methods. The paper lays stress on the aspect of employment generation not just getting concentrated in urban centers alone to avoid key geographic and gender exclusions. Out of the box employment generation strategies consider contrasting parameters like external trade and domestic consumption, manufacturing and services, rural as well urban infrastructure, information, skills and knowledge, traditional and modern living etc. as sources of opportunities and exploit to take utmost advantage of these. This paper dwells on these issues and the likely impact they may have on employment generation in the country in the future.
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Out of the Box strategies for Generating Jobs through MSMEs
1.
Introduction
India witnessed a phase of high GDP growth rate of an average 7% for almost a decade till the year 2010, sometimes even touching 9% growth in some years. Even when Europe, US and
ASEAN countries faced severe downturns, both China and India have weathered the situation and continued to grow at a respectable rate. However from 2011, India’s growth story has taken a declining turn recording a rate of under 5%, for two years in a row, in the fiscal years 2013 and
2014. Government of India attributes the reason for this low growth to the slowdown in developed economies worldwide and the deeper global integration of India having its logical consequences in employment generating sectors like international trade. But other economists argue that this is only one side of the story and these reasons themselves are not the key reasons for India’s poor performance. Despite challenges from the external front, India’s internal market is large enough to absorb these surpluses and provide opportunity to offset this impact as it is still underserved. Supply side dimensions are controllable as they are internal in nature. Hence policies that merely focus on external markets will not yield the expected results. Hence a preferred approach is to find solutions to plug supply side deficiencies to help revive growth and sustain it for continuous employment generation. This is helpful in two ways. India can build its strengths and become competitive by the time the opportunities revive in external markets to grab its share. Supply side bottlenecks include poor quality labor inputs along with already over stretched social and physical infrastructure.
There was a reduction in the long term employment growth rate from 2% per annum till the last decade to 1.5% over the recent years despite GDP growth. Further, a sharp decline in contribution of employment generation to 20% of growth of GDP is observed as against the share of productivity rising to a whopping 80%. Hence the present growth model is that of high growth rates through productivity led capital formation. Insufficiency and not so right application of the capital is hindering the capital formation including infrastructure This may not be appropriate and needs a relook for a thickly populated and labour abundant India. A relook at the growth strategies to reverse the trend and rejuvenate the employment generation is the present requirement. The new growth model needs to balance the parameters of productivity and employment generation. But one front where India has its numbers right is its young manpower.

This resource has to be effectively utilized if demographic dividend has to be reaped by the nation. The only way that can be done is through employment generation for maximum number of youth and also across the sectors, skills and professions. The mix of these should be adequate to match the availability of the type of man power and the type of jobs and technologies. Where required suitable employable skills have to imparted through training and development measures by investing in these. The future growth model should arrive at a suitable mix of agriculture, manufacturing and service sector contribution keeping employment generation as one of the priorities. This is certainly possible by generating ideas through out of box thinking. This paper attempts to generate some such ideas. Focus on manufacturing with greater domestic orientation to improve employment content is one such idea. The proposed growth model should factor into it capital formation ideas that are focused on labor intensive sectors like infrastructure and
MSMEs. Including private sector in driving employment growth is an important aspect as public sector alone cannot meet the targets. Among the private sector the labour to capital ratio in
MSMEs and the overall growth in the MSME sector is much higher than in the large industries.
MSMEs can achieve the inclusive growth better than large industries and technology intensive industries. Worldwide MSMEs account for 95% of firms with about 60% of employment generation. Appropriate technologies have to be domestically developed to overcome efficiency and cost considerations. Indigenously developed innovations help solve the problems. MSMEs firms are the universal vehicles all over the world to achieve the goals of employment generation, inclusivity, innovation, distributed economic activity across population, sectors, geography and other critical factors needed for sustained growth leading to sustained development. The firms operate in very different markets rural, semi-urban, metro cities, local, national, regional as well international. They operate at different levels of skill sets, investment, intricacies and growth orientation. M SMEs also nurture entrepreneurial talent in addition to being effective engines for poverty alleviation and women employment. Be it in manufacturing or service sector MSMEs can become the engines that sustain growth for long-term development for India. When growth becomes stronger, SMEs gradually assume a key role in industrial development and restructuring. They can satisfy the increasing local demand for services, which allows increasing specialization, and further support larger enterprises with services and inputs

2.
Objective of the Study
The study aims to a.
Study of growth models followed by other nations for employment generation b.
Generating out of box ideas for employment generation c.
Role and impact of MSMEs in employment generation worldwide d.
Examine and understand the role of MSMEs for India’s employment generation e.
Suggest and also consolidate India-specific measures to generate employment through
MSMEs.
3.
Scope and Limitations of the Study
The study is limited to the advantages of MSMEs being the engines for employment generation.
The aspects of employment generation in other nations through MSMEs have been taken as the base for the paper. It does not go beyond to cover the negative aspects if any in choosing
MSMEs as growth engines for employment generation. Further the limitation also lies in the assumption that what applies to one nation cannot be generalized to all nations and each nation has to suitably modify the model based on its requirements.
4.
Nomenclature
4.1.
MSME : Classification of SMEs varies from nation to nation. In fact the word MSME by combining micro enterprises with SMEs is unique to India. The classification shown below is as per Indian Act. In accordance with the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006 the Micro,Small and Medium Enterprises (MSME) are classified in two Classes 1 - i) Manufacturing Enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the industries
(Development and regulation) Act, 1951). The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery and ii) Service Enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment. The limit for investment in plant and machinery / equipment for manufacturing / service enterprises are as under:

Manufacturing Sector
Enterprises
Micro Enterprises
Small Enterprises
Investment in plant & machinery
Does not exceed twenty five lakh rupees
More than twenty five lakh rupees but does not exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten crore rupees
Service Sector
Enterprises
Micro Enterprises
Investment in equipments
Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two crore rupees
Medium Enterprises More than two crore rupees but does not exceed five core rupees
4.2.
Developed Nations: Which criteria are to be used and which countries can be classified as being developed are subjects of debate. Developed countries have post-industrial economies, meaning the service sector provides more wealth than the industrial sector. They are contrasted with developing countries, which are in the process of industrialization, or undeveloped countries, which are pre-industrial and almost entirely agrarian. According to the International
Monetary Fund, advanced economies comprise 65.8% of global nominal GDP and 52.1% of global GDP (PPP) in 2010. In 2011, the ten largest advanced economies by either nominal GDP or GDP (PPP) are Germany, France, Japan, Italy, Canada, Spain, Australia, South Korea, the
United States and the United Kingdom
4.3. Developing Countries A developing country , also called a less-developed country (LDC), is a nation with a lower living standard, underdeveloped industrial base, and low Human Development Index (HDI) relative to other countries. There is no universal, agreedupon criterion for what makes a country developing versus developed and which countries fit these two categories although there are general reference points such as a nation's GDP per capita compared to other nations. Also, the general term less-developed country should not be confused with the specific least developed country.

5.
Literature Review
5.1. Sustainable Growth Model
Growth is classifiable into rapid growth and balanced growth. Rapid economic growth links it to greater inequality to lower future growth paths considering it as an impediment to povertyreducing growth (African development Bank, Marrakech). Growth through industrialization helps long-run poverty reduction. Pattern of industrialization remarkably impacts the benefits of growth accruing to the poor. Policies focusing on productive factors that the poor possess viz. raising returns to unskilled labor, use of labor intensive methods in place of capital intensive methods, promoting development of rural non-agricultural activities like production in MSMEs may decrease this disparity. China and some East Asian countries have followed this model and attained success. Industries which employ a high proportion of unskilled workers and/or use domestic inputs and raw materials produced with labor-intensive technologies can have positive effects on incomes of the poor. In Taiwan and South Korea technology and know-how have been imported from abroad and adapted to the domestic resources, in particular to the abundant labour force (Matleena and Pellervo, 2007). Contrary to this approach in Brazil and India, manufacturing has tended to be relatively capital intensive, creating relatively modest employment opportunities for the poor. Though service sector has been a major contributor to recent growth in India, the dynamic service industries like software and back-office processing have provided few jobs for the unskilled directly and also limited geographical spread of these partly explain why some parts of Brazil, India, Indonesia or Mexico are much less developed than other parts of those countries specially the interior regions.
Growth achieved at the cost of greater inequality, higher unemployment and overconsumption of natural resources needed by future generations inevitably unsustainable. Development means improvement in the quality of life of all the citizens of a nation. Creation of large number of economic activity can provide avenues for people to work and earn a decent living for themselves and their families, thus initiating true economic development. Sustainable economic growth structure is mix: Agricultural growth generates employment, strongly benefitting the rural households through proper functioning markets by establishing opportunities in both domestic and foreign markets made possible by encouraging high-value export-crops without compromising growth in staple crops (Thurlow and Wobst,2012). Emphasis should be on value

addition in exports through agro-processing and labor intensive manufacturing including agro processing export.
5.2.Employment Generation measures worldwide
Japan launched a new growth Strategy in June 2010 that focuses on demand-led growth to achieve a strong economy for boosting demand and employment by turning problems such as climate change and population ageing into opportunities for growth. This was deemed necessary as earlier supply-side measures to boost productivity worsened unemployment and exacerbated income inequality. The new areas include Green Innovation, Life innovation, Tourism, local innovation, Financial Sector, National Vocational Qualifications (Jones and Yoo, 2011).
Government of Ireland had developed a detailed plan for massive Job creation. This action Plan for Jobs address seven principal areas some of them being viz. Building competitive advantage – through skills & infrastructure, supporting indigenous start ‐ ups, attracting inward entrepreneurial start ‐ ups, developing and deepening the impact of FDI, developing employment initiatives within the community. For this exploiting sectoral opportunities including Manufacturing,
Health/Lifesciences and Green Economy, Agri ‐ Food, ICT Hardware and Software, Cloud computing, Digital Games, Tourism, International Financial Services, Business Process
Outsourcing/Shared Services, Education Services, Construction, Retail/Wholesale, Arts, Culture and Creative Enterprise (Government of Ireland, 2012). The actions planned involve establishing a new potential exporters division to target a wider group of potential exporting companies; establish a new “one ‐ stop ‐ shop” micro enterprise support structure that will work with local authorities in each local authority, establish Ireland IDA senior management team to work on cross ‐ agency priorities such as attracting international start ‐ ups, improving mentoring for SMEs, and helping SMEs win supply contracts from multinationals and measures to make public procurement more accessible to Irish SMEs.
A paper by Government of Pakistan recognized a major global re-structuring in the manufacturing as well as services sector resulting in re-location of manufacturing, design, and service activities to places where cost reduction can be affected without compromising reliability. It observed that such activities are generally undertaken by small and medium enterprises (SMEs) which comprise the bulk of any nation’s economic units and contribute significantly to employment and offering complete end-to-end services in the supplychain, whether as manufacturers of piece parts and systems, or providers of electronic

services(Ismail,2005). These activities are ideally suited for SMEs if they can become partners in an internationally accepted supply chain.
Department of Business Innovation and Skills (BIS) in its analysis paper no.1 of 2013, tried to understand what opportunities exist for UK based businesses to capture larger share of supply chain business. BIS suggests that the UK supply chain has the capacity to capture over 40% of the value of a new reactor which could rise to about 60% with wider policy intervention and greater industry involvement. Government interacts with sectors in a pro-competitive way, and support the ability of a wide range of firms to compete and grow, in order to secure most benefit from a sector approach for UK economic growth( Department of Business Innovation and Skills,
UK, 2013).
The above sectors have contributed to increase in employment in UK.
Every year new SMEs enter the market, representing 5 to 20% of the existing number of firms.
Smaller firms are often the most dynamic and innovative, and can be a test ground for new business ideas. Although nearly half of all start-ups will fail within 5 years, a few of them will grow to become large firms, and replace incumbents. This process yields positive structural changes to the economy, can lead to large productivity gains, and is shown to be linked to GDP growth.Finally, a stronger SME sector can bolster a country’s resilience by broadening and diversifying the domestic economy, thereby reducing the vulnerability to sector-specific shocks and fluctuations in international private capital flows. A study conducted by Small Enterprise
Assistance Fund (SEAF) highlights the economic impact of investments in SMEs. It found that:

every dollar invested by SEAF in a SME generates an additional twelve dollars in the local economy ; 72% of new jobs generated go to unskilled or semi-skilled employees; SEAF companies sustained an average annual employment growth rate of 26 percent and a wage growth rate of 25 percent in US dollar terms, surpassing national growth rates for each country
(Dalberg, 2013).
Between 2002 and 2010, net employment in the EU rose substantially, by an average of 1.1 million jobs (or 0.9%) each year. 85% of this net employment growth was registered as employment growth in the SME size class. This share is considerably higher than the share of the
SME size class in total employment (which was 67% in 2010). This implies that the employment share of the SME size class has increased over time, and indicates the increasing economic relevance of this size class. Within the SME size class, the highest growth rate is found in the size classes of micro and small enterprises. Between 2002 and 2010, 85% of total employment growth was attributable to SMEs which have a much higher employment growth rate (1% annually) than large enterprises (0.5% a year). Within the SME sector, the highest growth rate is found in micro and small enterprises. Micro enterprises contributed 58% of total employment growth in EU27 in the period under review. On average, employment growth in the EU amounted to 0.9% annually. In both large (0.5%) and medium-sized (0.7%) enterprises, job growth was below average, while small enterprises contributed on par with the overall average.
Micro enterprises in particular experienced above average employment growth, i.e
. by an average of 1.3% a year.
Firms are demanding higher skills from workers. Should training programs focus entirely on
Providing advanced skills. Dual vocational training systems that combine classroom with on-thejob training work best solution for this problem. Germany and Switzerland are among the most successful examples–globally–of how this approach can help tackle unemployment.
5.3.Employment Generation measures in India
About 250 million new job seeker youth are expected to enter the market in 15 years time.
Services sector though, growing fast, alone cannot absorb this. Unless manufacturing becomes an engine of growth, providing at least 100 million additional decent jobs, it will be difficult for
India’s growth to be inclusive.

Agriculture too has to play an important role for employment generation. Government of India has taken several steps to provide employment to unemployed persons including youth in the country. The Rural Employment Generation Program is implemented through the Khadi and
Village Industries Commission to help eligible entrepreneurs to set up village industry units and thus create employment opportunities in villages including small towns. KVIC formulated a scheme for financing projects with investment limits up to 25 lacs for rural industrialization and empowerment generation. KVIC having track record of providing employment to about 47 lakhs
Rural populace are determined and wantto reach every household in rural area and provide additional employment of 37 lakhs persons by the end of 2011-12. India’s Planning Commission deputy chairperson Montek Singh Ahluwalia has set this ambitious target of 25 million new jobs outside agriculture for the 12th plan by focussing on growth in service and manufacturing sectors as employment in agriculture was falling. The key for creating new jobs would be “substantial” improvement and expansion in higher education
The Census of 2011 estimates that 833 million people continue to live in rural India. The development and transformation of the rural economy requires rapid expansion of employment and income opportunities, both on farm and off farm. The training of a pool of local youth in technical skills must also incorporate their ability to act as social mobilizers and ensure the involvement of Panchayati Raj Institution (PRI) representatives at every level of the process.
Rural India has a large population of artisan families, many of whom are from the minority and tribal communities. Most of these artisan farmers do not own any land and many find themselves in a difficult condition with poor access to market linkages and to remunerative livelihoods.
Thought must be given as to how the MGNREGA in conjunction with the NRLM program can help these artisan communities to obtain a decent living while at the same time conserving the base of craftsmanship, which is India’s cultural heritage. All schemes designed for providing employment generation has inherent problems due to their top down approach. It is advisable to draw from the population, segments that are likely to remain in the village for provision of upgraded technical training. This is the only way to localize technical skills in the village and make it self-sustained (Planning Commission, GOI, 2011)

The shape of global manufacturing supply chains has changed dramatically with the application of computers and telecommunications whereby disaggregation of components of industrial activities can be carried out at different locations. This is transforming the landscape of manufacturing by reducing the domination of large scale enterprises and increasing the contribution of MSMEs. Increase manufacturing sector growth to 12.0–14.0 per cent over the medium term to make it the engine of growth for the economy. The 2.0 to 4.0 per cent differential over the medium termgrowth rate of the overall economy will enable manufacturing to contribute at least 25.0 percent of GDP by 2025. Increase the rate of job creation in manufacturing to create 100 million additional jobs by 2025. Sectors that will create large employment include: Textiles and Garments, Leather and Footwear, Gems and Jewellery, Food
Processing Industries and Handlooms and Handicrafts. MSME sector should become the base for the Manufacturing Sector—employment and enterprise generation(Planning Commission, GOI,
2011).
During the post reform period, despite economic growth there is low labour absorption in the
Indian economy. A need to evolve a multistage strategy to generate more and more employment opportunities was recognised. The measures included in this strategy are: Employment generation to be the single most important criteria for investment policy, although profits and technological updating to be given due weightage. Constitutional obligation ensuring “
Right to
Work
” should be the function of economic planning and The Government get, money through disinvestments of PSE shares, it is quite appropriate that the money should be used to develop new and viable industrial units, and this money should not be used to finance budget deficits or any other Government expenditures. The challenges for employment generation are recognized to be corruption, Political Rivalry, gap between policy planning and implementation, Illiteracy,
Role of private sector and reservations. The opportunities identified for employment generations include huge workforce, economical workforce, transparency and liberalization of exchange policies(Shukla and Mishra, 2013).
5.4. Sectoral Contribution to India’s GDP and Employment
Following Table-1 shows the the trends in the growth of GDP and Employment sector wise
(Chitra.R, 2006) between 2005 and 2012. The share of agriculture has shown only a small decline in this period from 20% to 17% in GDP but the employment share remains stagnant at

52-53%. Non Agriculture contribution to GDP has shifted from Industry to Services dominated but employment share has not shifted in line with this. This may be due to the high value addition in Services or the supply gap of employable people to services.
Table 1: Comparison of Sector wise GDP and Employment shares in 2005 and 2012
Year Agriculture
%in GDP %in WF
2005 20
2012 17
52
53
26
18
Industry
%in GDP %in WF %in GDP %in WF
34
19
54
65
Services
14
18
Total
100
100
The employment in India has grown at a CAGR of 2% till 2002 from 1978 which itself is a commendable achievement as compared to many nations. However the declining trend in this growth rate since 2002 is a matter of concern.Following Table-2 shows a comparison of sector wise employment in BRIC countries. China with almost equal distribution of employment in the three sectors has balanced and continues to grow at highest rates consistently in the world. Brazil and Russia like India has unequal distribution. But India has an opportunity. It has 52% in
Agriculture and the labor has to be migrated to higher value added sectors of Industry and
Services. Brazil and Russai have not this opportunity. India can transfer considerable agriculture employment to Industry and from there to Services to can reach the growth rates of China.
Table 2: Sector wise Employment comparison in BRIC nations
Following table showing the share of subsectors in employment generation indicate thatt employment creation potential lies with manufacturing, finance, utilities, trade and community and personal services. Non farm sector with about one-third contribution to employment and over 60 per cent in GDP, is an important segment of the rural economy of India (Papola TS &
Sahu PP). Employment in non-farm segment of the rural economy was distributed equally

between the secondary (industry) and tertiary (services) sectors. Manufacturing constituted the largest segment of the rural non-farm employment with 22% followed by trade as the second largest activity accounting for 20 per cent of non-farm employment.
Table-3: Comparison of GDP and Urban and Rural employment growth rates sub sector wise
Sector
Primary
Mining
Manufacture
Utilities
Construction
GDP Growth rate
(GGR)
19932000-
Employment
Growth Rate
(EGR)
19932000-
2004 10 2004 10
EGR
(Urban)
1993-
2004
2000-
10
EGR
(Rural)
1994-
2004
2.51 2.33 0.26 (0.05) 0.05 1.61 0.69
5.02 4.46 (0.02) 0.61 (0.7) 0.53 0.26
6.7 7.97 0.47 0.25 3.61 3.21 2.74
2000-
10
(0.19)
3.65
0.62
5.7 5.69 (0.32) 0.37 (0.51) 2.47 (3.82) 1.51
7.63 9.2 0.94 1.06 5.56 5.64 8.27 12.04
Secondary
Trade
6.68 7.78 0.59 0.60 3.8
8.64 8.67 0.61 0.3 5.52
3.79
1.98
4.11
4.88
Transport/Communi cation
Finance/Real Estate
/ Bus.Services
Community/Person al Services
Tertiary Sector
10.57 14.5 0.49 0.25 4.13 3.06 6.56
7.29 9.47 0.99 0.81 7.55 8.3 6.13
6.53 6.58 0.06 0.28 0.65 2.66 0.08
8.0 9.35 0.43 0.30 3.56 2.92 3.2
All
Agriculture
Non7.54 8.84 0.48 0.41 3.65 3.23 3.64
Total 6.27 7.52 0.29 0.20 3.27 3.10 1.4
5.34
3.41
4.44
5.20
0.77
2.77
4.03
0.96
Source: Own Table rebuilt from Tables 2, 3, 4 and 5 of study paper by Papola TS & Sahu PP
5.5. MSMEs and Employment generation
SMEs represent on average about 66 percent of permanent, full-time employment in developing countries. SMEs in this study were defined as firms with 5-250 employees(International Finance
Corporation,2013). However, in developing countries small firms are still significant contributors to employment growth, even after controlling for age. In fact, small firms, especially

those with less than 100 employees and mature firms (particularly those in operation formore than 10 years) were found to have the largest shares of total employment and job creation.13
Furthermore, even whencountries experienced net job losses in the economy as a whole, only small firms,14 especially small and mature firms, had net job gains Small firms (5-19 workers) in developing countries had the highest job growth rates overa two-year period (18.6 percent), about twice the job growth of all firms. Thus, both sources identify small firms in developing countries as having the highest job growth rates conditional on survival.
In OECD economies MSMEs account for over 95% of firms, 60-70% of employment, 55% of
GDP and generate the lion’s share of new jobs. Well-managed and healthy SMEs are a source of employment opportunities and wealth creation for any nation. Majority of SMEs in countries in transition are microenterprises employing family members or close relatives. Following diagram-
1 shows the massive contribution of MSMEs to employment in developed as well developing countries. Noteworthy is the increased percentage through employment and GDP in high – income countries. In Indonesia 90% of workforce, especially women and youth – are in MSMEs, in Malaysia they contribute 32% to GDP, 56.4% to Employment.
Diagram-1: SME contribution to employment and GDP
More than 99 percent of U.S. businesses are SMEs and they account. Of these total SMEs, service firms contribute to 88 percent. SMEs in US are in businesses like real estate and rental &

leasing service, whole sale trade. Japanese SMEs contribute to more than 99% of nation’s total business. This has resulted in employment for majority of the population and accounted for a large proportion of economic output. The sectors include retail business and service industry(Viral M. Pandya). SMEs having gained importance in the developing economies, become advantageous being economic enterprises having the capability of quick adjudication, working with less capital but more intense labor and having low cost of management and thus having cheap production. Empirical results indicate that the size of the SME sector has a nonlinear relationship with economic growth. In countries in which SMEs employment accounts for less than 59.75% oftotal employment they have negative relation with a growth and in countries in which SMEs employment accounts for more than 59.75% of total employment they contribute positively.
“Mittelstand,” by which name Germany’s SME segment is known as, accounted for 52% of Germany’s economic output in 2010. whereas large firms cut jobs between
2008 and 2011 (-2.4%), the Mittelstand increased employment by 1.6%.1 In the U.S., SMEs accounted for 65% of net new job creation between 1993 and 2009.The impact on the overall economy is even greater because new jobs created by SMEs further create more jobs, referred to as the employment multiplier, which for some industries like manufacturing could be close to three. MSMEs world wide become crucial for a nation’s growth owing to its advantages of employing low skilled Lbor, women and youth, being bridge for transforming agro-dependent economies to transform into industrial and service-oriented economies, by becoming the link in the supply chain for large multinationals ( Rhama Parthasarathy ).
5.5. Indian MSMEs and Employment Generation
Following tables give a bird’s eye view of Indian MSME sector ( Prime minister’s Task force,2010). Following table and figures are extracted from annual report of Ministry of MSMEs for 2011-12. In India the contribution of MSME sector to manufacturing output, employment and exports of the country is quite significant. In terms of value, it accounts for 45% of the manufacturing output and 40 percent of the total exports, employing around 73.2 million people in over 13 million units throughout the country. Thus, MSMEs are important for the national objectives of growth with equity and inclusion ( Ramarao Ravulaparthy,2013 ).

Table-2 : MSME broad details
S.No Parameter
1 GDP
2. Export
3.
5
6
7
8
Manufactured output
No. of Units
Employment
Employment growth
% of Manufacturing Units
9. % of Service sector units
10 Avg.Employed(un Regd.)
11 Avg.Employed
12 Rural Enterprises
13 Employment/lac investment
MSME details 2011
8%
40%
45%
31.1 million
73.2 million
5.29%
67%
33%
2.05
5.93 nos.
45%
0.185
A report of national Knowledge commission indicates SMEs registering a greater increase in
Innovation Intensity(i.e. the percentage of revenue derived from products/services which are less than 3 years old) than large firms (National Knowledge Commission).
6.
Discussion
From the literature review it is clear that the existing growth model being followed by India is flawed and has to be modified. Being a labour abundant economy it cannot imitate the growth models followed by developed nations which are Services dominated due to their matured economies. Neither can we follow Chinese model as it is as we have higher educated population which was included in the growth process thus far through our services led growth, albeit, mostly depending on foreign company contracts and less on domestic consumption. Now we have reached a stage where services is saturating if merely based on foreign contracts. We can also further observe that this model of growth during the last decade was more urban in nature and was not inclusive. Over and above this, the nature of growth was that it created negligible average employment growth at 0.3%p.a. over the decade, in spite of 7% average growth rate till
2011. Further the growth hs fallen to sub 5% in 2013 and 2014. For a labor abundant country like
India now this growth model needs a relook .
An out of box thinking is the need of the hour for choosing a revised growth model. It has to reverse the growth trend and put back the economy on the path of average 7% growth in the short term and sustainable growth rate for long years to come. This is possible by making

employment generation to be the engine of growth. Jobs can be created direct, indirect or induced means. An India specific growth model is required. A study of various employment generating models worldwide and India’s past years can help in developing this model. An out of box thinking necessarily does not mean dumping the old. It aims at taking the good from the existing model and new thinking and arrive at the best of the mix that fits the requirement.
Studies in the above literature review has thrown open the truth that MSMEs should be the drivers in making this possible as they are the growth engines for employment generation across genders, regions, sectors and skills. They contribute a lion’s share of a nation’s employment generation spreading across rural and urban canvas with wide presence spread across sectors in agriculture, manufacturing and services employing low skilled labor, women and youth. New jobs created by MSMEs further create more jobs, referred to as the employment multiplier, which for some industries like manufacturing could be close to three
Following salient aspects which can be the steps/corner stone for a sustained employment generating growth model. a.
Growth through industrialization helps long-run poverty reduction. b.
Policies focusing on productive factors that the poor possess viz. raising returns to unskilled labor, use of labor intensive methods in place of capital intensive methods, promoting development of rural non-agricultural activities like production in MSMEs may decrease this disparity. Industries employing a high proportion of unskilled workers and/or use domestic inputs and raw materials produced with labor-intensive technologies can have positive effects on incomes of the poor. c.
Creation of large number of economic activity can provide avenues for people to work and earn a decent living for themselves and their families, thus initiating true economic development d.
Emphasis to be laid on suitable mix of agriculture, industries based on agri-processing in rural areas through value addition, manufacturing in urban areas and labor intensive services in rural/urban areas along with value added high technology knowledge based industries and services will help solve the problem. This will lead to inclusive growth by generating employment across the board.

e.
Converting threats like climate change and ageing population worldwide into opportunities for using the abundant labor and knowledge resources in India. f.
Take necessary policy and implementation steps on both supply side and demand side to remove anomalies and boost employment generation g.
Identify new areas/sectors and measures to create employment. Some of them could be
Manufacturing, Health/Life sciences and Green Economy, Agri ‐ Food, ICT Hardware and
Software, Cloud computing, Textiles and Garments, Leather and Footwear, Gems and
Jewellery, Food Processing Industries, Handlooms and Handicrafts, Digital Games, Tourism,
International Financial Services, Business Process Outsourcing/Shared Services, Education
Services, Construction, Retail/Wholesale, Arts, Culture and Creative Enterprises. h.
China with almost equal distribution of employment in the three sectors has balanced and continues to grow at highest rates consistently in the world. i.
A new structure has to be created for enabling the implementation of the policies stated above. j.
Single window clearance and access to finance, technology and other resources should be made easier for MSMEs k.
The growth objectives remaining the same, suitable modifications to be allowed at states and district levels to choose the drivers of employment generating sectors/modes to suit their local conditions. l.
MSMEs should be encouraged to become a part of global supply chains to take advantage of the local skills and resources and exploit global opportunities, m.
Local innovations and simple technologies created locally should get encouragement and financial assistance. n.
Micro industries should be given maximum preference for financing and agencies like Khadi and Village industries council should be made the nodal agencies for the implementation o.
Funding Self Help groups will encourage women employment p.
The development and transformation of the rural economy requires rapid expansion of employment and income opportunities, both on farm and off farm. This requires improvement of rural infrastructure, supporting rural livelihoods, education, healthcare and skill development.

q.
Suitable amendments to existing employment generation schemes like MGNREGA and
NRLM to include infrastructure creation and craftsmanship creation among rural artisans. r.
The challenges for employment generation are recognized to be corruption, Political Rivalry, gap between policy planning and implementation, Illiteracy, Role of private sector and reservations. The opportunities identified for employment generations include huge workforce, economical workforce, transparency and liberalization of exchange policies s.
Involve Panchayat Raj institutions as partners in rural employment initiatives by involving them as nodal agencies in skills imparting, infrastructure creation etc. t.
Dual vocational training systems that combine classroom with on-the-job training work best solution for this problem. Germany has successfully implemented this.
7.
Conclusion
As the existing growth model ceased to be relevant for India/s sustained and employment oriented requirement a relook is needed. An out of the box approach is to revise the growth model itself suitably. After a thorough study of different models worldwide it is found that the new growth model to be followed by India should be more employment generation oriented due to it labor abundance. The model should ensure that aricultural productivity, agri-processing, rural employment generation through non-farm activities, manufacturing revival and labor intensive services occupy the dominant place in the revised growth model. Infrastructure and skill development are the key requirements. MSMEs are the engines of employment generation and all necessary e to encourage them should be in place. Domestic focus along with international trade is the required mix for both manufacturing as well services.Policy formulation along with effective and speedy implementation ensuring inclusive growth are the sure shot ways
India can reenter the high growth path through employment generation in a sustainable manner.

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