Modi government’s efforts to help India’s 11.1 crore informal workers in MSMEs have fallen short

Little has changed for informal, migrant workers who work in the country’s medium and small industries, and were one of the worst affected by the Covid-19 pandemic, according to an IndiaSpend analysis of government support for smaller enterprises and informal workers during the pandemic.

The government’s attempt to register informal workers, to make it easier for them to access benefits, has only been partially successful, while programmes for migrant workers in the state they come from were only pilots and did not help migrant workers long term, our analysis showed. In addition, criteria for relief packages for the sector excluded over 90% of MSMEs and there were few programmes in urban areas to help migrants returning to work.

Medium and small industries employ about 11.1 crore workers, most of them informal and many of them migrants. As employment hubs in urban India shut down abruptly with the imposition of a nationwide Covid-19 lockdown in late March 2020, the largely informal workforce lost work overnight, prompting a mass exodus of migrant workers to their villages. About 4 crore migrant workers returned home, the Reserve Bank of India estimated in a September 2020 report.

The reverse migration disrupted labour supply in urban areas, impacting MSMEs’ productivity, the RBI said. Production in the sector fell from an average of 75% of capacity to just 13% in May 2020, two months into the lockdown, according to a June 2021 report in the Economic and Political Weekly.

Covid-19’s impact

The sector contributes around 30% of the gross value added (a productivity measure of a sector’s output). Just 13% of India’s 6.3 crore medium and small industries were registered by August 2021, thus most workers in the sector are informal labourers, who do not have the employment, job or social security afforded to employees in formal sector enterprises.

About 73% of all rural female workers and 67% of urban female workers in the construction sector and 59% of rural and 51% of urban women workers in manufacturing are migrant workers, said RBI, adding that there are no reliable estimates of migrant workers.

Medium and small industries also took a bigger hit because the spread of the pandemic was initially in states which house a large proportion of MSMEs, the RBI said. Besides the disruption in labour and material supply, the sector also suffered shocks from a fall in domestic and external demand.

By June 2020, 35% of medium and small industries and 37% of self-employed persons began shutting down operations, the Business Standard reported based on a survey by the All India Manufacturers Organisation. On average, medium and small industries retained only 44% of their workforce, and 69% reported an inability to survive longer than three months, when the survey was released in June 2020.

The second Covid-19 wave was another jolt to the sector, which had only just begun to pick up in the aftermath of the first wave. Migrant workers who had started returning to urban employment centres found themselves out of work again, IndiaSpend reported in June.

Government programmes

In May 2020, the central government announced a number of relief packages under the Atmanirbhar Bharat Abhiyaan, including support to the sector.

The government said it would provide Rs 3 lakh crore collateral-free loans to assist 45 lakh units (7% of all MSMEs) in increasing operational and production capacity. The government also provided additional support of Rs 4,000 crore to the Credit Guarantee Fund Trust for Micro and Small Enterprises, to encourage banks to extend loans to stressed MSMEs.

However, only borrowers with an annual turnover of Rs 100 crore were eligible for these schemes. As many as 99% of MSMEs are micro industries with an annual turnover of less than Rs 5 crore, per MSME ministry data. This means that only 1% of MSME enterprises were eligible for the Atmanirbhar Bharat Abhiyaan relief packages.

We reached out to the ministry to ask what assistance had been provided to the 99% of MSMEs that did not qualify for the relief packages. We will update the article when they respond.

States, such as Uttarakhand, launched the Mukhyamantri Swarozgar Yojana in May 2020, to disburse loans and grants to the MSME sector, including grants of Rs 25 lakh to the manufacturing sector and Rs 10 lakh in the service sector to aid self-employment to returning migrants. Domicile, however, was one of the key criteria to avail the scheme, deterring returnees.

Various state governments also amended labour laws, some of which was expected to help medium and small industries ease constraints and increase production. For instance, Gujarat increased its maximum working hours to 12 hours a day and firms that set up new units in the state were freed from labour laws for 1,200 days, according to an RBI report.

But these alone could not mitigate the impact of the pandemic on medium and small industries’ production capacity, and thus their ability to absorb labour, given the decline in demand and their large outstanding dues, said the RBI, based partly on a survey it conducted among MSMEs in Tamil Nadu. Further, there are other bottlenecks for MSME growth, such as infrastructure, logistics and investment into the sector, experts told IndiaSpend in January.

Aid for migrants

In order to mitigate the livelihood crisis, following the return of migrants to their states, the government launched programmes to absorb this workforce in their source states. For instance, in September 2020, the government expanded the Gram Udyog Vikas Yojana (a programme under the Ministry of MSME to develop village industries) to include agarbatti-making, bee-keeping and pottery, but on a pilot basis.

On August 26, the central government launched the e-SHRAM portal to register workers in the unorganised sector as a step toward the delivery of welfare benefits to them. By November 20, over 8.4 crore workers (22% of the workforce) had been registered, per the e-SHRAM dashboard. But there are hurdles. Workers and activists told IndiaSpend in November that the mandatory use of Aadhaar, slow server speed, inadequate information on the scheme and social security entitlements are slowing down registrations.

“The process for registration of workers in the e-SHRAM portal in itself is very challenging, and how promised welfare benefits to unorganised sector workers will be delivered is still a question,” Bhakti Vardam, a researcher at Aajeevika Bureau’s Center for Migration and Labour Solutions, told IndiaSpend.

In addition, marginal self-employed workers, who work in micro-units, especially in the manufacturing sector, and are often migrants themselves, do not meet all the criteria to get subsidised loans. They also do not have the necessary details required to make a company profile such properly written orders, advance work orders from vendors to avail loans.

Urban MSMEs ignored

Nearly 49% of all Indian MSMEs are in urban areas and employ 55% of the MSME workforce, according to 2015-’16 data from the National Sample Survey.

Some government schemes, such as the Prime Minister’s Employment Generation Programme, implemented by the Khadi and Village Industries Commission, try to “arrest migration” of youth from rural to urban areas, per the MSME ministry’s 2020-2021 annual report.

The majority of migrants are located in the urban periphery, where access to crucial services is limited. Yet, there were very few schemes in destination states for workers to secure employment, or to promote employment through the MSME sector for returning migrants, according to an analysis by India Migration Now.

Instead, schemes, such as Gram Udyog Vikas Yojana try to absorb the returning population and to discourage people from migrating again, even as migration is one of the livelihood strategies of low-income households.

Many migrant workers, who lost work because of the pandemic, took to self-employment to sustain their livelihoods. The PM Svanidhi Scheme was launched on June 1, 2020, as a part of Atmanirbhar Bharat, to provide affordable working capital loans up to Rs 10,000 to street vendors to resume their businesses. But only 11% benefitted from the PM Svanidhi Scheme, IndiaSpend reported in September.

Further, the working conditions of migrants within some of the states with major MSME clusters has worsened, Indiaspend reported in November 2020. There have been some programmes to help medium and small industries and migrants but there have been no significant structural developments to include migrant workers within the social protection ecosystem, such as through e-Shram.

We have reached out to the ministries of MSME and labour and employment and will update the story when they respond.

The government has ensured the portability of benefits from government programmes, such as the public distribution system for foodgrains, even when people change states, but its actual implementation has several issues. For instance, access to the public distribution system across India assumes that people own ration cards and shops have access to technology to check the identity of the person, experts have told IndiaSpend.

Although close to 100% of beneficiaries under the Public Distribution System had been identified in most states after the nationwide Covid-19 lockdown in March 2020, just 22,087 of the 18.9 crore transactions between April 2019 and November 2020, were inter-state transactions, according to the Parliamentary Standing Committee Report on Food, Consumer Affairs and Public Distribution. This was because state governments were yet to implement biometric authentication of beneficiaries at the point of sale, among other reasons, according to the committee.

Low MSME registration

The ministry’s Udyam registration portal, launched in July 2020, had registered 59.1 lakh MSMEs (or 9% of all MSMEs) by December 8. Of the registered enterprises, micro enterprises stood at 55.9 lakh (94.6%), followed by small enterprises at 2,98,621 (5%) and midsize enterprises at 33,243 (0.5%).

But the registration of an enterprise on this portal does not make it a separate legal entity, as with an incorporated company in the formal sector. While the government has said that registration will entitle establishments to receive benefits, such as the ability to participate in government procurement and access credit, the portal has been described as compliance and data-gathering exercise.

Further, it is unclear what impact the registration of MSMEs on the Udyam portal will have on informal migrant workers, said Swathi Murali, an assistant vice president at Haqdarshak Solutions, a technology company to enable MSMEs to access government schemes. But formalised businesses may be more accommodating towards the idea of registering their migrant workers, especially if they are able to benefit from the formalisation, such as through Udyam, Murali said, adding that it could act as a soft nudge for companies to register migrant workers.

IndiaSpend reached out to the MSME ministry to ask whether MSME units registered on Udyam are considered a part of the formal economy and whether all workers in MSMEs registered on Udyam would be protected by labour laws and entitled to benefits. We will update the article when we receive a response.

Shreehari Paliath contributed to this story.

This article first appeared on IndiaSpend, a data-driven and public-interest journalism non-profit.