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The Covid-19 pandemic has taken some steam off the Micro Small and Medium Enterprises (MSME) sector in India. Traditionally, the sector has been a prominent source of employment and a significant contributor to the national economy. It can also have a transforming role for India’s rural economy. Presently, around 20% MSME units are located rurally in India.

Micro and small-scale enterprises have existed in rural India since ages in the form of traditional skills. Recently, rural entrepreneurship has emerged as a dynamic concept. There is a lot of scope for rural entrepreneurship in the Small and Medium Enterprises (SMEs) sector which plays a vital role in providing employment and income for the poor and unemployed in rural areas.

The issue of surplus rural labour can be used to an advantage. The pandemic induced reverse rural migration into the villages created an over-supply of labour in rural areas – especially in the backdrop of a yet-to-recover urban economy. Unleashing entrepreneurial initiatives in the form of new rural MSME units can be a positive way of absorbing that surplus labour.

Additionally, it must be understood that as the rural population grows, the pressure on land and agriculture will continue to increase. Economic viability of agriculture will reduce. Under such circumstances, MSMEs can provide an alternate avenue for rural employment.

The scope of rural industries is considered a question of properly utilising the unexploited natural and human resources and tapping the vast material existing in the countryside. The features of rural industrialisation are low investment of capital, labour intensity and use of simple technology by employing local human and material resources. A judicious mix of local manpower with the local resources is necessary to bring about a viable development in these areas. However, developing rural entrepreneurship has its own set of problems. People in rural areas suffer from unemployment, poor infrastructure facilities and are unskilled in many cases.

The Indian MSME sector offers maximum opportunities for both self-employment and wage-employment outside the agricultural sector and contributes in constructing an inclusive and sustainable society in numerous ways through making of non-farm livelihood at meager cost, balanced regional development, ensuring gender and social balance and environmentally sustainable development. This very nature of Indian MSMEs, in addition to the fact that they are usually labour intensive, can be a major boost for the rural economy. Additionally, rural development of MSMEs can go a long way in promoting the idea of decentralised development – something that will ensure holistic economic development in India.

MSMEs can play an active role in formation of capital in the rural economy. By placing profitable business propositions, MSMEs attract investment to ensure private participation in the rural industrialisation process. The otherwise idle savings are channelised for investment in business ventures which in turn provides return. Again, the savings are invested - giving a multiplier effect to the process of capital formation.

The Indian government recognizes the power of the MSME sector. It has repeatedly developed various schemes and polices to promote MSMEs. In June 2019, the RBI committee headed by former SEBI Chairman UK Sinha suggested a `5,000 crore stressed asset fund for the MSME sector to provide relief to small businesses hurt by demonetisation, GST, and the then existing liquidity crisis. It also recommended doubling the cap on collateral-free loans to `20 lakh from the then current `10 lakh extended to borrowers falling under the Mudra scheme, self-help groups, and MSMEs. Additionally, through the ‘A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship’ (ASPIRE), the central government has tried to help the MSME sector by promoting entrepreneurship, creating new jobs and reducing unemployment. This scheme gives special preference to innovative business ideas and facilitates their development.

However, the point of criticality remains the fact that MSMEs, both rural and urban, are cash starved with limited access to institutional credit. To ensure all round development of this sector, the government must ensure more credit facilities and hassle-free market linkages.