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Breaking the Peter Pan Syndrome by Enabling Small Firms to Become Big

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Peter Pan Syndrome (named after the story of Peter Pan) is an inability to grow up or not being ready to take up responsibilities. In the context of firms, it can be understood as some businesses that remain small so that they don’t become large enough to follow many government regulations.

Economic Survey of India 2018-19 has highlighted this point in the Indian context by pointing out how some businesses, especially Micro, Small and Medium Enterprises (MSMEs) remain dwarfs and don’t want to be giants. For the purpose of its analysis, the economic survey defines firms into different categories as given below.

Small Firm – One which employs less than 100 employees

Large Firm – One which employs more than 100 employees

Dwarf Firm – One which employs less than 100 employees and more than 10 years old

The economic survey makes an interesting observation – while dwarfs account for more than half of all organized firms in manufacturing by number, their contribution to employment is only 14 per cent. Their contribution to productivity is even worse, a mere 8 per cent. In contrast, large firms account for three-quarters of such employment and close to 90 per cent of productivity despite accounting for about 15 per cent by number of firms.

Source: Economic Survey 2018-19

This above observation suggests that large firms create permanent jobs in larger numbers and dwarfs don’t contribute much either to employment or productivity. It also observes that government policies in India have generally been encouraging the dwarfs.

Therefore, the economic survey recommends the government to reorient its policies to enable these small firms to grow large, or in other words, break the Peter Pan Syndrome of these firms.

Interestingly, if the track record of the Modi government in the last 5 years is considered, many decisions have already been taken that will help these small firms grow big.

Easy access to loan – capital

A portal called psbloansin59minutes.com has been launched to give loans to small traders in 59 minutes. Companies with a turnover of more than Rs 500 crore have been mandated to register on TReDS so that the cash cycle problem of MSMEs can be resolved. The Trade Receivable Discounting System is an online bill discounting platform that helps cash-starved Micro, Small and Medium enterprises raise funds by selling their trade receivables to corporates.

Easy access to market

Government has increased the minimum quota limit of procurement from 20% to 25% from the MSME sector. Government e-Marketplace (GeM) is already benefitting the MSME sector by ensuring a level playing field in government procurement as well as curbing corruption that used to be rampant in this domain.

Technology upgradation

PM Modi had earlier announced a package of more than 6000 crore to set up 20 technology hubs and 100 tool rooms as spokes based on hub & spoke model. This will help in the modernization of MSMEs that have become dwarfs.

Ease of Doing Business

Among many business-friendly reforms, computerised random allotment to decide the inspection site for the inspection officer stands apart as it ends the discretion of the officer and checks the harassment of small traders.

Labour reforms

India’s stringent labour laws are a big hurdle to start-ups and one of the major reasons why some firms want to remain dwarf. The economic survey has also highlighted this as a major factor behind dwarfs not becoming giants. But labour laws reforms require strong political will and are sometimes known as the mother of all reforms. The governments before 2014 have generally not touched them anticipating a backlash from the trade unions. But, Modi government in Budget 2019 has announced the steps to streamline the labour laws in India. It has bracketed 44 laws into 4 major labour codes.

Proposing such a decision, Finance Minister Nirmala Sithraman, in her budget speech, said, “This will ensure that process of registration and filing of returns will get standardised and streamlined. With various labour related definitions getting standardised, it is expected that there shall be less disputes.”

Conclusion

The impact of all these measures on small firms becoming large or dwarfs becoming giants is for time to tell. But the government is already in the direction which Economic Survey 2018-19 has just highlighted, the direction of ending the Peter Pan Syndrome in the Indian industry.

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