Report No. 87 South Asia Region, Education Global Practice Study on Demand for Skilled Labor in Unregistered MSMEs of India January 2017 Discussion Paper Series South Asia Region, Education Global Practice Study on Demand for Skilled Labor in Unregistered MSMEs of India January 2017 Discussion Paper Series Discussion papers are published to communicate the results of the World Bank’s work to the development community with the least possible delay. The typescript manuscript of this paper therefore has not been prepared in accordance with the procedures appropriate to formally edited texts. Some sources cited in the paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the International Bank for Reconstruction and Development/The World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the Governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in the work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries Authors Shabnam Sinha Lead Education Specialist, World Bank Kartik Pental Consultant, World Bank Acknowledgements The study was initiated as a part of the research that the World Bank has undertaken while conceptualizing the ‘Skill India Mission Operation’ project to understand the demand for skilled labor in the unregistered MSME sector and how addressing the same can enhance business productivity. The study findings have been refined based on valuable feedback provided by Frederico Gil Sander, Senior Country Economist, India. The authors thank the entrepreneurs and employees who participated whole heartedly in the study, providing valuable inputs and insights. Without their support and cooperation, this study could not have happened. Table of Contents List of tables Page 1 List of figures Page 2 Foreword Page 4 About the report Page 5 Executive Summary Page 6 Background Page 11 Census 2006-07 – Data points of significance Page 14 Definition of MSMEs Page 14 Size and nature of the unregistered MSME sector Page 14 Unregistered MSMEs and socio-economic profile of owners Page 15 Economic significance of unregistered MSMEs Page 16 Findings from Chhattisgarh Page 18 Growth of unregistered MSMEs and the nature of their operations Page 18 Employment generated by unregistered MSMEs and profile of employees Page 20 Unregistered MSMEs current demand for skilled labor Page 22 Current source of skills training for employees Page 27 Benefits of formal skills training for unregistered MSMEs and their employees Page 27 Formal skills training needs of entrepreneurs running unregistered MSMEs Page 28 Economic importance of supporting the unregistered MSME sector Page 30 Importance of targeting business clusters for skills training Page 31 The need for supporting unregistered MSME sector Page 32 Extrapolated national estimates Page 35 Recommendations Page 39 Annexure I: State wise extrapolations Page 40 Annexure II: Study approach and methodology Page 62 List of Tables Table 1: Distribution of sector and sub-sector of operations of unregistered MSMEs in Chhattisgarh....................... 19 Table 2: Number of employees engaged by unregistered MSMEs; disaggregated by level of skills and gender ........ 20 Table 3: Women employees as a percentage of total employee base; disaggregated by sector of operation .............. 21 Table 4: Skilled employees as a percentage of total employee base; disaggregated by sector of operation ................ 21 Table 5: Change in percentage of skilled employees in the workforce; disaggregated by sector of operation ............ 21 Table 6: Estimates for current requirement of skilled employees; disaggregated by sector and gender ..................... 23 Table 7: Salary differential between unskilled & formally skilled staff; gender disaggregated .................................. 28 Table 8: Sector disaggregated investment estimates for unregistered MSMEs in Chhattisgarh .................................. 30 Table 9: Sector disaggregated estimates for change in profit margins of unregistered MSMEs in Chhattisgarh ........ 31 Table 10: Gender disaggregated estimates for credit requirement and credit worthiness ............................................ 34 Table 11: Sector disaggregated estimates of number of unregistered MSMEs – national estimate ............................ 36 Table 12: Salary differential between unskilled & formally skilled staff; gender disaggregated – national estimate . 37 Table 13: State wise approximation of number of unregistered MSMEs .................................................................... 40 Table 14: State wise approximation of number of unregistered manufacturing sector MSMEs ................................. 41 Table 15: State wise approximation of number of unregistered service sector MSMEs ............................................. 42 Table 16: State wise approximation of number of women-owned unregistered MSMEs ........................................... 43 Table 17: State wise approximation of percentage of women-owned unregistered MSMEs ...................................... 44 Table 18: State wise approximation of employment generated by unregistered MSMEs ........................................... 45 Table 19: State wise approximation of employment generated per unit by unregistered MSMEs .............................. 46 Table 20: State wise approximation of number of women employed by unregistered MSMEs .................................. 47 Table 21: State wise approximation of number of skilled employees at unregistered MSMEs ................................... 48 Table 22: State wise approximation of the number of skilled employees required at unregistered MSMEs ............... 49 Table 23: State wise approximation of skilled women employees required at unregistered MSMEs ......................... 50 Table 22: State wise approximation of skilled labor force demand to be met by new labor force participants ........... 51 Table 25: State wise approximation of investments made over the last five years by unregistered MSMEs .............. 52 Table 26: State wise approximation of current credit requirement of unregistered MSMEs ....................................... 53 Table 27: State wise approximation of age differential between unskilled and skilled labor force participants ......... 54 1 List of Figures Figure 1: Number of unregistered MSMEs in India – census estimates ...................................................................... 14 Figure 2: Distribution of unregistered MSMEs across rural and urban markets – census estimates ........................... 15 Figure 3: Percentage of women-owned unregistered MSMEs in India – census estimates ......................................... 15 Figure 4: Percentage unregistered MSMEs operating out of low-income states – census estimates ........................... 16 Figure 5: Ownership of unregistered MSMEs disaggregated by social groups – census estimates ............................. 16 Figure 6: Employment generated disaggregated by scale of operation – census estimates ......................................... 17 Figure 7: Employment generated disaggregated by scale of operation – census estimates ......................................... 17 Figure 8: Year of inception or business disaggregated by nature of business ............................................................. 18 Figure 9: Profile of business owner; disaggregated by gender .................................................................................... 19 Figure 10: Percentage of women in the employee base; disaggregated by gender of owner ....................................... 22 Figure 11: Percentage of businesses currently searching for skilled employees; disaggregated by sector .................. 22 Figure 12: Percentage of skilled labor force requirement to be met by new labor force participants .......................... 23 Figure 13: Business outlook for the upcoming financial year ..................................................................................... 24 Figure 14: Unregistered MSMEs preference of profile of prospective employees; disaggregated by sector .............. 24 Figure 15: Barriers to finding and recruiting suitable skilled employees .................................................................... 25 Figure 16: Percentage of owners reporting an interest in sending their employees for training .................................. 25 Figure 17: Employers’ preferred model for investing in employees’ formal skills training ........................................ 26 Figure 18: Percentage of employers expecting productivity gains from finding suitably skilled employee ............... 26 Figure 19: Level of difficulty in retaining formally skilled employees; disaggregated by sector of operation ........... 27 Figure 20: Source of structured skills training for existing skilled employees working at unregistered MSMEs ....... 27 Figure 21: Entrepreneurs perspective on the business impact of hiring skilled employees ......................................... 28 Figure 22: Level of awareness about the existence of Entrepreneurship Development Institutes (EDIs) ................... 29 Figure 23: Types of formal skills training(s) required by entrepreneurs managing unregistered MSMEs .................. 29 Figure 24: Current source for entrepreneurial skills training; disaggregated by sector of operation ........................... 30 Figure 25: Percentage of unregistered MSMEs operating out of business clusters; disaggregated by sector .............. 31 Figure 26: Entrepreneur’s perspective on the benefits of operating out of a business cluster ..................................... 32 Figure 27: Percentage of entrepreneurs reporting being aware of government scheme(s) supporting MSMEs .......... 33 2 Figure 28: Source of capital obtained through external sources of finance; disaggregated by gender ........................ 33 Figure 29: Number of unregistered MSMEs (millions) – national estimate ................................................................ 35 Figure 30: Profile of business owner; disaggregated by gender – national estimate ................................................... 35 Figure 31: Total employment generated by unregistered MSMEs – national estimate ............................................... 36 Figure 32: Women’s share in employee base of unregistered MSMEs – national estimate ........................................ 36 Figure 33: Gender disaggregated analysis of demand for skilled employees – national estimate ............................... 37 3 Foreword The past decade has witnessed the Indian economy growing within an overall economically constrained global environment. The country has done well in reducing the gap between urban and rural areas and progressed towards improving its standing on various socio-economic indicators. Between 1993 and 2011, the government has been successful in reducing the incidence of poverty from 46.1 percent to 21.3 percent. The annual growth in consumption per capita of the bottom 40 percent has almost reached levels similar to the average annual growth in consumption per capita for the country as a whole. As of today, about 54 percent of the country’s population is below 25 years of age and by 2022 the average of workforce participants in India would be 29 years. The Government has estimated that as of 2015, about 170 million non-farm based workforce participants would be in the age group of 15 to 45 years of age and would need access to appropriate skills trainings. The corresponding estimate for the farm based workforce stands at about 128 million. Additionally, over the next seven years, a total of about 105 million individuals will enter the workforce and would need to access channels for formal skills training. Therefore, by 2022, the Government needs to provide about 400 million individuals with access to formal skills training. Sustaining the Indian growth story would require the country to sustain the shift from a farm based to industry driven economy. Much of the growth experienced over the past two decades has come from large scale service sector undertakings. However, absorbing the country’s large workforce into productive non - farm activities can only be possible if the country was to realize its ambition of strengthening and expanding the manufacturing sector. It is well documented that the MSME sector employs bulk of non-farm based labor force in India. However, the last census of MSMEs was conducted in 2006-07 and there are no official estimations available for the skills development and training needs of entrepreneurs and employees in this space. This study addresses the existing data/information gap; providing valuable inputs towards the preparation of the ‘Skill India Mission Operation’ project. Unregistered MSMEs in India are estimated to have engaged more than 77.7 million labor force participants; are noted to be inclusive in terms of the profile of owners and employees; are concentrated in the rural markets; and are currently looking for about 38 million skilled employees (including skilling of 28.2 million existing employees. Further, there is a strong correlation between engagement of skilled labor and business productivity. Approximations suggest that every one percent increase in skilled labor improves business profitability by around 0.4 percent. The study findings highlight the pivotal role that the unregistered MSME sector will play in shaping India’s economic growth. The sector is best positioned to support the transition of labor from farm based to non- farm based work. In this sense, has the potential to inform the investments and efforts being made towards strengthening the relevance, reach and impact of the government’s Skill India Mission. I hope this study will be useful for academics, policy makers and people interested in skill development sector in India. Keiko Miwa Practice Manager South Asia Region Education Global Practice The World Bank Group 4 About the Report This report seeks to highlight the economic importance of unregistered Micro Small and Medium Enterprises (MSMEs) in India and ascertain their role in the job market. It attempts to summarize the sector’s demand for skilled labor and entrepreneurial skills training. The report opens with an executive summary of key findings and a background explaining the context in which it has been prepared and the research objectives it seeks to fulfil. The next section of the report presents key insights derived from the analysis of data collected through the Unregistered MSMEs census of 2006-07 and the associated extrapolations made by the government in 2013-14. This section discusses the size, scale and profile of the unregistered MSME sector along with estimates of the employment generated by the sector. This is followed by a section on insights from field based research in Chhattisgarh. It utilizes primary data to estimate how the unregistered MSME sector has grown in the state; how its profile and scale has evolved since the census of 2006-07; the size of the labor force engaged by unregistered businesses in Chhattisgarh; the sector’s demand for skilled labor; its preference for formally skilled/certified employees; the wage gains that employees can expect to derive from obtaining formal skills certification; its contribution to the state economy; and the skills training needs of entrepreneurs. The next section of the report builds on the findings of the first two sections to estimate and present national level aggregates for the growth of the unregistered MSME sector, the quantum of labor force employed by unregistered MSMEs in India, the sector’s demand for skilled labor and the wage benefits that employees can derive from attaining formal skills certification. National aggregates presented in this section have been estimated through extrapolation of data from the unregistered MSME census of 2006-07. This is the most recent and holistic data source available as the next unregistered MSME census is currently in the planning and data collection phase. Primary data from the low-income state of Chhattisgarh has been used to adjust/control the extrapolations made using the 2006-07 census data. Extrapolations have been made based on gross state domestic product per capita, change in gross state domestic product per capita, female labor force participation estimates and change in female labor force participation estimates. It is encouraging to note that the extrapolations made under this study are similar to those made by the government in 2013-14 (where such comparison is possible). The report closes with a set of recommendations directed at strengthening policy and programming response to the skills training needs of unregistered MSMEs in India. It presents ideas that different tiers of governance, skills training providers and skill development agencies can leverage upon to realize the objectives of the ‘Skill India Mission.’ State level estimates for key data points are given in Annexure I of the report and Annexure II presents the approach and methodology used to structure the field based research carried out in Chhattisgarh. 5 Executive Summary Size and Sector Profile of Unregistered MSMEs Number of unregistered MSMEs 2006-07 (in thousands) Number of unregistered MSMEs 2016-17 (in thousands) Over the past decade, the number of unregistered micro, small and medium (MSME) enterprises in India has increased by 97.8 percent. As of today, there are more than 38.7 million informal businesses in the country. Micro enterprises account for 99.8 percent of unregistered MSMEs in the country and the rest of the 0.2 percent is accounted for by businesses with small scale of operations. This presents a need for policy measures and support programs which can help micro enterprises in expanding their operations. As per the unregistered MSMEs census of 2006-07, 52.6 percent of businesses in the country were operating in the manufacturing sector. Over the last decade, this percentage has dropped to 32.7 percent; highlighting the importance of initiatives directed at reviving the manufacturing sector. As per the unregistered MSMEs census of 2006-07, most of the unregistered MSMEs (60.2 percent) are operating out of rural areas. This percentage is expected to have increased further over the last decade. 6 Unregistered MSMEs and Social Inclusion Number of women-owned unregistered MSMEs 2006-07 Number of women-owned unregistered MSMEs 2016-17 The unregistered MSME sector has 4.7 million women-owned setups which account for 12.1 percent of the total number of businesses. Over the past decade, there has been a three percentage point increase in women’s share in ownership. Low income states (Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan and Uttar Pradesh) of India account for 33.9 percent of unregistered MSMEs. Supporting/incubating micro and small businesses in these states could help in improving access to labor force opportunities. Businesses owned by individuals from Scheduled Caste (SC), Scheduled Tribe (ST) and Other Backward Classes (OBC) account for more than 60 percent of unregistered micro and small scale setups in the country. Diversity in the ownership profile of unregistered MSMEs also reflects in their employment base. Entrepreneurs belonging to marginalized groups/communities are more open to including members of their community/group in the business workforce. 7 Employment Generated by Unregistered MSMEs Employment generated 2016-17 (in thousands) Women’s share in employment 2016-17 The unregistered MSME sector is providing employment to about 77.7 million labor force participants. The number of job opportunities in the sector have doubled over the past decade and this is largely due to the setting up of new businesses. The unregistered MSME sector is providing employment to about 10 million female labor force participants (12.9 percent of the total labor force in the unregistered MSME sector). When compared to service sector units, manufacturing setups are employing more labor force participants per unit. It is a cause of concern that overall aggregate employment per unregistered MSME has remained unchanged over the past decade (2 employees per unit). Growth in the number of unregistered service sector MSMEs has outpaced the rate of growth of unregistered manufacturing sector MSMEs. Thus, the manufacturing sector’s share in the employment generated by unregistered MSMEs has been reduced to below 40 percent. 8 Unregistered MSMEs Demand for Skilled Labor Skilled labor engaged by the sector 2016-17 (in thousands) Sector’s requirement for skilled labor 2016-17 (in thousands) It is estimated that 6.7 million of the labor force working at unregistered MSMEs is considered skilled by owners/entrepreneurs. This translates into less than 8.6 percent of the unregistered MSME workforce being skilled. Unregistered MSMEs are currently looking for close to 38 million skilled employees. About 28.2 percent of this is expect to be fulfilled by new market entrants; with the rest being met by skilling of existing employees. This puts the sector in an ideal position to support the ‘Skill India Mission’. Unregistered MSMEs are searching for more than 5.6 million skilled women employees. This translates into about 15 percent of the sector’s overall demand for skilled employees and could be crucial to the gender inclusion agenda of the ‘Skill India Mission’. Among businesses that are currently looking for skilled employees, more than 68 percent of manufacturing units and 46 percent of service sector setups associate greater value to candidates who have attained formal certification (preferably from a government managed or recognized centre). 9 Economic Impact of Skills Training Targeted at Unskilled Unregistered MSMEs Salary increment for skilled employee (INR/month) Salary increment for skilled woman employee (INR/month) A formally skilled employee working at an unregistered MSME can expect to earn a wage which is up to 2.5 times more than what an unskilled employee would draw for his/her work. In absolute terms, at the national level this could translate into an incremental wage of almost 6,000 per month. There is evidence suggesting that access to skills training can reduce gender based wage inequality. At the national level, an unskilled women employee earns less than 60 percent of the wage drawn by an unskilled male employee. This difference educes to 5 percent in the case of skilled employees. More than 63 percent of entrepreneurs believe that finding the skilled employees that they are searching will positively impact their business productivity. Analysis reveals that every one percent increase in skilled labor improves business profitability by around 0.4 percent. Over the past five years, unregistered MSMEs have invested more than USD 76.2 billion in the Indian economy. The sector has a credit requirement of more than USD 43.4 billion and addressing this need can help in the further expansion and consolidation of unregistered MSMEs. 10 Background India is a lower-middle-income country with a gross domestic product (GDP) per capita of USD 1,581.6 in 2015 and an active labor force of 500 million.1 The percentage of poor in India has reduced from 45.3 percent in 1993-94 to 21.9 percent in 2011-12.2 During the same period, India’s share in the percentage of poor in the world has also decreased; clearly highlighting that India’s progress in this space has outpaced other developing countries. However, a considerable part of the population continues to be vulnerable to slipping below the poverty line. This vulnerability is primarily due the high incidence of informality in the labor market with most labor force participants working in informal/unorganized sectors with limited/or no job security. In many cases their jobs security is dependent on external market conditions, weather patterns, seasonal demand etc. more than 70 percent of the workforce is employed by firms with fewer than 10 employees, about 82 percent work without a written job contract,3 and more than 75 percent have no access to any social security benefits. There has been a gradual decline in female labor force participation rate. As of 2014-15, only 31 percent of women participate in the labor force, down by 12–14 percentage points since 2004–2005.4 As a result there has been a gradual decrease in the number of earning members in families. The most vulnerable tend to live in India’s villages. This is seconded by the fact that poverty rates tend to drop from 27 percent in small villages to about 6 percent in urban cities. Further, the job market is characterized by inequality of opportunities as individuals from marginalized groups have access to a lesser number of opportunities. There are considerable interstate variations in per capita income and the rate of reduction of poverty is not comparable to the rate at which the Indian economy has grown. Further, although India’s unemployment rate is relatively low, the labor force is characterized by high underemployment, a large informal sector, and low female labor force participation. Labor force challenges in a young, transitioning economy India has gradually transitioned from being an agrarian market to a manufacturing and services driven economy. This shift has resulted in major changes in labor force participation. Many have moved from the farm sector to non-farm sector jobs. Most of the new jobs are now being created in the non-farm sector. The shift from agriculture to other sectors of the economy has affected the skills mix required by the labor market, reducing the demand for unskilled workers. It is anticipated that there will be further reduction in the share of the agriculture and low-skilled occupations, while there will be a significant increase in the share of occupations requiring skilled labor. About 298.3 million members of the current farm and nonfarm sector workforce5 will need to be skilled, re-skilled, and/or up-skilled to increase labor productivity. 1 World Bank data 2 Poverty and shared prosperity report, India (World Bank) 3 Fourth Annual Employment and Unemployment Survey Report (2013–2014); Labor Bureau, Ministry of Labor and Employment, Government of India. 4 Chatterjee, U., Rinku Murgai, Ambar Narayan, and Martin Rama. 2016. Pathways to Reducing Poverty and Sharing Prosperity in India: Lessons From The Last Two Decades . Washington, DC: World Bank. 5 According to the National Policy for Skill Development and Entrepreneurship (2015) released by the Ministry of Skill Development and Entrepreneurship (MSDE). 11 Another prominent and unique characteristic of the Indian labor force is that at present, more than 54 percent of its total population is younger than 25 years of age. Current demographic estimates indicate that over the next two decades, approximately 12 million youth (age group 15–29 years) will enter the labor market every year. These young people will need skills required to find employment in a rapidly transforming economy. Low skill levels in the Indian labor force and limited opportunities beyond secondary education India’s growth and competitiveness are constrained by the low skill levels of its population. A range of surveys finds that labor productivity is low and that the supply of skilled labor remains inadequate. 6 The unavailability of quality skilled labor is becoming a major impediment to attracting investments. Only 2.3 percent of the total workforce in India has undergone formal skill training.7 Opportunities to acquire further education and/or job-specific skills at the end of secondary education are limited. Only about 10–15 percent of youth can access long-term institutional SD programs; most of the remainder join the labor market on completion of basic or secondary education as opportunities for further training to acquire job-specific skills are limited. Ambitious government plans to transform economy Supporting the growth and expansion of the Indian economy and catering to the labor market aspiration of the country’s youth requires the availability of suitable job opportunities and improvements in the quality of the labor force. To stimulate demand for labor (in particular skilled labor) the government has recently initiated the ‘Make in India’ campaign. The campaign has set high priorities for consolidating and expanding the manufacturing sector. This stimulus is expected to rapidly expand the country’s skilled labor requirements. To complement this to major ‘demand’ side impetus, India’s 12th Five Year Development Plan (2012– 2017) calls for concomitant and substantial reforms to the supply side, in education and training programs. The government has set a target of providing high quality skills training opportunities to about 400 million labor force participants. A target that it wishes to realize by 2022. Current skills training landscape and the dearth of short term skills training opportunities Opportunities to acquire job-specific skills are currently provided through long term training programs structured as diploma or degree courses. These courses ae important but will not cater to the bulk of the industry’s demand which will exist in the form of a need for semi -skilled labor. Therefore the focus needs to shift towards strengthening short-term skills training programs (3–12 months or up to 600 hours) provided by various ministries, state governments, industry associations, employers, and private sector training providers. 6 World Bank Enterprise Survey, 2014. 7 MSDE. 2015b. National Skill Development Mission: A Framework for Implementation. New Delhi. 12 The value of investing in short-terms skills training programs is summarized by a meta-analysis done by Fares and Puerto (2009), who through a review of 345 studies/evaluations of short-term training programs in 90 low-, middle-, and high-income countries, concluded that graduates of quality skills training programs can enhance business productivity by up to 53 percent. Insufficient involvement of MSMEs in skill development programs As per the Ministry of Small and Medium Enterprises, Government of India, MSME account for about 37.4 percent of the Gross Domestic Product (GDP) of India. They provide employment to more than 80 million labor force participants and contributed 44.7 percent of the country’s total exports in 2014 -15.8 It is characterized by micro and small scale setups which are mostly working with unskilled employees. Unregistered MSMEs tend to oeprate out of rural markets and the sector is well positioned to absorb the labor force exiting the agriculture sector. Ths skills training needs of employees working at unregistered MSMEs can largely be fulfilled through short-term programs. Further, it is suggested that formal skills training can significantly impact the wages that employees can earn within the unregistered MSME sector. In turn, improving the participation of skilled labor force in the unregistered MSME sector can positively impact its producitivity. Most unregistered MSMEs are owned by individuals from marginalized groups (such as Scheduled Caste, Scheduled Tribe and Other Backward Commuities). This coupled with their primarily rural positioning, highlights their potential for facilitating greater inclusion in the Indian growth story. Unavailability of data on skilled labor in the unregistered MSME sector The unregistered MSMEs census of India 2006-07 is the most recent dataset available for analysis. However, the census does not dwell into many aspects which can help in determining initiatives/support that can help in consolidating and expanding the operation of unregistered MSMEs. Very little is known about the type/nature of employment provided by these businesses; the engagement of skilled labor at unregistered MSMEs; and the demand for skilled labor at unregistered MSMEs. These informal businesses employ many labor force participants and understanding their demand for skilled labor can help in realizing the objectives of the Skill India Mission. This report seeks to address this data/information gap through a sample survey of unregistered MSMEs in Chhattisgarh and followed up on the same with broad national level extrapolations that can support policy ideation and administrative planning. 8 MSME Annual report, 2014–2015 13 Census 2006-07: Data Points of Significance Definition of MSMEs As per the Micro, Small and Medium Enterprises Development Act, 2006, the term MSME refers to all enterprises engaged in production of goods pertaining to any industry specified in first schedule of Industrial Act, 1951 and other enterprises engaged in production and rendering of services subject to below mentioned limiting factor of investment in plant & machinery and equipment respectively. • Micro enterprises are businesses where the investment in plant and machinery does not exceed INR 2.5 million • Small enterprises are businesses where the investment in plant and machinery is more than INR 2.5 million but does not exceed INR 50 million • Large enterprises are businesses where the investment in plant and machinery is more than INR 50 million but does not exceed INR 100 million Size and nature of the unregistered MSME sector The unregistered MSMEs Census of 2006-07 is the most recent and reliable dataset available for understanding the nature and scale of these businesses. As per the census, there were 19.9 million unregistered MSMEs in the country; an increase of 117 percent over the numbers recorded at the time of the unregistered MSMEs census of 2001-02. Micro enterprises accounted for 99.8 percent of unregistered businesses in the country and the rest of the 0.2 percent were found to be setups with small scale of operations. Figure 1: Number of unregistered MSMEs in India – census estimates 2006-07 19.9 2001-02 9.2 0 5 10 15 20 25 More than 60.2 percent of the unregistered MSMEs in the country were operating out of rural areas; an almost 3.5 percentage point increase over the 2001-02 census. 14 Figure 2: Distribution of unregistered MSMEs across rural and urban markets – census estimates 39.8% 60.2% Rural Urban The unregistered MSME sector has about 1.8 million women-owned businesses (9.1 percent of businesses). However, it is a cause of concern that the presence of women entrepreneurs in the unregistered MSMEs sector had reduced between 2001-02 and 2006-07. The 2001-02 census reported that 10.2 percent of unregistered MSMEs in India were women-owned. Figure 3: Percentage of women-owned unregistered MSMEs in India – census estimates 2006-07 9.1% 2001-02 10.2% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% Unregistered MSMEs and socio-economic profile of owners The importance of unregistered MSMEs as a medium for facilitating economic growth and creating employment opportunities is seconded by the fact that low income states9 in India account for about 33.9 percent of informal micro and small businesses. 9 The seven low income states of India are Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Odisha, Rajasthan and Uttar Pradesh 15 Figure 4: Percentage unregistered MSMEs operating out of low-income states – census estimates 33.9% 66.1% Low-income states Others Further, socially backward groups own majority of the unregistered MSMEs in the country. Supporting these businesses can play a pivotal role in achieving shared prosperity and inclusive growth in India. Businesses owned by individuals from scheduled caste communities account for 12.8 percent of unregistered MSMEs operating out of rural areas and 9.2 percent of setups operating out of urban areas. Businesses owned by individuals from scheduled tribe communities account for 7.1 percent of unregistered MSMEs operating out of rural areas and 2.3 percent of setups operating out of urban areas. The corresponding estimates for individuals from other backward classes are 48.0 percent and 42.7 percent respectively. Figure 5: Ownership of unregistered MSMEs disaggregated by social groups – census estimates 9.2% 2.3% 42.7% 45.8% Urban 12.8% 7.1% 48.0% 32.1% Rural 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% SC ST OBC Others Economic significance of unregistered MSMEs As per the census of 2006-07, the unregistered MSME sector provided employment to 40.9 million labor force participants. 57.3 percent of the employment generated was based out of rural areas. Unregistered micro enterprises accounted for 99.2 percent of employment generated by the sector; with the rest being accounted for by unregistered small scale setups. 16 Figure 6: Employment generated disaggregated by scale of operation – census estimates 0.8% 99.2% Micro Small As of 2006-07 manufacturing enterprises accounted for 58.5 percent of employment generated by the sector. Figure 7: Employment generated disaggregated by scale of operation – census estimates 41.5% 58.5% Manufacturing Services The unregistered MSME sector contributed USD 555.9 billion in gross output. Setups based out of rural markets accounted for 56.2 percent of the gross output generate with the rest of the 43.8 percent coming from businesses operating out of urban markets. Micro enterprises’ share in the total gross output generated by the sector stood at 87.9 percent; with the rest coming from small scale setups. Further, 68.0 percent of the gross output was contributed by manufacturing setups. Unregistered service sector MSMEs contributed the remaining 32.0 percent. 17 Findings from Chhattisgarh Growth of unregistered MSMEs and the nature of their operations As per the last unregistered MSME census of India, as of 2006-07, there were 278,000 informal MSME businesses in Chhattisgarh. Over the past decade, this number is noted to have grown significantly and as of 2016-17 is estimated to stand at 528,000 unregistered MSMEs. During this decade, the growth rate of the service sector has outpaced the growth rate for the manufacturing sector. This is suggested by the fact that 61.6 percent of existing unregistered service sector MSMEs in Chhattisgarh have been established post completion of the last unregistered MSME census. The corresponding figure for unregistered manufacturing sector MSMEs is much lower and stands at 25.5 percent. As a result, as of 2016-17, the service sector accounts for 60.6 percent (about 340,000) of unregistered MSMEs in the state. During the same period, the Indian economy has also experienced growth that has been primarily driven by the service sector. In this sense, the growth trajectory of the unregistered MSME sector in Chhattisgarh closely emulates the growth pattern observed at a National level. Figure 8: Year of inception or business disaggregated by nature of business 38.4% 61.6% Services 74.5% 25.5% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Before 2009 After 2009 It is encouraging to note that the pace at which the number of women-owned unregistered MSMEs has grown has outpaced the growth rate for men-owned businesses. The former has grown by about 217 percent between 2008-09 and 2016-17. As a result, the share of women-owned unregistered businesses has increased from 4.3 percent to 7.2 percent. Discussions with women entrepreneurs suggest that this change is largely due to two primary factors. Firstly, the gradual increase in women’s participation in education and their progression to higher levels of learning has to some extent empowered them to take an entrepreneurial route to workforce participation. Secondly, even though overall women’s workforce participation rates have gone down, there are more women customers/buyers in the market. Even though this shift is largely for the demand of goods and services particularly directed towards women/girls; it has led to the emergence of a number of women-owned businesses which specifically cater to this segment of customers. 18 Figure 9: Profile of business owner; disaggregated by gender 92.8% 7.2% 2015-16 95.7% 4.3% 2008-09 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Men-Owned Women-Owned An analysis of the sub-sector of operation of unregistered MSMEs in Chhattisgarh reveals that manufacturing sector businesses tend to be concentrated in the food processing industry, furniture & furnishing industry, handloom & handicrafts industry, gems & jewelry industry, and stationary and paper products industry. On the other hand, service sector businesses tend to be concentrated in the retail industry, repair & maintenance services’ industry, tourism & hospitality industry and beauty & wellness industry. Table 1: Distribution of sector and sub-sector of operations of unregistered MSMEs in Chhattisgarh Sector/Sub-Sector Percentage Absolute (000) Manufacturing Construction Material & Building Hardware 2.2 percent 11.6 Food Processing Sector 10.2 percent 53.9 Furniture & Furnishing Industry 8.4 percent 44.4 Handlooms & Handicrafts 5.3 percent 28.0 Gems & Jewelry 5.5 percent 29.0 Leather & Leather Goods Industry 1.7 percent 9.0 Textile & Clothing Industry 2.1 percent 11.1 Stationary & Paper Products 4.0 percent 21.1 Total 39.4 percent 208.0 Services Beauty & Wellness 4.0 percent 21.1 Education & Skill Development Services 0.5 percent 2.6 IT & ITES Sector 0.7 percent 4.8 Retail Sector 38.0 percent 200.6 Tourism, Hospitality & Trade Sector 5.2 percent 27.5 Repair & Maintenance 12.0 percent 63.4 Total 60.6 percent 320.0 19 A gender disaggregated analysis of the primary sectors of operation clearly highlights the gender gap in the sectors and sub-sectors in which women operate. In the manufacturing space, almost all women-owned businesses are operating in the food processing and handloom & handicraft sub-sectors. Few businesses are operating in the textile and clothing sub-sector. In the service sector space, almost all women-owned businesses are operating in the beauty & wellness space and the education & skill development services sub sector (mostly running informal remedial/bridge education centers). There are a few women entrepreneurs in the retails sub sector but again are primarily dealing in products directed towards women/girls. Employment generated by unregistered MSMEs and profile of employees On an average, an unregistered manufacturing sector MSME in Chhattisgarh is employing 2.1 employees. The corresponding statistic for unregistered service sector MSMEs is 1.6 employees. This amounts to 437,000 employees in the manufacturing space and 512,000 employees in the service sector space. Thus, it is estimated that unregistered MSME in Chhattisgarh are employing close to one million workforce participants. At this point it is important to understand that the informal sector is also characterized by high levels of disguised employment. On an average, an unregistered MSME in Chhattisgarh is informally employing a family member (mostly) or friend. It is more common to find a woman/girl from the family working under such an arrangement. Very little or no salary is paid to family members or friends who are disguised employed in the business. The rewards of their effort are eventually accounted for in the overall profit generated through the business. The same is largely considered the family’s collective earning. However, it is evident that these disguised employees do not necessarily have an active say in their household’s economic decisions. Many of them however have gained considerable experience which when coupled with formal skills training (and a willingness on their part) can help them in accessing economically gainful employment. It is a point of concern that only about 117,000 of the employees working for unregistered MSMEs in Chhattisgarh have received some form of structured skills training. Further, it is important to note that women employees only account for 217,000 of the total employee base. The former is largely due to a general ignorance towards the value that formal skills training can add to their profile; helping them in gaining access to higher wages. The latter is pretty much in line with the overall women’s workforce participation rate in India. Table 2: Number of employees engaged by unregistered MSMEs; disaggregated by level of skills and gender Nature of Activity Women Employees Number of Employees Skilled Employees Average per setup Manufacturing 0.46 2.10 0.21 Services 0.38 1.60 0.23 Total (000) Manufacturing 96 437 44 Services 122 512 74 Total 217 949 117 20 The employment estimates suggest that women employees account for 21.9 percent of the workforce being employed by unregistered manufacturing sector MSMEs and for 23.8 percent of the workforce being employed by unregistered service sector MSMEs. However, these estimates do not include women who are disguised employed in their family businesses. Including them in the estimation exercise would return a relatively higher figure. Table 3: Women employees as a percentage of total employee base; disaggregated by sector of operation Manufacturing 21.9 percent Services 23.8 percent Total 22.9 percent Further, it is a matter of concern that only 10 percent of employees working at manufacturing sector setups and 14.4 percent of employees working at service sector setups reported having ever received any form of structured skills training. Further, discussions with employees as well as employers clearly highlight the quality of skills training received by these individuals. Most of them believe that the skills training received were not of much utility. They reported that, the training received was not of the desired quality as it had very little focus on practical learning. Thus, not many of those who have received skills training in the past experienced much of a change in the income they were drawing as workforce participants. When asked to choose whether private or government managed institutions provide better quality of skills training; the respondents presented a mixed opinion. While some said that skills training programs being run at government managed institutions are superior in quality and content; other felt that skills trainings being provided by private institutions are more useful as they carry a higher focus on experiential learning and practical experience. Herein, it is important to note that respondents’ opinion was found to be highly dependent on the type of skills training under consideration. Table 4: Skilled employees as a percentage of total employee base; disaggregated by sector of operation Manufacturing 10.0 percent Services 14.4 percent Total 12.4 percent Despite the government’s focus on skilling the country’s workforce, unregistered MSMEs in Chhattisgarh only reported a three percentage points increase in the proportion of their workforce which had completed some form of formal, structured skills training. While this change is estimated to be 5.2 percentage points in the manufacturing sector space; it is fairly low and estimated to be only 1.5 percentage points in the service sector space. Table 5: Change in percentage of skilled employees in the workforce; disaggregated by sector of operation Manufacturing 5.2 percentage points Services 1.5 percentage points Total 3.0 percentage points 21 The need to promote and support women owned unregistered businesses is highlighted by the fact that as of 2016-17, 63 percent of employees at women-owned unregistered MSMEs were women. The corresponding statistic for men-owned unregistered MSMEs stood much lower at 25 percent. Interactions with women entrepreneurs reveal that this is largely due to the nature of their business. As mentioned earlier most of the women-owned unregistered MSMEs are engaged in businesses which are directed towards women customers. Therefore, they tend to hire more women employees who can engage with women customers. Further, many women entrepreneurs reported that they prefer to hire women employees as male employees tend to undermine their position in the business. They find women employees to be more reliable; and find them to be more respectful of the employment opportunity provided to them. Figure 10: Percentage of women in the employee base; disaggregated by gender of owner 100% 80% 63% 60% 40% 25% 20% 0% Women-owned business Men-owned business Unregistered MSMEs current demand for skilled labor The low percentage of skilled labor in the workforce of unregistered MSMEs in Chhattisgarh is more of a function of supply side factors related to the unavailability of skilled labor (largely due to the non- availability of formal/quality; affordable short terms skills training programs). As of 2016-17, 32.3 percent of unregistered MSMEs in the state were looking for at least one skilled employee. The demand for skilled labor seems to be higher in the services sector where about 35.6 percent of service sector businesses are currently looking for skilled employees. Figure 11: Percentage of businesses currently searching for skilled employees; disaggregated by sector 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 35.6% 32.3% 27.3% 30.0% 20.0% 10.0% 0.0% Manufacturing Services Total 22 It is estimated that the unregistered MSME sector in Chhattisgarh is currently looking to find and absorb close to 374,000 skilled employees. Out of this, the sector is currently looking for 86,000 skilled women employees. The service sector accounts for majority of this requirement and is currently looking for 260,000 skilled employees. The corresponding figure for manufacturing sector setups stands at 114,000 skilled employees. Table 6: Estimates for current requirement of skilled employees; disaggregated by sector and gender Sector Current requirement of skilled employees (000) Manufacturing 114 Services 260 Total 374 Total (Women) 86 A further disaggregation of the demand for skilled employees suggests that about 17.6 percent10 (66,000) of the requirement is expected to be fulfilled by new job market entrants; with the rest being met through the skilling of existing employees. Figure 12: Percentage of skilled labor force requirement to be met by new labor force participants 17.6% 82.4% New Labor Force Participants Existing Labor Force Participants It is possible that the current estimates of the demand for skilled labor are an understatement as most entrepreneurs reported a positive outlook for the year ahead. They reported an expectation that the subsequent year would bring in higher sales, margins and profitability. As a result, it is possible that unregistered MSMEs’ capacity to absorb skilled employees is higher than the direct estimates obtained from entrepreneurs. At the same time, it is encouraging to note that most of the entrepreneurs believe that business expansion would have to necessarily be accompanied by a corresponding increase in the number of skilled resources in their workforce. They believe that they would need skilled resources to branch into new services/products and to consolidate any expansion of operations. 10 The figure being estimated through data on number of new employees required by unregistered MSMEs. Given that the number of new employees required is a fraction of the total demand for skilled labor. It can be assumed that employers will prefer that their new employees are all skilled professionals. 23 Figure 13: Business outlook for the upcoming financial year 78.2% 6.7% 15.1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Positive Indifferent Negative Discussions with the men/women managing unregistered MSMEs reveal that they prefer to higher employees with some or the other form of skills training. The manufacturing sector seems to attach more importance to formal certification; while the service sector stresses more on experiential learning/training. Further, even in the scenario where the manager prefers to hire staff with formal certification, they prefer to employ workforce participants with on the job experience of using those skills. This is primarily because the owners/managers suspect that current skills training programs are quite theoretical and lack practical exposure. They feel that such exposure can only come in if training programs include apprenticeship opportunities and/or practical classes/components. Figure 14: Unregistered MSMEs preference of profile of prospective employees; disaggregated by sector 39.6% 34.6% 16.8% 9.0% Services 43.3% 17.8% 25.3% 13.6% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Indifferent Skilled on the job Formal certification & experience Formal certification Only 26.2 percent of entrepreneurs/managers reported that it is easy to find suitably skilled employees. More than majority reported that they face challenges in finding and recruiting suitably skilled employees as they cannot pay compensation/benefits which are commensurate with the prospective employee’s expectations. They believe that this is largely a function of the limited supply/availability of formally skilled and certified resources. 24 Figure 15: Barriers to finding and recruiting suitable skilled employees 3.0% 2.0% Lack of job Security 26.2% Lack of capacity building opportunities Compensation and benefits related factors Lack of motivation/drive due to absence 51.5% of employee engagement 17.3% Not difficult to find skilled employees While most of the businesses are struggling to find suitably skilled employees, very few are open to the idea of enrolling their employees in formal skills certification programs. Only 9.8 percent of owners of unregistered service sector MSMEs and 8.3 percent of owners of unregistered manufacturing sector MSMEs reported an interest in sending their employees for formal skills certification programs. Given the current level of availability of skilled labor in the state, most entrepreneurs believe that they would not be able to retain the employee(s) they send for formal training. They feel that the employee(s) will find higher enumeration at another business and leave their current employment. Therefore, it is unwise to invest any time or resources in training the existing manpower working at their business. Figure 16: Percentage of owners reporting an interest in sending their employees for training 9.8% 90.2% Services 8.3% 91.7% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Most viewed skill up-gradation as the employee’s responsibility. However amongst the entrepreneurs who reported an interest in enrolling their employees in such programs, 73.4 percent reported that they are open to a cost sharing model for paying for their employees’ skills training fee. Some are willing to pay the employee a reduced salary if he/she is ready to work part time while attending the program. Others, are willing to pay the training fee; requiring the trainee to bear any private cost involved with attending the training program. These are generally the cases where the employee would be enrolled in a full time skills training initiative. 25 Figure 17: Employers’ preferred model for investing in employees’ formal skills training 16.8% Cost Sharing Model 9.8% Employee Initiative 73.4% Employer Funded Entrepreneurs’ lack of willingness to send their employees for formal skills training and certification is surprising given that about 58.3 percent of them report that they expect to derive direct economic benefits from engaging resources who hold formal certification in the skill set that the business is currently looking for. They justify their unwillingness on the grounds that they expect that their employee will leave for a higher remunerating job once he/she completes a formal certification program. Hence, it is economically unwise to support them in undertaking formal certification whilst they are still working for the company. Figure 18: Percentage of employers expecting productivity gains from finding suitably skilled employee 58.3% 41.7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Their inhibition is largely based on their past experience of engaging formally skilled and certified workers. Many businesses reported that they have found it difficult in retaining formally skilled employees. This is especially true for businesses operating in the services sector space where about 44.9 percent of entrepreneurs/managers reported that they have faced difficulties in retaining a formally skilled employee. 26 Figure 19: Level of difficulty in retaining formally skilled employees; disaggregated by sector of operation 44.9% 55.1% Services 17.1% 82.9% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Current source of skills training for employees About 63.2 percent of current employees who have (at some point in their career) completed a structured skills training program attended a training being offered/managed by a private institution/agency. Another 26.3 percent attended structured trainings provided by cooperatives. Only, 5.3 percent of existing skilled employees reported having attended a structured short term training course offered/managed by the government (central or state). Many also reported having attended informal trainings organized by private companies supplying to or procuring from the business. These short term informal trainings are largely linked with a particular product or service. Companies tend to organize these trainings from the perspective of motivating entrepreneurs and employees to prioritize the positioning and sales of their products/ services. In other cases, they are organized to ensure that businesses are able to comply with the company’s procurement norms/policies. Figure 20: Source of structured skills training for existing skilled employees working at unregistered MSMEs Through Cooperatives 26.3% Through Government Institutions/agencies 5.3% Through Not for Profit Institutions/agencies 63.2% 5.2% Through Private Institutions/agencies Benefits of formal skills training for unregistered MSMEs and their employees An increase in the percentage of formally trained/skilled workforce participants is expected to lead to a corresponding increase in business productivity and profitability. Owners’ of unregistered MSMEs second this observation and about 63.4 percent of them claim that their business has benefitted from the hiring of skilled resources. This might be in terms of increase in sales/revenue, enhanced profitability, reducing operating costs, or a combination of these factors. This perception is further validated by the fact that the study found a fair degree of correlation between percentage increase in skilled employees in the business’ 27 and percentage change in business profitability. The correlation statistic stands at 0.42 and clearly highlights the value that businesses and in turn the economy can derive from an increase in number of formally skilled resources in the workforce. Figure 21: Entrepreneurs perspective on the business impact of hiring skilled employees 63.4% 36.6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Further, employers must be deriving economic benefits from engaging formally skilled labor as they are clearly willing to offer higher wages to those with formal skills certification. More importantly, an analysis of the impact that formal skills’ training has on an employee’s salary reveals that formal skills certification decreases the wage differential between men and women. So while an unskilled fresher female workforce participant is expected to draw an income that is 54.7 percent of the income being draw by her male counterpart; this differential reduces to 96.6 percent once a women workforce participant acquires a formal skills certification. Table 7: Salary differential between unskilled, on the job experienced and formally skilled staff; gender disaggregated Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,090 Female On the Job Experienced 3,300 Female Certified, Skilled Professional 7,725 Male Unskilled Fresher 5,640 Male On the Job Experienced 5,900 Male Certified, Skilled Professional 8,000 Formal skills training needs of entrepreneurs running unregistered MSMEs Entrepreneurial skills training is another aspect which can help in further improving the scale and profitability of unregistered MSMEs’ operation. Formal, structured training programs that directly respond to the learning and development needs of entrepreneurs owning/managing informal businesses can provide them with the knowledge required to realize these aforementioned benefits. However, only 8.4 percent of entrepreneurs are aware of the existence of Entrepreneurship Development Institutes (EDIs) which provide such type of training programs. 28 Figure 22: Level of awareness about the existence of Entrepreneurship Development Institutes (EDIs) 8.4% 91.6% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No The need to improve upon the general level of awareness about the existence of EDIs and overall access to entrepreneurial training programs is further highlighted by the type of skills training programs that entrepreneurs wish to enroll in. Most of the entrepreneurs are interested in skills training programs centered on business expansion, product diversification, sales & marketing and obtaining credit linkages. On the other hand, there are a few entrepreneurs who are interested in trainings centered on book keeping & financial management, obtaining statutory clearances, inventory management and the use of IT in business management. Their preference for certain types of trainings should not be treated as them have a good footing on trainings that are less desired. It is rather a function of their current scale of operations and business expectations/aspirations. As an example, not many are looking for structured training programs on IT in business management. However, this is largely because most believe the same to be irrelevant for their business (due to scale of operation or nature of business). Figure 23: Types of formal skills training(s) required by entrepreneurs managing unregistered MSMEs 16% 84% Usage of IT in management of business 30% 70% Inventory management 35% 65% Statutory Clearances 37% 63% Book keeping & financial management 48% 52% Obtaining credit linkages 50% 50% Sales and Marketing 55% 45% Product diversification 70% 30% Business expansion 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No 29 The need for improving awareness about and access to EDIs is further highlighted by the fact that none of the entrepreneurs who had attended a formal skills training initiative in the past, reported attending a training organized by the government (or its departments/institutions). More than 65 percent of entrepreneurs reported having received some form of training support from private corporations (that were either their customer or supplier). The rest reported having received skills training support from NGOs/CSOs working towards promoting micro and small enterprises. The latter set mostly comprises of women entrepreneurs. Figure 24: Current source for entrepreneurial skills training; disaggregated by sector of operation 65.9% 34.1% Services 67.0% 33.0% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Private Corporation NGO/CSO Economic importance of supporting the unregistered MSME sector While manufacturing sector growth has remained rather sluggish, considerable investments in the services sector have helped in ensuring that the unregistered MSME sector remains significant within the Indian growth story. Over the past five years, unregistered MSMEs in Chhattisgarh have invested about 0.75 billion in the economy. Of this investment, 80.6 percent has come from informal service sector undertakings. Given the number of unregistered businesses in the state, this translates into an approximate investment of USD 1,415 per entity. Further, these businesses provide employment to almost a million workforce participants. Table 8: Sector disaggregated investment estimates for unregistered MSMEs in Chhattisgarh Sector Investment made in 5 years (USD Billion) Manufacturing 0.145 Services 0.604 Total 0.749 The profitability of these businesses has also improved over a period of time and the same is clearly paving the way for increased investments and a larger employee base. The improvements in profit margins clearly suggest that the provision of appropriate entrepreneurial skills training programs and improved access to formally skilled employees can help these informal businesses in joining the formal economy and/or in expanding their scale of operations. 30 Table 9: Sector disaggregated estimates for change in profit margins of unregistered MSMEs in Chhattisgarh Sector Change in profit margin over 5 years Manufacturing 4.0 percentage points Services 3.7 percentage points Importance of targeting business clusters Any initiative or program that seeks to support entrepreneurs and employees with formal skills training (or with other business support) should internalize the economies of scale that can be achieved by targeting business clusters. Business clusters are expected to be more common to the manufacturing sector and this notion is seconded by the fact that about 42.1 percent of the manufacturing sector unregistered MSMEs in Chhattisgarh are operating out of business clusters. It is also interesting to note that 26.2 percent of service sector unregistered MSMEs in the state are also operating in clusters. Herein these clusters could be of remedial education (coaching) classes, IT services setups, beauty parlors & salons etc. Figure 25: Percentage of unregistered MSMEs operating out of business clusters; disaggregated by sector 26.2% 73.8% Services 42.1% 57.9% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Approximately 89.0 percent of the manufacturing sector unregistered MSMEs operating out of business clusters and 59.4 percent of service sector unregistered MSMEs operating out of business clusters reported that they are benefitting from operating out of a cluster. Around 89.4 percent of businesses reported that they are benefitting from cluster level sharing of market knowledge and business insights. Further, 74.5 percent of businesses reported that operating out of a cluster provides them with improved access to customers. More importantly, 53.9 percent of businesses reported that operating out of a cluster helps them in finding suitable, skilled employees. This clearly highlights the opportunity for developing cluster based/targeted formal skills training initiatives. 31 Figure 26: Entrepreneur’s perspective on the benefits of operating out of a business cluster 14.2% 85.8% Improved access to skill based trainings for employees 24.8% 75.2% Improved access to capital (formal sources) 25.5% 74.5% Shared transport cost 27.7% 72.3% Improved access to production machinery 46.8% 53.2% Improved access to suppliers 52.3% 47.7% Improved access to public amenities/infrastructure 53.9% 46.1% Improved access to skilled manpower 56.0% 44.0% Improved access to manpower 74.5% 25.5% Improved access to customers 89.4% 10.6% Sharing of market knowledge and business insights 0% 20% 40% 60% 80% 100% Yes No The need to support the unregistered MSME sector It is expected that over the coming five years; farm based mechanization and the influx of skills & technology in farming will reduce the percentage of the workforce that will be engaged in the agriculture sector. The sector is already stressed by a large quantum of its workforce working as disguised employees. A larger share of unregistered MSMEs operates out of rural areas and these businesses will have to play pivotal role in absorbing resources from the agriculture sector. The sector has grown fairly rapidly and is expected to continue to do so. Over the coming year, about 53.5 percent of the unregistered MSMEs in Chhattisgarh plan to invest in their business. With an average per unit investment of USD 1,800 the sector is expected to invest a cumulative of USD 0.51 Billion over the next financial year. Only 19.1 percent entrepreneurs are aware about the existence of any schemes that seek to support the setting up and expansion of MSMEs. Very few reported having made any attempts to make use of any of the schemes that they were aware about. Most entrepreneurs believe that the procedure for participating in the schemes would be complex or that their business did not carry the scale or profile that the government would be interested in. 32 Figure 27: Percentage of entrepreneurs reporting being aware of government scheme(s) supporting MSMEs 19.1% 80.9% Total 10.1% 89.9% Services 35.2% 64.8% Manufacturing 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Yes No Nearly 33.0 percent of entrepreneurs (20.0 percent of women entrepreneurs) reported having borrowed capital for business investment purposes. However, majority reported that they borrowed funds from money lenders or from their friends and family. This is a cause of concern as money lenders would tend to charge an adverse interest rate which can in turn impact business sustainability. On the other hand, borrowing from family members and friends can lead to a partial loss of freedom vis-à-vis business decision making. Further, there is a difference in the sources from which male and female entrepreneurs borrow from. The former seem to have greater access to formal sources of finance; while the latter tend to rely more on cooperatives and self-help groups. This difference can primarily be attributed to the fact that male members of families tend to have the ownership rights to property and assets which can be used as collateral to secure a formal loan. Figure 28: Source of capital obtained through external sources of finance; disaggregated by gender 51.4% 37.3% 11.3% Men-owned Businesses 8.3% 41.7% 50.0% Women-owned Businesses 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Through Financial Institutions Friends/Relatives Money Lenders Cooperatives There is a need to support the credit requirements of unregistered MSMEs as the same would help in business expansion which is crucial for the expansion of the employee base in the sector. Nearly 33.0 percent of women-owned businesses and 17.2 percent of men-owned businesses are currently looking for external financing for expanding their business operations. On an average men-owned businesses are looking for an external financing of USD 3,675 and women- owned businesses are looking for an external financing of USD 1,385.11 On the other hand, an analysis of the businesses’ balance sheets reveals that on an average, men -owned businesses are worthy of receiving 11 Requirement as reported by entrepreneurs 33 credit worth USD 4,075 per business and women-owned businesses are worthy of receiving credit worth USD 1,050 per business.12 This adds up to a total requirement of USD 427 million against a credit worthiness of USD 2 Billion (or USD 1.2 Billion if one factors in that banks in India lend up to 60 percent of cash in hand/income). Table 10: Gender disaggregated estimates for credit requirement and credit worthiness Average Total Average Credit Total Credit Requirement Requirement Worthiness Worthiness Men-owned businesses USD 3,675 USD 310 M USD 4,075 USD 1,997 M Women-owned businesses USD 1,385 USD 17 M USD 1,050 USD 40 M All businesses USD 3,510 USD 427 M USD 3,855 USD 2,037 M 12 Calculated using data from business balance sheet 34 Extrapolated National Estimates Research estimates from Chhattisgarh when extrapolated to the National level provide broad approximations which can suggest the direction in which unregistered MSMEs have developed since the last unregistered MSME census of 2006-07. State wise extrapolations are presented as annexures. Since 2006-07, the number of unregistered MSMEs in India have increased from 19.9 million to 38.7 million. During this period, the number of unregistered manufacturing sector MSMEs has increased from 10.5 million to 12.7 million. At the same time, the number of unregistered service sector MSMEs has increased from 9.4 million to 26.0 million. Figure 29: Number of unregistered MSMEs (millions) – national estimate 2016-17 38.7 2006-07 19.9 - 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 There has been a marginal improvement in women’s ownership of unregistered MSMEs. As of 2006-07, 12.1 percent of unregistered MSMEs in the country are owned and managed by women; a three percentage point improvement over the figures reported by the census conducted in 2006-07. Figure 30: Profile of business owner; disaggregated by gender – national estimate 87.9% 12.1% 2016-17 90.9% 9.1% 2006-07 Men-Owned Women-Owned Most of the growth in the number of unregistered MSMEs has been driven by the service sector. The sector now accounts for more than majority of the unregistered MSMEs in the country. The number of unregistered manufacturing sector MSMEs has increased from 10.4 million in 2006-07 to 12.7 million in 2016-17. During the same period, the number of unregistered service sector MSMEs has increased from 9.4 million to 26 million. 35 Table 11: Sector disaggregated estimates of number of unregistered MSMEs – national estimate Sector 2006-07 2016-17 Manufacturing 10.4 million 12.7 million Services 9.4 million 26.0 million Extrapolations suggest that the overall employment generated by unregistered MSMEs has increased from 40.5 million in 2006-07 to 77.7 million in 2016-17. However, it is important to note that the average employment per unit has remained stagnant at two employees. This highlights the need to support unregistered MSMEs to consolidate and expand their operations. Figure 31: Total employment generated by unregistered MSMEs – national estimate 2016-17 77.7 2006-07 40.6 Women’s share in the employee base of unregistered MSMEs stands at 12.9 percent with most of the women employees working at businesses owned and operated by women entrepreneurs. Figure 32: Women’s share in employee base of unregistered MSM Es – national estimate 12.9% 87.1% Female Employees Male Employees Of the 77.7 million labor force participants working at unregistered MSMEs, 6.7 million can be considered skilled employees (either formally certified or trained on the job). However, the sector needs another 38.1 million skilled employees (many of whom are currently working in the sector). Of this demand, 28.2 percent (more than 10 million) is expected to be met by skilled labor market entrants; with the rest being met through the upskilling of existing employees. Increasing the share of skilled labor in the unregistered MSME sector and providing training support to entrepreneurs will help in further expanding and consolidating businesses. With the government of India 36 having estimated that a large number of workers will exit the farm sector by 2022, the growth of unregistered MSMEs (most of which are operating out of rural markets) will play a pivotal role in absorbing these workers. A gender disaggregated analysis of the demand for skilled employees at unregistered MSMEs reveals that about 15 percent of the requirement is for skilled women employees. Figure 33: Gender disaggregated analysis of demand for skilled employees – national estimate 14.8% 85.2% Female Employees Male Employees A gender disaggregated extrapolation of wages drawn by unskilled, on the job experienced and certified, skilled professionals highlights the benefits that the labor force working at unregistered MSMEs can derive from formal skills training. The differential is especially large in the case of women employees and underlines the need for inclusion in state supported skills training programs. While an unskilled women employee expects to draw a monthly wage of about INR 4,000 per month, the corresponding figure for a certified, formally skilled women employee is almost INR 10,000. Similarly, while an unskilled male employee expects to draw a monthly wage of about INR 7,200, the corresponding figure for a certified, skilled male employee is about INR 10,000. Table 12: Salary differential between unskilled, on the job experienced and formally skilled staff; gender disaggregated – national estimate Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,942 Female On the Job Experienced 4,210 Female Certified, Skilled Professional 9,856 Male Unskilled Fresher 7,196 Male On the Job Experienced 7,528 Male Certified, Skilled Professional 10,207 Apart from creating employment, unregistered MSMEs also invest in the economy. Mostly, these investments remain unnoticed as the they are small in value and because the unregistered MSMEs operate outside the formal economy. However, over the past five year, unregistered MSMEs in India have invested close to USD 76.2 billion at an average of USD 1,970 per unit. They can be a source of channelizing further 37 investments into the economy. As of today, the unregistered MSMEs in India have a credit requirement of close to USD 43.5 billion at an average requirement of about USD 1,125 per unit. 38 Recommendations Model curriculum and teaching learning packs: The unregistered MSME sector can play a crucial role in realizing the objectives of the ‘Skill India Mission’. However there is a need to understand the skilled labor needs of these informal setups. Basis this understanding, there is a need to develop (and approve) model curriculum and corresponding teaching-learning modules/packs. Understanding the needs of unregistered MSMEs: Planning at state skill development missions and skill gap assessments at a district level need to be cognizant of the need to cover the MSME (especially unregistered MSME) sector. Developing sector specific occupational standards: Many unregistered MSMEs are finding it difficult to recruit and retain skilled employees. The informality of operations and the corresponding informality in contracting/employment terms tends to act as an impediment. The government may want to develop sector specific occupational standards to address this issue. Cluster based targeting of skills trainings: It is well known that manufacturing setups to tend cluster together to bring economies of scale and greater synergy to their operations. However, the study suggests that such clustering is also quite common with unregistered service sector undertakings. Efforts towards district level skill gap assessments (and subsequent planning) should seek to identify clusters of businesses as this would allow for focused targeting of skills training. Exploring cost sharing models for skills training of existing employees: There is a huge demand for skilled labor in the unregistered MSME sector and most employers looking for employees attach considerable value to formal certification. A part of this demand is expected to be catered to by existing unskilled employees in the unregistered MSME workforce. Only 10 percent entrepreneurs are willing to finance their employees skills training. This is largely because many expect to face difficulties in retaining these employees after they complete their training. More entrepreneurs can be encouraged to finance their employees skills training and certification if contractual agreements/bonds can be agreed upon between the training providers, entrepreneurs and employees. Developing strong linkages between training providers and unregistered MSMEs: It is easier to place trainees in registered, medium and large scale setups. However, the bulk of employment in the non-farm sector is concentrated in the unregistered MSME sector. Training providers should be incentivized to improve tie-ups with unregistered MSMEs; placing trainees at these setups. However, this relationship will need to be structured under a strong monitoring arrangement as one of the parties in the placement process would be an unregistered/informal setup. Identifying entrepreneurial skills training needs: District level skill gap assessments and subsequent planning should also encompass entrepreneurial skills training needs. Supporting the learning, development and incubation of unregistered MSME entrepreneurs can help in expanding and consolidating the sector. This in turn will have a positive impact on the sector’s gross output, profitability, employment and wages offered. 39 Annexure I: State wise extrapolations Table 13: State wise approximation of number of unregistered MSMEs State 2006-07 2016-17 Andhra Pradesh 1,490,000 2,995,540 Arunachal Pradesh 25,000 44,285 Assam 214,000 414,694 Bihar 748,000 1,377,303 Chhattisgarh 278,000 528,200 Delhi 175,000 438,751 Goa 56,000 105,154 Gujarat 1,303,000 2,936,270 Haryana 487,000 1,062,286 Himachal Pradesh 160,000 284,041 Jammu & Kashmir 118,000 200,522 Jharkhand 425,000 782,312 Karnataka 1,112,000 1,902,571 Kerala 1,294,000 2,629,051 Madhya Pradesh 1,150,000 2,061,908 Maharashtra 1,445,000 3,051,104 Manipur 44,000 79,740 Meghalaya 47,000 78,725 Mizoram 10,000 16,783 Nagaland 16,000 19,406 Odisha 977,000 1,698,495 Punjab 966,000 2,145,896 Rajasthan 914,000 1,710,507 Sikkim 6,000 13,483 Tamil Nadu 1,821,000 3,451,308 Tripura 26,000 54,805 Uttarakhand 200,000 388,405 Uttar Pradesh 2,234,000 3,987,917 West Bengal 2,080,000 4,140,870 Chandigarh 28,000 69,642 Puducherry 13,000 31,281 National 19,868,000 38,701,257 * Number of unregistered MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Number of unregistered MSMEs in 2016-17 is a summation of number of unregistered manufacturing and services MSMEs (as given on the next page). 40 Table 14: State wise approximation of number of unregistered manufacturing sector MSMEs State 2006-07 2016-17 Andhra Pradesh 724,000 878,142 Arunachal Pradesh 16,000 19,406 Assam 114,000 138,271 Bihar 445,000 539,742 Chhattisgarh 155,000 188,000 Delhi 29,000 35,174 Goa 32,000 38,813 Gujarat 429,000 520,335 Haryana 183,000 221,961 Himachal Pradesh 102,000 123,716 Jammu & Kashmir 81,000 98,245 Jharkhand 253,000 306,865 Karnataka 755,000 915,742 Kerala 611,000 741,084 Madhya Pradesh 720,000 873,290 Maharashtra 608,000 737,445 Manipur 27,000 32,748 Meghalaya 33,000 40,026 Mizoram 7,000 8,490 Nagaland 16,000 19,406 Odisha 646,000 783,535 Punjab 338,000 409,961 Rajasthan 526,000 637,987 Sikkim 2,000 2,426 Tamil Nadu 1,020,000 1,237,161 Tripura 11,000 13,342 Uttarakhand 106,000 128,568 Uttar Pradesh 1,410,000 1,710,194 West Bengal 1,037,000 1,257,781 Chandigarh 5,000 6,065 Puducherry 3,000 3,639 National 10,444,000 12,667,561 * Number of unregistered manufacturing sector MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Number of unregistered MSMEs in 2016-17 has been arrived at by multiplying 2006-07 census results with the growth rate for unregistered manufacturing sector MSMEs in Chhattisgarh. 41 Table 15: State wise approximation of number of unregistered service sector MSMEs State 2006-07 2016-17 Andhra Pradesh 766,000 2,117,398 Arunachal Pradesh 9,000 24,878 Assam 100,000 276,423 Bihar 303,000 837,561 Chhattisgarh 123,000 340000 Delhi 146,000 403,577 Goa 24,000 66,341 Gujarat 874,000 2,415,935 Haryana 304,000 840,325 Himachal Pradesh 58,000 160,325 Jammu & Kashmir 37,000 102,276 Jharkhand 172,000 475,447 Karnataka 357,000 986,829 Kerala 683,000 1,887,967 Madhya Pradesh 430,000 1,188,618 Maharashtra 837,000 2,313,659 Manipur 17,000 46,992 Meghalaya 14,000 38,699 Mizoram 3,000 8,293 Nagaland - - Odisha 331,000 914,959 Punjab 628,000 1,735,935 Rajasthan 388,000 1,072,520 Sikkim 4,000 11,057 Tamil Nadu 801,000 2,214,146 Tripura 15,000 41,463 Uttarakhand 94,000 259,837 Uttar Pradesh 824,000 2,277,724 West Bengal 1,043,000 2,883,089 Chandigarh 23,000 63,577 Puducherry 10,000 27,642 National 9,418,000 26,033,496 * Number of unregistered service sector MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Number of unregistered service sector MSMEs in 2016-17 has been arrived at by multiplying 2006- 07 census results with the growth rate for unregistered service sector MSMEs in Chhattisgarh. 42 Table 16: State wise approximation of number of women-owned unregistered MSMEs State 2006-07 2016-17 Andhra Pradesh 111,000 341,109 Arunachal Pradesh 6,000 23,790 Assam 20,000 66,597 Bihar 47,000 249,832 Chhattisgarh 12,000 38,030 Delhi 19,000 105,550 Goa 10,000 88,622 Gujarat 57,000 319,870 Haryana 16,000 24,182 Himachal Pradesh 11,000 22,602 Jammu & Kashmir 12,000 13,039 Jharkhand 24,000 55,635 Karnataka 186,000 401,678 Kerala 231,000 667,174 Madhya Pradesh 106,000 269,921 Maharashtra 85,000 242,245 Manipur 1,000 3,479 Meghalaya 16,000 44,255 Mizoram 1,000 Not Available Nagaland 4,000 6,380 Odisha 90,000 180,124 Punjab 78,000 109,220 Rajasthan 55,000 89,077 Sikkim 1,000 3,224 Tamil Nadu 303,000 807,327 Tripura 2,000 4,959 Uttarakhand 15,000 21,384 Uttar Pradesh 75,000 99,102 West Bengal 205,000 519,404 Chandigarh 6,000 14,644 Puducherry 2,000 6,119 National 1,806,000 4,685,585 * Number of unregistered women-owned MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Number of women-owned unregistered MSMEs in 2016-17 has been arrived at by multiplying 2006-07 census results with the change in women-owned MSMEs in Chhattisgarh and a ratio of female labor force participation rate in each state upon the female labor force participation rate in Chhattisgarh. 43 Table 17: State wise approximation of percentage of women-owned unregistered MSMEs State 2006-07 2016-17 Andhra Pradesh 7.45% 11.4% Arunachal Pradesh 24.00% 53.7% Assam 9.35% 16.1% Bihar 6.28% 18.1% Chhattisgarh 4.32% 7.20% Delhi 10.86% 24.1% Goa 17.86% 84.3% Gujarat 4.37% 10.9% Haryana 3.29% 2.3% Himachal Pradesh 6.88% 8.0% Jammu & Kashmir 10.17% 6.5% Jharkhand 5.65% 7.1% Karnataka 16.73% 21.1% Kerala 17.85% 25.4% Madhya Pradesh 9.22% 13.1% Maharashtra 5.88% 7.9% Manipur 2.27% 4.4% Meghalaya 34.04% 56.2% Mizoram 10.00% Not Available Nagaland 25.00% 32.9% Odisha 9.21% 10.6% Punjab 8.07% 5.1% Rajasthan 6.02% 5.2% Sikkim 16.67% 23.9% Tamil Nadu 16.64% 23.4% Tripura 7.69% 9.0% Uttarakhand 7.50% 5.5% Uttar Pradesh 3.36% 2.5% West Bengal 9.86% 12.5% Chandigarh 21.43% 21.0% Puducherry 15.38% 19.6% National 9.09% 12.1% * Number of unregistered women-owned MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Number of women-owned unregistered MSMEs in 2016-17 has been arrived at by multiplying 2006-07 census results with the change in women-owned MSMEs in Chhattisgarh and a ratio of female labor force participation rate in each state upon the female labor force participation rate in Chhattisgarh. 44 Table 18: State wise approximation of employment generated by unregistered MSMEs State 2006-07 2016-17 Andhra Pradesh 3,464,000 7,692,888 Arunachal Pradesh 82,000 150,404 Assam 447,000 873,089 Bihar 1,595,000 3,856,287 Chhattisgarh 468,000 949,000 Delhi 567,000 1,580,014 Goa 86,000 107,519 Gujarat 2,195,000 4,360,061 Haryana 841,000 1,807,239 Himachal Pradesh 206,000 349,183 Jammu & Kashmir 217,000 408,126 Jharkhand 824,000 1,530,821 Karnataka 2,204,000 3,859,233 Kerala 2,667,000 4,503,664 Madhya Pradesh 1,731,000 3,790,183 Maharashtra 2,451,000 5,249,121 Manipur 138,000 173,287 Meghalaya 104,000 119,025 Mizoram 30,000 42,726 Nagaland 100,000 110,498 Odisha 2,186,000 3,863,900 Punjab 1,403,000 2,696,920 Rajasthan 1,488,000 3,319,122 Sikkim 56,000 158,942 Tamil Nadu 3,843,000 8,122,541 Tripura 53,000 100,758 Uttarakhand 351,000 696,063 Uttar Pradesh 5,173,000 8,905,896 West Bengal 5,466,000 11,564,577 Chandigarh 58,000 94,581 Puducherry 25,000 54,581 National 40,552,000 77,671,969 * Employment generated by MSMEs in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Employment generated by unregistered MSMEs in 2016-17 has been arrived at by multiplying 2006-07 census results with the change in employment generated by unregistered MSMEs in Chhattisgarh and a ratio of change in per capita gross state domestic product for each state upon the change in per capita gross state domestic product for Chhattisgarh. 45 Table 19: State wise approximation of employment generated per unit by unregistered MSMEs State 2006-07 2016-17 Andhra Pradesh 2.3 2.6 Arunachal Pradesh 3.3 3.4 Assam 2.1 2.1 Bihar 2.1 2.8 Chhattisgarh 1.7 1.8 Delhi 3.2 3.6 Goa 1.5 1.0 Gujarat 1.7 1.5 Haryana 1.7 1.7 Himachal Pradesh 1.3 1.2 Jammu & Kashmir 1.8 2.0 Jharkhand 1.9 2.0 Karnataka 2.0 2.0 Kerala 2.1 1.7 Madhya Pradesh 1.5 1.8 Maharashtra 1.7 1.7 Manipur 3.1 2.2 Meghalaya 2.2 1.5 Mizoram 3.0 2.5 Nagaland 6.3 5.7 Odisha 2.2 2.3 Punjab 1.5 1.3 Rajasthan 1.6 1.9 Sikkim 9.3 11.8 Tamil Nadu 2.1 2.4 Tripura 2.0 1.8 Uttarakhand 1.8 1.8 Uttar Pradesh 2.3 2.2 West Bengal 2.6 2.8 Chandigarh 2.1 1.4 Puducherry 1.9 1.7 National 2.0 2.0 * Employment per unit in 2006-07 has been obtained from the 4th Unregistered MSME Census of India. Employment generated per unit in 2016-17 has been arrived at by multiplying 2006-07 census results with the change in employment generated by unregistered MSMEs in Chhattisgarh and a ratio of change in per capita gross state domestic product for each state upon the change in per capita gross state domestic product for Chhattisgarh. 46 Table 20: State wise approximation of number of women employed by unregistered MSMEs Women Employees as a Percentage of State Number of Women Employees Total Employee Base Andhra Pradesh 1,819,242 23.6% Arunachal Pradesh 37,144 24.7% Assam 100,186 11.5% Bihar 300,135 7.8% Chhattisgarh 217,321 22.9% Delhi 82,770 5.2% Goa 27,572 25.6% Gujarat 1,152,899 26.4% Haryana 112,706 6.2% Himachal Pradesh 75,433 21.6% Jammu & Kashmir 29,117 7.1% Jharkhand 119,144 7.8% Karnataka 614,207 15.9% Kerala 671,831 14.9% Madhya Pradesh 555,943 14.7% Maharashtra 890,406 17.0% Manipur 28,011 16.2% Meghalaya 28,207 23.7% Mizoram 10,893 25.5% Nagaland 18,744 17.0% Odisha 429,886 11.1% Punjab 146,662 5.4% Rajasthan 360,996 10.9% Sikkim 28,468 17.9% Tamil Nadu 1,515,606 18.7% Tripura 11,110 11.0% Uttarakhand 70,149 10.1% Uttar Pradesh 426,552 4.8% West Bengal 946,229 8.2% Chandigarh 5,851 6.2% Puducherry 7,570 13.9% National 9,997,855 12.9% * Percentage of women employees at unregistered MSMEs has been obtained by adjusting the research estimate for Chhattisgarh by a ratio of each state female labor force participation rate divided by the female labor force participation rate for Chhattisgarh. 47 Table 21: State wise approximation of number of skilled employees at unregistered MSMEs Number of Skilled Employees per State Number of Skilled Employees Unregistered MSME Andhra Pradesh 563,032 0.19 Arunachal Pradesh 7,948 0.18 Assam 40,653 0.10 Bihar 90,962 0.07 Chhattisgarh 117,000 0.12 Delhi 204,114 0.47 Goa 44,591 0.42 Gujarat 602,190 0.21 Haryana 296,744 0.28 Himachal Pradesh 55,444 0.20 Jammu & Kashmir 24,847 0.12 Jharkhand 76,321 0.10 Karnataka 340,835 0.18 Kerala 492,208 0.19 Madhya Pradesh 235,601 0.11 Maharashtra 738,118 0.24 Manipur 6,229 0.08 Meghalaya 9,743 0.12 Mizoram 2,251 0.13 Nagaland 3,182 0.16 Odisha 194,834 0.11 Punjab 420,408 0.20 Rajasthan 235,487 0.14 Sikkim 5,032 0.37 Tamil Nadu 822,323 0.24 Tripura 7,066 0.13 Uttarakhand 84,892 0.22 Uttar Pradesh 317,361 0.08 West Bengal 607,863 0.15 Chandigarh 23,116 0.33 Puducherry 9,843 0.31 National 6,680,239 0.17 * Number of skilled employees per unit has been estimated by multiplying the research estimates for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. 48 Table 22: State wise approximation of the number of skilled employees required at unregistered MSMEs Number of Skilled Employees Number of Skilled Employees State Required Required per Unregistered MSME Andhra Pradesh 3,233,603 1.1 Arunachal Pradesh 45,649 1.0 Assam 233,476 0.6 Bihar 522,414 0.4 Chhattisgarh 374,000 0.7 Delhi 1,172,268 2.7 Goa 256,094 2.4 Gujarat 3,458,496 1.2 Haryana 1,704,258 1.6 Himachal Pradesh 318,427 1.1 Jammu & Kashmir 142,703 0.7 Jharkhand 438,328 0.6 Karnataka 1,957,481 1.0 Kerala 2,826,844 1.1 Madhya Pradesh 1,353,104 0.7 Maharashtra 4,239,158 1.4 Manipur 35,774 0.4 Meghalaya 55,958 0.7 Mizoram 12,926 0.8 Nagaland 18,274 0.9 Odisha 1,118,971 0.7 Punjab 2,414,487 1.1 Rajasthan 1,352,445 0.8 Sikkim 28,902 2.1 Tamil Nadu 4,722,760 1.4 Tripura 40,580 0.7 Uttarakhand 487,549 1.3 Uttar Pradesh 1,822,667 0.5 West Bengal 3,491,077 0.8 Chandigarh 132,758 1.9 Puducherry 56,528 1.8 National 38,067,958 1.0 * Number of skilled employees required per unit has been estimated by multiplying the research estimates for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. 49 Table 23: State wise approximation of skilled women employees required at unregistered MSMEs ‘Skilled Women Employees Required’ Number of Skilled Women Employees State as a Percentage of Total Requirement Required Andhra Pradesh 23.7% 767,855 Arunachal Pradesh 24.8% 11,320 Assam 11.5% 26,902 Bihar 7.8% 40,828 Chhattisgarh 23.0% 86,000 Delhi 5.3% 61,664 Goa 25.8% 65,944 Gujarat 26.6% 918,285 Haryana 6.3% 106,723 Himachal Pradesh 21.7% 69,074 Jammu & Kashmir 7.2% 10,223 Jharkhand 7.8% 34,256 Karnataka 16.0% 312,826 Kerala 15.0% 423,435 Madhya Pradesh 14.7% 199,293 Maharashtra 17.0% 722,059 Manipur 16.2% 5,807 Meghalaya 23.8% 13,316 Mizoram 25.6% 3,309 Nagaland 17.0% 3,113 Odisha 11.2% 125,008 Punjab 5.5% 131,846 Rajasthan 10.9% 147,703 Sikkim 18.0% 5,198 Tamil Nadu 18.7% 884,874 Tripura 11.1% 4,493 Uttarakhand 10.1% 49,338 Uttar Pradesh 4.8% 87,658 West Bengal 8.2% 286,825 Chandigarh 6.2% 8,247 Puducherry 13.9% 7,873 National 14.8% 5,621,295 * Percentage of skilled women employees required per unit has been estimated by multiplying the research estimates for Chhattisgarh with a ratio of each states female labor force participation rate and the female labor force participation rate for Chhattisgarh. 50 Table 24: State wise approximation of skilled labor force demand to be met by new labor force participants Number of New Labor Force Percentage of Skilled New Labor State Participants Required Force Participants Required Andhra Pradesh 867,636 26.8% Arunachal Pradesh 11,696 25.6% Assam 32,673 14.0% Bihar 49,254 9.4% Chhattisgarh 65,824 17.6% Delhi 778,528 66.4% Goa 155,028 60.5% Gujarat 1,012,554 29.3% Haryana 679,624 39.9% Himachal Pradesh 88,732 27.9% Jammu & Kashmir 25,243 17.7% Jharkhand 61,046 13.9% Karnataka 500,603 25.6% Kerala 755,517 26.7% Madhya Pradesh 220,715 16.3% Maharashtra 1,464,002 34.5% Manipur 3,989 11.2% Meghalaya 9,887 17.7% Mizoram 2,475 19.1% Nagaland 4,277 23.4% Odisha 183,237 16.4% Punjab 675,275 28.0% Rajasthan 265,799 19.7% Sikkim 15,400 53.3% Tamil Nadu 1,606,377 34.0% Tripura 7,469 18.4% Uttarakhand 152,122 31.2% Uttar Pradesh 207,066 11.4% West Bengal 731,588 21.0% Chandigarh 62,906 47.4% Puducherry 25,391 44.9% National 10,721,933 28.2% * Number of new skilled labor force participants required has been estimated by multiplying the research estimates for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. 51 Table 25: State wise approximation of investments made over the last five years by unregistered MSMEs Investment made per unit Total Investment made State (USD) (Million USD) Andhra Pradesh 2,162 6,476 Arunachal Pradesh 2,064 91 Assam 1,128 468 Bihar 760 1,046 Chhattisgarh 1,418 749 Delhi 5,351 2,348 Goa 4,877 513 Gujarat 2,359 6,926 Haryana 3,213 3,413 Himachal Pradesh 2,245 638 Jammu & Kashmir 1,425 286 Jharkhand 1,122 878 Karnataka 2,060 3,920 Kerala 2,153 5,661 Madhya Pradesh 1,314 2,710 Maharashtra 2,782 8,490 Manipur 898 72 Meghalaya 1,423 112 Mizoram 1,542 26 Nagaland 1,886 37 Odisha 1,319 2,241 Punjab 2,253 4,835 Rajasthan 1,583 2,709 Sikkim 4,293 58 Tamil Nadu 2,740 9,458 Tripura 1,483 81 Uttarakhand 2,514 976 Uttar Pradesh 915 3,650 West Bengal 1,688 6,991 Chandigarh 3,818 266 Puducherry 3,619 113 National 1,970 76,238 * Investment made per unit in each state has been approximated by multiplying the research estimates for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. 52 Table 26: State wise approximation of current credit requirement of unregistered MSMEs Credit Requirement per unit Total Credit Requirement State (USD) (Million USD) Andhra Pradesh 1,232 3,692 Arunachal Pradesh 1,177 52 Assam 643 267 Bihar 433 596 Chhattisgarh 808 427 Delhi 3,050 1,338 Goa 2,781 292 Gujarat 1,345 3,949 Haryana 1,832 1,946 Himachal Pradesh 1,280 364 Jammu & Kashmir 813 163 Jharkhand 640 500 Karnataka 1,175 2,235 Kerala 1,228 3,227 Madhya Pradesh 749 1,545 Maharashtra 1,586 4,840 Manipur 512 41 Meghalaya 812 64 Mizoram 879 15 Nagaland 1,075 21 Odisha 752 1,278 Punjab 1,285 2,757 Rajasthan 903 1,544 Sikkim 2,447 33 Tamil Nadu 1,562 5,392 Tripura 845 46 Uttarakhand 1,433 557 Uttar Pradesh 522 2,081 West Bengal 963 3,986 Chandigarh 2,176 152 Puducherry 2,063 65 National 1,123 43,463 * Credit requirement per unit in each state has been approximated by multiplying the research estimates for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. 53 Table 27: State wise approximation of age differential between unskilled and skilled labor force participants Wage rates have been approximated by multiplying the research estimate for Chhattisgarh with a ratio of each states gross state domestic product per capita and the gross state domestic product per capita for the state of Chhattisgarh. Andhra Pradesh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,711 Female On the Job Experienced 5,031 Female Certified, Skilled Professional 11,777 Male Unskilled Fresher 8,598 Male On the Job Experienced 8,995 Male Certified, Skilled Professional 12,196 Arunachal Pradesh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,498 Female On the Job Experienced 4,804 Female Certified, Skilled Professional 11,246 Male Unskilled Fresher 8,211 Male On the Job Experienced 8,589 Male Certified, Skilled Professional 11,646 Assam Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 2,457 Female On the Job Experienced 2,624 Female Certified, Skilled Professional 6,142 Male Unskilled Fresher 4,485 Male On the Job Experienced 4,691 Male Certified, Skilled Professional 6,361 Bihar Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 1,655 Female On the Job Experienced 1,768 Female Certified, Skilled Professional 4,138 Male Unskilled Fresher 3,021 Male On the Job Experienced 3,161 54 Male Certified, Skilled Professional 4,286 Chhattisgarh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,090 Female On the Job Experienced 3,300 Female Certified, Skilled Professional 7,725 Male Unskilled Fresher 5,640 Male On the Job Experienced 5,900 Male Certified, Skilled Professional 8,000 Delhi Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 11,660 Female On the Job Experienced 12,452 Female Certified, Skilled Professional 29,150 Male Unskilled Fresher 21,282 Male On the Job Experienced 22,263 Male Certified, Skilled Professional 30,187 Goa Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 10,628 Female On the Job Experienced 11,350 Female Certified, Skilled Professional 26,570 Male Unskilled Fresher 19,399 Male On the Job Experienced 20,293 Male Certified, Skilled Professional 27,516 Gujarat Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 5,140 Female On the Job Experienced 5,489 Female Certified, Skilled Professional 12,850 Male Unskilled Fresher 9,382 Male On the Job Experienced 9,815 Male Certified, Skilled Professional 13,308 55 Haryana Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 7,001 Female On the Job Experienced 7,477 Female Certified, Skilled Professional 17,503 Male Unskilled Fresher 12,779 Male On the Job Experienced 13,368 Male Certified, Skilled Professional 18,126 Himachal Pradesh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,892 Female On the Job Experienced 5,225 Female Certified, Skilled Professional 12,231 Male Unskilled Fresher 8,930 Male On the Job Experienced 9,341 Male Certified, Skilled Professional 12,666 Jammu & Kashmir Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,106 Female On the Job Experienced 3,317 Female Certified, Skilled Professional 7,764 Male Unskilled Fresher 5,669 Male On the Job Experienced 5,930 Male Certified, Skilled Professional 8,041 Jharkhand Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 2,445 Female On the Job Experienced 2,611 Female Certified, Skilled Professional 6,113 Male Unskilled Fresher 4,463 Male On the Job Experienced 4,669 Male Certified, Skilled Professional 6,330 56 Karnataka Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,490 Female On the Job Experienced 4,795 Female Certified, Skilled Professional 11,225 Male Unskilled Fresher 8,195 Male On the Job Experienced 8,573 Male Certified, Skilled Professional 11,624 Kerala Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,692 Female On the Job Experienced 5,011 Female Certified, Skilled Professional 11,731 Male Unskilled Fresher 8,565 Male On the Job Experienced 8,959 Male Certified, Skilled Professional 12,148 Madhya Pradesh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 2,864 Female On the Job Experienced 3,058 Female Certified, Skilled Professional 7,160 Male Unskilled Fresher 5,227 Male On the Job Experienced 5,468 Male Certified, Skilled Professional 7,414 Maharashtra Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 6,063 Female On the Job Experienced 6,475 Female Certified, Skilled Professional 15,158 Male Unskilled Fresher 11,067 Male On the Job Experienced 11,577 Male Certified, Skilled Professional 15,698 57 Manipur Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 1,958 Female On the Job Experienced 2,091 Female Certified, Skilled Professional 4,895 Male Unskilled Fresher 3,574 Male On the Job Experienced 3,738 Male Certified, Skilled Professional 5,069 Meghalaya Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,102 Female On the Job Experienced 3,313 Female Certified, Skilled Professional 7,755 Male Unskilled Fresher 5,662 Male On the Job Experienced 5,923 Male Certified, Skilled Professional 8,031 Mizoram Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,361 Female On the Job Experienced 3,590 Female Certified, Skilled Professional 8,403 Male Unskilled Fresher 6,135 Male On the Job Experienced 6,418 Male Certified, Skilled Professional 8,702 Nagaland Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,109 Female On the Job Experienced 4,389 Female Certified, Skilled Professional 10,273 Male Unskilled Fresher 7,501 Male On the Job Experienced 7,846 Male Certified, Skilled Professional 10,639 58 Odisha Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 2,875 Female On the Job Experienced 3,070 Female Certified, Skilled Professional 7,188 Male Unskilled Fresher 5,248 Male On the Job Experienced 5,490 Male Certified, Skilled Professional 7,443 Punjab Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 4,910 Female On the Job Experienced 5,244 Female Certified, Skilled Professional 12,276 Male Unskilled Fresher 8,962 Male On the Job Experienced 9,376 Male Certified, Skilled Professional 12,713 Rajasthan Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,450 Female On the Job Experienced 3,685 Female Certified, Skilled Professional 8,626 Male Unskilled Fresher 6,298 Male On the Job Experienced 6,588 Male Certified, Skilled Professional 8,933 Sikkim Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 9,355 Female On the Job Experienced 9,991 Female Certified, Skilled Professional 23,387 Male Unskilled Fresher 17,075 Male On the Job Experienced 17,862 Male Certified, Skilled Professional 24,220 59 Tamil Nadu Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 5,972 Female On the Job Experienced 6,378 Female Certified, Skilled Professional 14,929 Male Unskilled Fresher 10,900 Male On the Job Experienced 11,402 Male Certified, Skilled Professional 15,461 Tripura Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,231 Female On the Job Experienced 3,451 Female Certified, Skilled Professional 8,078 Male Unskilled Fresher 5,898 Male On the Job Experienced 6,170 Male Certified, Skilled Professional 8,366 Uttarakhand Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 5,478 Female On the Job Experienced 5,850 Female Certified, Skilled Professional 13,695 Male Unskilled Fresher 9,999 Male On the Job Experienced 10,460 Male Certified, Skilled Professional 14,182 Uttar Pradesh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 1,995 Female On the Job Experienced 2,130 Female Certified, Skilled Professional 4,986 Male Unskilled Fresher 3,641 Male On the Job Experienced 3,808 Male Certified, Skilled Professional 5,164 60 West Bengal Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,679 Female On the Job Experienced 3,929 Female Certified, Skilled Professional 9,198 Male Unskilled Fresher 6,715 Male On the Job Experienced 7,025 Male Certified, Skilled Professional 9,525 Chandigarh Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 8,319 Female On the Job Experienced 8,884 Female Certified, Skilled Professional 20,798 Male Unskilled Fresher 15,184 Male On the Job Experienced 15,884 Male Certified, Skilled Professional 21,538 Puducherry Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 7,886 Female On the Job Experienced 8,422 Female Certified, Skilled Professional 19,716 Male Unskilled Fresher 14,394 Male On the Job Experienced 15,058 Male Certified, Skilled Professional 20,417 National Gender Type of Employee Average Monthly Wage (INR) Female Unskilled Fresher 3,942 Female On the Job Experienced 4,210 Female Certified, Skilled Professional 9,856 Male Unskilled Fresher 7,196 Male On the Job Experienced 7,528 Male Certified, Skilled Professional 10,207 61 Annexure II: Study Approach and Methodology Purpose and objectives of the study The last unregistered MSME census in India took place in 2006-07. Since then there exists very little data on how this sector has evolved. The census did not include indicators pertaining to skills and qualification of labor and therefore very little data is available in this space. • The study seeks to determine the pace at which the unregistered MSME sector has grown in Chhattisgarh since the last unregistered MSMEs census. It also seeks to establish a sector and scale wise breakup of the unregistered MSME sector; • The study had been commissioned to determine the demand for skilled labor in the unregistered sector in Chhattisgarh; as well as the sectors/sub-sectors which account for this demand; • The study is directed towards ascertaining the monetary gains that a workforce participant can make from completing formal skills training. The study’s scope also included an analysis of the impact that a more skilled workforce can have on business productivity; • Finally, the study seeks to identify the formal skills training needs of entrepreneurs running unregistered setups in the State. Geographic and stakeholder coverage of the study The study is centered on the unregistered MSMEs sector in the State of Chhattisgarh. It covers 25 of the 27 Districts in the State and only leaves out the Naxalism affected Districts of Bastar and Dantewada. Apart from security concerns associated with field based data collection in these two Districts, they were also left out as they account for less than one percent of the unregistered MSMEs in the State. The insights presented in this report have been developed based on primary data/information pertaining to entrepreneurs running unregistered MSMEs; their business; and details pertaining to their workforce. Approach and methodology This study has been developed around the data/information collected through a quantitative questionnaire and the team structured its work on this study by dividing the work to be done into three interlinked phases. The first phase focused on conducting a review of secondary literature and the development of the data tool (quantitative questionnaire), the second phase focused on the data collection, and the final phase consisted of analysis of the data collected and report writing. The steps involved in each of the phases have been elaborated upon below, and are the backbone of the methodology that has been used to carry out the “Study on Unregistered MSMEs in Chhattisgarh”. Desk review During this phase, the team reviewed secondary literature pertaining to the unregistered MSMEs sector in India and the skills training landscape in the country. The team collected and analyzed relevant secondary data. In this sense, the key data sets examined included but were not limited to: latest round of NSSO; 62 Unregistered MSMEs census of 2006-07 and datasets of various skill gap studies commissioned by NSDC. Review of this literature and data helped the team in determining an apt sampling plan for the study; and in developing the quantitative questionnaire used to collect data from the field. The questionnaire was prepared as a simple input sheet with a corresponding codebook. The field researchers were expected to select a code corresponding to the response provided by the interviewee and simply pen in the code (number) (in front of the relevant question number) on the input sheet. The codebook provided explanations for each question and response. It carried necessary skips and provided the field researchers with question specific guidelines. This method of developing and deploying a quantitative questionnaire provided greater clarity to field researchers; helped in recording responses in a clean and concise manner; provided logistical ease; saved paper; and facilitated easier collation and cleaning of responses. Data collection The phase began with the training of field researchers who collected data from the field. The researchers were explained the rationale behind asking each question included in the questionnaire; the format to be used for collecting and recording responses against each question; the GE and HR principles to be kept in mind while collecting data/information; and the mechanisms the researchers will use to ensure that the recording sheets are neat and clean. Subsequently, the field researchers collected data based on the sampling plan given below. Stakeholder/Respondent Sample Size Confidence Level P-Value Male Entrepreneurs 600 95 percent 0.040 Female Entrepreneurs 60 95 percent 0.125 • The sample sizes and the corresponding values for statistical significance are valid at a State level. • State level sample sizes have been disaggregated to a District level based on the previous unregistered MSME census’ results for District wise number of unregistered MSMEs in Chhattisgarh. Data analysis and report writing During this phase, the data collected from the field was fed into an electronic spreadsheet and subsequently cleaned using relevant statistical methods. The final electronic sheet was used to generate graphs and charts that could respond to the key research questions/objectives as set on out by World Bank. SPSS was used to run analysis against key research hypothesis and the analysis results have been used to draft this report. Limitations to the study • The research approach and methodology; including the sampling plan; have been developed based on the results of the Unregistered MSMEs census of 2006-07. The next census’ results are expected 63 to be available around 2019-20. Utilizing these results for planning the sampling plan may provide a different sample stratification strategy. • The questionnaire focuses on unregistered MSMEs. Herein, there are points where a few of the ‘micro’ enterprises covered under the study may have been self-employed individuals disguised employing members of their family. • Financial information provided by entrepreneurs has not necessarily been validated through a review of their book of accounts (in most cases missing); in most cases, they are approximations provided by the entrepreneurs. The same is also true for information related to employee salaries. 64