- What do you understand by the term 'participatory budgeting'? Identify the benefits and challenges associated with participatory budgeting in India (Answer in 150 words) (10)
- “The Indian MSME sector is the backbone of the national economic structure and acts as a bulwark for the Indian economy,”. In light of this statement, discuss the challenges and solutions pertaining to the MSMEs sector in India (Answer in 250 words) (15)
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1. What do you understand by the term 'participatory budgeting'? Identify the benefits and challenges associated with participatory budgeting in India. (10 Marks)
- Participatory budgeting is a form of citizen participation in which citizens are involved in the process of deciding how public money is spent
Benefits of Participatory Budgeting:
- Voice in Civic Governance: It makes citizens feel like they have a voice in civic governance and thereby builds trust.
- It promotes a bottom-up approach, where citizens and civil society along with the relevant organs of the government and legislature.
- Community Ownership: This would foster far greater ownership in communities for civic assets and amenities, thereby resulting in better maintenance and upkeep.
- Facilitating Equity: Actively engaging with communities to advance equality and eliminate inequalities is integral to participatory decision-making and the allocation of public resources.
- Increasing Trust Between Government & People
- Lack of a clear action plan and operational guidelines on Participatory Budgeting hampers its effective implementation.
- Lack of information in the public domain regarding budget accounts
- Shortage of dedicated and trained staff for implementing Participatory Budgeting
- Lack of attention to social inclusion in Participatory Budgeting leads to domination of participatory processes by local elites.
- Lengthy process due to consultations with multiple stakeholders could be time-consuming and open-ended.
- It may also lead to excessive slow fund outlays, thereby leading to under-utilization of allocated resources.
- Thinking local, acting local as Participatory Budgeting tends to prioritize local issues and ignore regional, national or global issues.
- Thus, steps should be taken to strengthen the Participatory Budgeting process in India by adopting a clear framework with respect to budgeting process, manpower and citizen participation.
2. “The Indian MSME sector is the backbone of the national economic structure and acts as a bulwark for the Indian economy,”. In light of this statement, discuss the challenges and solutions pertaining to the MSMEs sector in India. (15 Marks)
- The MSME sector constitutes a vast network of over 60 million units and employs 120 million people, contributing around 30 percent to the GDP.
- It accounts for about 45% of manufacturing output and around 40 % of total exports.
MSMEs as Backbone of Indian Economy:
- Employment generation: employs about 120 million people
- MSME sector accounts for 30% of India’s GDP
- 45% of exports
- Income augmentation,
- Building rural infrastructure,
- Women empowerment (14% MSMEs are women led)
- Promotion of traditional goods, innovation etc.
Challenges to MSMEs sector:
- Limited capital and knowledge
- Technological Backwardness
- Inadequate infrastructure facilities including access to power, water, & road
- Low production capacity and constraints in modernisation & expansions which inhibits the sector to profit from ‘economy of scale’
- Ineffective marketing strategy
- Non-availability of skilled labour at affordable cost
- High competition from cheap import
- Lack of adequate forward and backward linkages
- Financial constraints
- Poor access to formal capital: Only about 8 percent of MSMEs are served by formal credit channels.
- Low financial and digital literacy
- Limited funding capacity and accessibility of NBFCs and SFBs
Recent initiatives for MSME Sector
- In-principle approval for loans up to Rs. 1 crore within 59 minutes
- Interest subvention of 2%
- All CPSUs to compulsorily procure through GeM portal (25% target)
- 4% SC/ST led MSMEs and 3% from women led
- Technology Centres (TCs) and Extension Centres (ECs)
- Equity infusion for MSMEs through Fund of Funds
- Use of Fintech is being encouraged
- MUDRA Loans
What more can be done?
- Review the MSME Development Act as a comprehensive and holistic MSME code
- Change definition from current investment based to turnover based
- Strengthening government e-market portal.
- State Finance Commission and Khadi and Village Industries Commission should redirect their focus in promoting the MSME sector
- Exit policy should be their for out-of-court assistance to MSMEs
- Market support to MSMEs. Eg. External service provider giving customised solutions to struggling enterprise
- Improving access to technology
- Setup a National Council for MSMEs to facilitate coherent policy outlook & Unity of monitoring
- Leveraging Industrial Revolution 4.0: Disruptive technology, while leading to job losses in traditional areas, also presents new job opportunities.
- A greater connect between government-industry-academia is required to identify the changing requirements in manufacturing and prepare an employable workforce
Global best practices
- Competition by Cooperation, Italy
- Contract Financing, Mexico
- By addressing the challenges through comprehensive policies, fostering innovation, and creating a supportive ecosystem, the MSME sector in India can unleash its true potential and continue to drive economic growth and development.