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Academic, My Expressions

MSME role for new India

Note- This  paper I have contributed for one magazine 

Abstract

Across the globe, when global slowdown is common norm policy makers are focusing and understanding the worth of “Small is Beautiful” concept for nation growth and countering unemployment challenge. Fourth Census of MSMEs the Reported that total number of MSMEs in India is 3.6 crores employing over 8 crore people. After agriculture it is second job provider sector, largely entrepreneurs. In real sense MSME is a proven nursery where small existing businesses have the potential to become world beaters tomorrow. Different countries have utilized this sector to energize growth and employment. As per ADB report 2013 ASEAN countries generate 45% of total GDP and 70% of employment from SME sector. MSME has the proven its potential in GDP contribution, employment generation and reduction in regional imbalance and in overall socio-economic development of the country, India through its ministry of micro small and medium enterprises is working to promote industrialization in rural and backward areas. The paper is a descriptive study is which highlight the need to focus on MSME sector, steps taken by government in this direction, what are challenges being faced by MSME and, the possible solutions for the same.

Introduction

“While many think that large companies dominate, in reality, it is over 5.5 crore (55 million) small units like yours, which drive our economy through small manufacturing, trading and service businesses. You should be able to run your business easily, not be harassed by officials, and get loans for your day-to-day activities, material for your operations and markets for your product.” Shri Narendra Modi, Prime Minister of India recently announced his government commitment and position on a subject matter of public concern.

Across the globe, when global slowdown is common norm policy makers are focusing and understanding the worth of “Small is Beautiful” concept for nation growth and countering unemployment challenge. In India historically Micro, Small and Medium Enterprises influenced the lives at micro level. Gandhian economic concept of “Gram Swaraj” was economic philosophy against Capitalistic economic policy of British raj. Khadi movement and spinning wheel was household symbol against British colonizers throughout modern national freedom fight. History guided the post independence policy of MSME in India and it can be justified by data. Fourth Census of MSMEs the Report submitted that total number of MSMEs in India is 3.6 crores employing over 8 crore people. After agriculture it is second job provider sector, largely entrepreneurs. MSME accounts for 45 % of total industrial production, 40% of total exports and contributes very significantly to the overall GDP. Manufacturing segment within the MSME contributes to 7.09% of GDP. MSMEs also contribute to 30.50% of services. In real sense MSME is a proven nursery where small existing businesses have the potential to become world beaters tomorrow.

After independence certain concrete steps has been taken at different point of time. In first five year plan agriculture, village and small scale industries were center of development initiatives. Afterwards also major focused of MSME policy has been focused on two key aspects 1) employment generation 2) Asset creation and contribution for Indian GDP. Economic reforms after 1990 kick started the MSME sector also and liberalization, deregulation, and dereservation became a new norm. In eleventh and twelve five year plans “Inclusive growth” became tag line and many schemes at center and state level targeted to MSME sector.

FRAMEWORK FOR MSME

To counter these challenges and formulating the MSME policy at right direction certain framework need to follow; focus need to follow on following areas. A) Macroeconomic policy with special attention on MSME. B) Social welfare programmes for MSME workers and improve labour policy to include them in formal sector. C) Easy to start and exit policy under strong regulatory framework. D) Active participation between public and private sector as it has successfully adopted in other countries like Germany, China, and so on. It is true that no government can take sole responsibility to push entrepreneurs in MSME but yes can facilitate for that. To move in this direction government in recent time has taken many initiatives to push for MSME in India.

Before moving further and concluding anything let us understand something from other countries experiences also where MSME sector worked as silent revolution to energize the country growth. ASEAN group which is one of the fastest emerging multinational groups has sound policy emphasis on SME sector. ASEAN economic has used SME as integrated tool of development because here around 90% firms are under SME category. It cumulatively creates around 70% employment and contributes around 45% of total GDP (ADB 2013). The data varies across the countries but even it is significant for all ten countries in the group.

Experiences across the globe

Among the members countries Singapore, Malaysia, Indonesia, Thailand, and the Philippines have a robust policy framework to push SME sector which is below than average for Vietnam, Brunei, Darussalam, Myanmar, and Cambodia.

Study conducted by ERIA identified that better performing nations has edge because they focused on A) promote technology and technology transfer B)   access to finance for start-ups C) access to business development service (BDS) centres for SMEs D) promotion of entrepreneurial education as part of education E) faster, cheaper, and better legislative regulations for SMEs. F) Institutional framework to support SMEs at national and international forums (ASEAN SME policy 2013).

China has developed a different model for SME promotion in country and made it huge success at international level.   After market oriented reforms in 1980s China has received a lot from SME development. In 2010 SME sector contributed for over 99 percent of all enterprises in China.  Total SME output value stand for 60% of total country GDP and support 82% for employment opportunities. To promote SME sector China has taken many innovative steps; A) Strong legislative framework has been setup to promote SMEs B) separate setup of credit line for SMEs C) emphasise on entrepreneurial skill as part of school education curriculum D) specific product based clusters has been developed to reduce product cost and for mass production. E)  maximum sectors has been opened for SME sectors involving highly skilled sectors like defence, financial services, science and technology industries and so on under government surveillance (Liu, X. (2008).

ASEAN and China experiences are indicating certain learning and road map for Indian MSME sector. Although it may not be appropriate to compare all the nations with each other because A) definition of SME sector varies across the region B) degree of government regulation also different in China and few other nations. Still it helps to draw certain road map for Indian MSME sector growth. Against the drop of global slowdown MSME expected to emerge as employment generation sector. To tap the potential India has setup separate ministry in 2007 to promote micro, small, and medium enterprises. Even though MSME is a state subject, the central ministry is expected to support states for entrepreneur promotion, employment and livelihood promotion, and under cooperative federalism push for healthy completion among states.

STEPS TAKEN FOR PROMOTION OF MSME

Recent government initiatives like make in India and skill India, stand-up India, push minorities for entrepreneurship, support like MUDRA bank and universal financial inclusion, Credit linked capital subsidy schemes to adopt modern technology, performance and credit rating scheme, Jan Dhan Yojana all have heavy inclination towards MSME sector. It also indicates that MSME can not seen as standalone area but it has to look holistically where state and centre with active participation of private sector, and individual entrepreneurs. Banks Prime sector lending will also focus on providing loan to small enterprises such as khadi and village industries.

Government is also looking for international cooperation to help MSME acquire overseas market. MSME policy and MSME act has been also identified many potential areas to work. ATI, Technology development centers are providing training and skills to youth and MSME so they can face the challenges arising due to globalization and technology up gradation.

There is a need of analysis how things are happening at grass root level and what challenges our startups are facing in recent period even when government is claiming ease of doing business.

CHALLENGES

Data and policies alone are not sufficient to define the potential of MSME sector in India and also it does not represent the real challenges which are major constraints for its growth in India. One of the biggest challenge small scale industries are not part of so called formal sector. Limited capital availability and technical knowledge on subject is also limits the individual growth. Poor banking finance, low production capacity of individual, poor demand-supply inter relation, non availability of latest technology at grass root level at judicial price, cumbersome government policies and red tape rules are major challenges for growth of MSME sector in India.

Against the drop of global slowdown MSME expected to emerge as employment generation sector but In spite of innovations like MUDRA banks credit availability is a major challenge even today. Different states have different policy of MSME and also different taxation across states does not help to have one integrated market for MSME. In recent time online marketing has emerged as savior but its reach at demand and supply end still very limited as compare to Indian market size. Taxation structure and cumbersome process for export outside is tough nut to crack for maximum entrepreneurs. Information and technology is one more dimension which need specific attention; to counter it cluster approach like China can be practice in India. Mega foods parks are one step towards it but it also need to prove its worth in near future. Procurement of technology and finance for technology purchase and technology up gradation are two complementary problems with it. Recently RBI Governor Raghuram Rajan much quoted comment regarding higher costing of dosa in spite of low consumer price index is needed to relate with it. Poor technology up gradation process in dosa making process he quoted prime reason for higher cost of Dosa.

In the era of international competitiveness, small enterprises are facing much difficulty to make own space. Global slowdown, dumping exports from China, high competition within India, WTO compliance is few areas of concern. Khadi, handloom, handicraft which are niche product and labor intensive are not able to compete at international level. In recent time when India is leading international solar alliance, WTO compliances and international market pressure is creating difficult scenario for entering of Indian small enterprises in the sector. Economic survey 2015-16 also accepted this fact that free trade agreement has facilitated more imports than exports. These two facts are examples that how difficult it is for small enterprises is facing challenges at marketing front.

Infrastructure lacuna and poor facilities like electricity, transport, telecommunication, power, effluent treatment plants, power, banks, watch & ward, and reasonable cost, these are the areas need to focus and ensure its availability in all more than 7 lakh villages so MSME will not be uprooted from its base.

POLICY RECOMMENDATIONS WAY FORWARD:

There are many suggestions have been promoted to push MSME in India, certain things which are required to be focused are mentioned here. Comparative advantage concept can be effectively used to push MSME, states which are performing well in manufacturing sector like Maharashtra, Gujarat, and Karnataka can develop state policy with specific focus on manufacturing. North East states which has huge potential for organic farming and tourism can have small enterprise development on these areas. Concept of Finance Park which has motioned in national manufacture policy is meant to reduce credit Burden for entrepreneurs; such initiatives need to be taken by all states at policy level.

Skill India needs to take a big leap for success of MSME sector in India. Civil society, corporate sector, government institutes all need to work in this direction. New Internship policy, Deen Dayal Skill development programme for rural and urban areas, National Skill Development Corporation and so on work in this direction is remarkable. But it need to more sustainable through backward and forward linkages. Raw material should be linked to production site and production should have access to market, so demand and supply gap can be effectively met out without any blockage.

Cluster financing and cluster development is an old proven model in different countries. India needs to adopt and implement it for selected MSME clusters through value chain and supply chain on co-operative basis especially for those products where input cost is higher and products are labor intensive(Ministry of micro small and medium enterprises). Recent initiative in south India for handicraft cluster development, Banaras new cluster approach for Sari making  by artisans are some recent example of cluster approach. In terms of finance also in recent period significant growth is expected. After Jan Dhan Yojana maximum households has own account. In addition of that MUDRA bank, SIDBI initiative for financial rupport, and SHG led initiatives like NRLM is expected to make a positive mark in near future.

Impact investment model is one more new dimension which needs to be explored more. Here any enterprise not only measured in financial terms but also on basis of social and environmental impacts. In recent time many startups has fallen under this category which require government facilitation and capital support for convert them into social enterprise.

 

References

1- ERIA SME Researhc Working Group. (2014, June). Asean SME Policy Index 2014. Report 2012, number 8. Retrieved March 2, 2016 from https://www.oecd.org/globalrelations/regionalapproaches/ASEAN%20SME%20Policy%20Index%2014.pdf
2- Yojana magazine.(August 2012). Volume 56. Ministery of Information and Broadcasting, Government of India. Retrieved March 4, 2016 from
https://www.yojana.gov.in/cms/…/pdf/Yojana/English/2012/August%20Yojana.pdf
3- Thitapha Wattanapruttipaisan. (2002-03). Bulletin on Asia-Pacific Perspectives. promoting sme development: some issues and suggestions for policy consideration. Retrieved March 4, 2016 from
www.unescap.org/sites/default/files/Bulletin02-ch5.pdf
4- MSME POLICY Launch of Draft Consultation Paper. (2015). Retrieved March 8, 2016 from
msme.gov.in/…/Whatsnew/MSME%20Policy%20final%20document.pdf
5- Ministry of micro, small, and medium enterprises. Government of India. (2015). Retrieved March 6, 2016 from
http://msme.gov.in/WriteReadData/DocumentFile/MEME%20ANNUAL%20REPORT%202015-16%20ENG.pdf
6- Liu, X. (2008), ‘SME Development in China: A Policy Perspective on SME Industrial Clustering’, in Lim, H. (ed.), SME in Asia and Globalization, ERIA Research Project Report 2007-5, pp.37-68. Retrived March 8, 2016 from
http://www.eria.org/SME%20Development%20in%20China_A%20Policy%20Perspective%20on%20SME%20Industrial%20Clustering.pdf
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