K.R. Sudhaman
Father of the Nation Mahatma Gandhi was right in saying India lived in its Six lakh villages and cottage industries alone could create much needed jobs and livelihood to the majority of the 1.25 billion people. In India 60 per cent of the population still is dependent on agriculture but they accounted for just 15 per cent of Gross Domestic Product. So vast number of people are disguisedly unemployed in the farm sector and the number is increasing with land holdings getting fragmented generation after generation. So what is the way out to ensure rural prosperity and the answer is simple: to develop clusters of small industries dotting all over the country.
Very little is known about the great contribution the small and medium enterprises have made to the development of an economy. In India too it has contributed greatly particularly considering the fact that there is a large population. It is established all over the World that Micro, Small and Medium enterprises are one of the major drivers of job creation and achieve dispersed development preventing large scale migration to urban areas. Also the advantage is that every Rs 1.5 lakh capital spent on MSMEs results in one job whereas it required Rs 6 lakh capital for a job in large industries. This universal statistics indicate large industries are capital guzzler and small industries set up in rural areas around the farm land can provide seasonal jobs as well tackling the problem of underemployment in farming, which by nature is seasonal.
MSMEs however cannot grow in vacuum and in a restrictive environment. There were fears that liberalisation of economy in 1991 that freed the country from shackles of controls that come to be known as licence-permit raj, has in fact helped the growth of small enterprises side by side large companies. They complimented each other. Today MSMEs accounted for 40 per cent of manufacturing in the country and 45 per cent of exports. Doing so well in exports is not a small achievement as it has progressed in an environment of stiff global competition. Today there are five crore micro, small and medium enterprises providing employment to 11 crore people.
National Statistics Commission Chairman Pronab Sen, who has done pioneering work in the growth of small industries in the country, said that during the corporate led growth process of 2003-09, when India clocked over 9 per cent growth annually, the increased revenues of the government permitted expansion of both public infrastructure investments as well as SME investments. However when the global crisis occurred in September 2008, the corporate sector cut back sharply on its investment activities. However the small and medium scale enterprises actually expanded its investment as a share of GDP quite significantly. Thus the resilience of the Indian economy in the first two years after the crisis owned almost as much to the small and medium entrepreneurs in the country as it did to the government’s fiscal expansion. In fact India achieved over six per cent GDP growth despite marked slowdown in corporate investments indicated that SME came to the rescue of the economy to keep the growth momentum.
Of course if India had to get back to high 9 per cent growth, corporates, flush with money, will have to invest and that is not happening because of excess capacity. But it is the small and medium enterprises that is ensuring that India grew at a healthy 7-7.5 per cent in a gloomy world economy in which advanced economies and China that adopted corporate led growth have slowed down drastically. India is still one island of prosperity even in this difficult situation and that is partly because of SMEs doing well. In fact one of the problems of U S economy at the present juncture is because SMEs gave way to large companies, which are in doldrums. The resilience shown by SMEs particularly during economic slowdown or crisis, is unavailable in US due to discouragement to growth of SMEs there.
It is not that SMEs have no problems in the country. There are many. Access to formal finance is a major problem. Banking sector though considers SMEs as priority lending, bank loans are not all that easily available to SME sector. They largely depend on family resources, informal channels like chit funds and money lenders, where cost of funds are much higher. Despite that they are able to compete partly because of the fact the capital requirement is much less compared to large companies. There is yet another source of funding available now that is to tap the capital market through SME exchanges of BSE and NSE. Here cost of funds would be cheaper but this is not getting popular rapidly as still most of the MSMEs are family owned and they fear going public. This is one area that needed to be encouraged, according to K K Jalan, Secretary, MSME ministry.
There is yet another major problem, that is lack of skilled and trained manpower. According to Pronab Sen, MSME owners spend most of the time skilling raw hands and once they acquire the skills, they move on to greener pasture in large companies and multinationals. But this handicaps MSMEs as their entrepreneurs get very little time to attend to other issues like marketing, technology and so on. To handle this issue, the MSME ministry is working skill mapping of the country. Former MSME Secretary, Anup Pujari, who began this work said this will go a long way in ensuring appropriate skills are available by providing requisite skill training in area specific manner. At the moment there are ITIs all over the country but they provide training skills which are required for local small scale industries resulting in SMEs constantly providing on the job training. If an ITI in Odisha provides training to plumbers and if there are no demand for plumbers in Odisha, they will have to shift out in search of jobs. To prevent this kind of training, the skill mapping will ensure appropriate skilling is provided to the respective towns so that SMEs do not face this problem.
The successive governments have done a lot for the development of MSMEs in the country but a lot more needed to be done and one great service that government, particularly State Government could do is to dismantle inspect raj, which still remains though licence-permit raj has virtually vanished. Also there is need for a comprehensive MSME policy. Now various ministries have sector specific policy, for example textiles ministry has policy for MSMEs in that sector. The recent decision to allow 100 per cent FDI in food retail and food processing industries will help MSMEs growth and development of food processing parks in the country particularly in rural and semi urban areas. MSME minister Kalraj Mishra said that he had representations from 130 SME associations for a comprehensive policy and he had constituted one man committee headed by former cabinet secretary Prabhat Kumar to come out with one. This is expected shortly. The government’s MUDRA bank to provide loans to micro industries run by scheduled casts and tribes too seemed to be working. (IPA)
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