The Hindu Business Line : Give SMEs a place to grow

This year's Budget announced the de-reservation of 180 items from the Small Scale Industries list so as to expose the sector to competition and enable them to grow in a competitive environment. Along with this move, the increase in the corpus of CGTSI and a reduction in the one-time guarantee fee to the Small and Medium Enterprises (SMEs) were seen as policies favouring the small sector. But while there is lot of discussion on macro-issues, many of the micro issues remain largely un-addressed. One key issue regarding SME development is that of availability of land/ready-to-use units for small units.

Inadequate infrastructure

Industrial estates set up at different places by the government are normally preferred by most SMEs as elsewhere the infrastructure often inadequate. Also, there are no land-related issues, such as industrial zoning, at these estates. For instance, to set up an industry on designated "agricultural" land, one has not only to go through the hassles of getting the zoning changed but also must be satisfied with lower Floor Space Index. Little wonder the zooming of prices of plots in government-developed industrial estates.

Other woes

Further, most of these estates are located 35-45 km from the city centres. This poses for SMEs a variety of problems. The major one is of attracting talent. As the SMEs offer relatively lower salaries, they find it difficult to attract quality human resource to production centres located far from cities. The distance factor also affects the transportation costs of the SMEs — in bringing in raw materials and shipping finished products.

All this shuts out SMEs from the industrial estates. What could be thought of is creating industrial areas exclusively for the SMEs. In this crucial would the site selection. Ideally, it should be between the already developed industrial parks and the city; SMEs would be advantageously placed close to their material and talent source — the city — and their clients — units in the industrial parks. With the new Special Economic Zone Act in place, some SEZs could be created only with SME focus. Since 40 per cent of the exports are anyway by the small sector, this move would give the SMEs an opportunity to benefit from the Government's export support scheme on an equal footing with the larger players.

Once the business property has been identified and clearances obtained, the SMEs then face the problem of raising finance. While SMEs are supposed to be priority sector credit beneficiaries, more often than not only the well-established players get easy funds.

Further, an entrepreneur who has to raise funds to buy a plot or a ready-to-use unit faces the usual problems of offering sufficient collateral with the banks. Often, the entrepreneur has to offer the property itself as collateral.

Survival quest

All in all, for SMEs it is a question of survival. Even while acknowledging their place in the industrial framework, there has been a failure to create a mechanism by which SMEs can find a rightful place to base their operations. The Finance Ministry, by creating physical infrastructure, and the Commerce Ministry, by way of creating SME-focussed SEZs, must get into the act.

(The author is Economic Advisor, Mahratta Chamber of Commerce, Industries and Agriculture, Pune)