Govt needs to do much more for small, medium enterprises

In a country where the demographic profile reveals a far higher section of young people in the working age group, the availability of jobs to provide gainful employment is always a critical factor. In this regard, the Micro, Small and Medium Industries (MSMEs) are probably one of the most important sectors in terms of both economic growth and providing employment to millions.

But the sector is now beset with a new set of challenges. While availability of funds at lower rates continues to be a pressing issue, small companies are also having trouble finding new markets for their goods, accessing new technology to improve their products and finding skilled labour.

“Finding credit is still a big problem, plus there is a lot of paperwork involved with the banks. Even the Reserve Bank of India has recognised that nearly all banks have failed in giving adequate funding to the sector,” said Mr Chandrakant Salunkhe, Founder President, SME Chamber of India.

The sector accounts for 45 per cent of the manufacturing output and 40 per cent of total exports in the country, according to the 2010-11 Annual Report of the Union Ministry of MSMEs.

It also employs 59 million people in over 26 million units in the country - about half of which are based out of rural and semi-urban regions. These firms together make over 6,000 products ranging from traditional to high-tech items such as auto components.

Economic downturn

Over the past few years, however, the high exposure to the export markets of the US and Europe has left the sector in doldrums because of the global economic slowdown. The industry now feels that as the “engine of growth” for the economy, the Government needs to address its problems more aggressively.

“The incentives provided by the Government are not sufficient. Though companies with turnover of above Rs 25 crore are capable of finding the market and looking for new regions to export, companies with revenues of only up to Rs 10 crore, need the support,” said Mr Salunkhe.

The chamber feels that similar to countries such as China, Thailand, Philippines and Indonesia, where the administration helps through export promotion, at home too the Government needs to take out more favourable policies and extend support.

There is a Market Development Assistance scheme of the Government which provides financial assistance in the form of a rebate scheme. However, this has not been as successful as hoped, he said.

Export promotions

“A Rs 1,500-crore fund should be created for export promotion. Our Government is certainly not doing enough. It can take out various policies, for example give a condition for global multinationals with manufacturing operations in India to source at least 40 per cent of the components from within the country,” Mr Salunkhe said.

“While many engineering and pharmaceutical companies supply overseas to companies such as Boeing, auto companies like Skoda still import much of their parts from overseas.”

Last year the Prime Minister-appointed Task Force on MSMEs, which was headed by Mr T.K.A. Nair, had given a report suggesting various schemes in aid of the sector.

These include procurement by Government agencies and public sector companies to the tune of 20 per cent from sector, apart from earmarking additional public spending to the tune of Rs 5,000-5,500 crore over the next three to five years.

The recommendations also say that strict adherence to the stipulated lending targets by the commercial banks for micro-enterprises are very necessary. However, nearly none of these recommendations seem to have been implemented.

Rate of interests

“The task force's recommendations do not seem to have taken off. There is no agreement on the lower rate of interest demanded by the sector. Nor, is there a final word on the Government's procurement policy … in the US, Government agencies have to buy 40 per cent of their requirements from small businesses,” Mr Salunkhe said.

The sector is looking for bank borrowing rates of seven per cent for up to Rs 2 crore loan, 8.5 per cent for small companies looking for credit of around Rs 8 crore. Other medium enterprises can pay interest rates of around 10 per cent for larger loans. Mr Salunkhe said that banks should try harder with new initiatives in order to increase their disbursement to MSMEs. A lot of times small businessmen are refused loans due to poor credit rating, though these entrepreneurs have no idea what their rating status is.

“Banks need to spread awareness about loan defaulters, maybe through advertisements. Many new entrepreneurs are on the list and do not know if it, but they are refused loans. Security requirements against loans need to be relaxed more, so that startups don't face problems,” he said.

> roudra.b@thehindu.co.in

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