To tap emerging opportunities and be globally competitive traditional industries have to move out of their comfort zones, government has to ensure stability in policies and help enhance cost competitiveness, says KP Gopal, Convenor, MSME Panel CII.

What did the year hold for MSME sector?

Initially, it was tough due to the fall out of demonetisation and then the shift to GST. Even companies not in cash business were hit by the overall mood. Though good in the long run, this was a new environment for the sector. But new opportunities were thrown up in e-commerce and non-cash businesses benefited. GST opened up the market across the country as transactions across States became easy.

What does this new environment mean for the sector?

In 1990s big companies like Ford and Hyundai came in with their own ancillary suppliers. But in last two years smaller, standalone companies are coming in. Their own markets in Europe and elsewhere are at most growing 1-2 per cent, so those looking for faster growth are coming here. They are looking for local partners. For example, food processing companies from South East Asia are keen. This means new businesses in cold storage and transportation. Automobile is strong now but bound to see some churn in next decade as electric technology comes in.

What does the emerging trends in automation and digitisation, mean for MSMEs?

It will have to happen. Though we need more job generation, it is becoming expensive and the sector is labour intensive. So automation is bound to happen, and happen faster. People are looking at it and realising they have to take to it. So, we need to understand how it affects the skill basket and pattern of job generation. The ratio of turnover to GDP is just 8 per cent but MSMEs generate 70 per cent of employment. Even if employment cost goes up by 2 per cent the impact is high.

What is the immediate outlook and expectations to sustain growth?

We are ending the year on a positive note with the direction of economy changed for the better. There is stability and clarity in what we can look forward to, which is good for business. Stability in policy and streamlining of GST rates are absolutely essential. GST rates have to be streamlined in 2018 and the platform simplified. Measures for ease of doing business must continue. The greatest achievement in recent years is the competition between States to make things simpler.

MSMEs need opportunities to grow the business not just run it. Some start has been made in public procurement.

On interest rates and global competitiveness…

MSMEs have gotten the short end of the stick on interest rates. There cannot be a situation with big companies paying 4-5 per cent while small players fork out 13-14 per cent, which is twice banks’ cost of funds. How do you compete with foreign players who can tap funds at sub-5 per cent? Margins for MSMEs are less than 6 per cent and tightening with competition and market demand. On interest alone domestic companies will be beaten.

Banks look at MSMEs as their biggest customer but charge them the highest rates. Now with credit guarantee scheme and other support risk is out of the equation. So it remains to be seen who kicks off the cycle of offering lower interest and sets the ball rolling or whether the government has to mandate this.

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