Small & Medium Enterprises require govt. policy support

Some say businesses are about the idea of Power, while businesses are about the power of ideas. Micro, Small and Medium Enterprises is defined in India on the basis of investment. Micro (upto Rs 25 lakhs), Small (upto Rs 5 Cr), Medium (upto Rs 10 Cr). There is a MSME Act, 2006 which govern the enterprises, and MSME Ministry administers it. For all intents and purposes, MSME depends upon the scale of investment.

It is gathered that 40% of the total manufactured output and 45% of India’s exports of US $ 185 billion, is contributed by 26 million industrial units provding employment to around 60 million workers. 15 million units are registered including the core which is micro industries.

The task force on MSME under the direct supervision of the PM’s office, and Dr B K Chauturvedi’s commission appointed by the Planning Commission have come to the conclusion that tardy and needful Credit are not provided by Commercial Banks and Banks which are in the 2^nd Schedule of the Reserve Bank of India Act. In order to kick start, the commissions made it an absolute necessity that Banks will finance micro industry without collateral or third party gurantee upto a Credit of Rs 10 lakhs. That means units who have investment in plant and machinery upto Rs 25 lakhs, will get Credit upto Rs 10 lakhs without any collateral security or third party guarantee. That would also mean, that a Small industry having an investment in plant and machinery upto Rs 35 lakhs, wants a Credit of Rs 10 lakhs only, would he cover under the definition so notified by RBI? Coming to the benefits, when the investment is made the criteria, even in cases where the Pre-shipment Credit and post-shipment Credit, Schemes like Market Development Assistance Scheme, and other generalized Schems operated by the MSME, why do they insist on ‘turnover’ being the consideration for granting of loans., when the definition is built on ‘investment’ in plant and machinery. The Ministry’s benchmark thumb rule is the definition the Act prescribes and it cannot be changed by the administrative apparatus citing a slew of reasons. Basic structure of the MSME Act should be the depth and pattern of any scheme envisaged by the Ministry. Unfortunately, this discrepancy went unnoticed by the Task Force and/or the Planning Commission’s study.

Small and Medium Enterprises are the most vulnerable to the vagaries of peaks and troughs and affected by the economic weather in the industrial landscape. Neo liberal policies in the context of abrupt bad weather in the global economy brought to focus that the financial crunch drove SMEs out of business. Credit Guarantee Schemes, tax concessions, priority lending, (abstract) marketing linkage, turning the course of the geography and direction of markets by re-routing the supply to the domestic market which remained untapped, inspite of plentiful space and market advantage, etc made a critical impact on the SME Constituency. Indian manufacturing sector with its highly distributive channels need to be programmed to focus on retail and village markets, which have high purchasing power, largely remain untapped with the result the stakeholders do their purchase from the up-country or a greater market which are set up without any tag to the market pull or market push. Many super malls in the medium scale have closed down operations in the metropolis. Why? Location of a retail shop plays an important role in its sales pattern. A medium size textile shop at one of the sub satellite towns’ closed shop even though a big sized mall is busy 12 hours a day, is situated opposite to this. If the textile shop owner had approached for a twin agreement with the large mall, and latest fashion quality products were displayed, the shop could have survived. In the case of fashion goods, people look to latest patterns, where small sized shops won’t attract buyers. People who buy modern fashionable dresses, often visit large textile shops, hence mini, tiny, shops in satellite towns, cities may not pay dividends.

Blanket freedom to import in some sectors is a key problem which has overshadowed the policy edifice of MSMEs. Indiscriminate import of edible oils have seen the death knell of India’s domestic oil industry. Corporate sectors vulnerable to shocks; however, the shocks do not straight away affect the SME sector. The causes that ruined the SME in America and Europe are a distinct policy in India due to distinct economies and sociology factors.

In the United States, 8, 50,000 small business loans were financed in part by Securities whose issuance was supported by Term Asset-backed Securities Loan facility (TALF).

No body can blame Banks alone for not providing Credits. Nobody can blame the system of banking that is responsible for micro, mini, small industries not getting proper credit at the needed time. Is economic downturn responsible for slowing of bank Credit? But it is too early to determine that how much of the reduction has been driven by weaker demands for loans from such business, how much by deterioration in the financial condition of such businesses during the economic downturn and how much by restricted Credit facilities? Unfortunately, SIDBI which is the watch dog for providing support to SMEs through refinancing has never conducted a study.

In India, the Cluster development was largely unintended growth which practically came up because of some advantage like raw material advantage, existence of a main factory which could outsource work, the location of intermediary industries who can support in the building of the value chain, talented workforce available in a particular region, excellent topography for moving the finished goods, good water, power, excellent roadways, proximity to sea ways, air ways, etc. However, when the Government tended to tinker with Clusters, it was always not a success story because of the flaws in the conceivement of the Cluster, its linkages, SWOT, etc. The diagnostic study does not form a pattern; it is evolution of the Cluster, its product base, with its particular programme that should form the Key. UNIDO pattern of Clustering is not objective for a Country like India. The interventions suggested are imagined and not the real needed requirement of different clusters. Competitiveness of individual firms on a collective basis which Clusters seek to achieve has failed in many of the Clusters, because the chosen Clusters did not have the objective to grow. Many distortions in public policy have been the bane of SME Policy. If India has to build a powerful MSE sector with linkages to credit-market-labour-competitiveness, it has to build powerful edifices, and re-structure its aims and objectives which are contemporary.