Open Forum
New Delhi, 29 July 2020
Struggling MSMEs
GROWTH POTENTIAL UNTAPPED
By Dhurjati Mukherjee
The MSMEs sector, regarded
as the growth engine of the Indian economy, is contributing 5 per cent of the
GDP. But due to the prolonged slowdown and the pandemic, most of the small and
micro enterprises are struggling given the recession in demand. Worse, of the
over 55 to 58 million Micro, Small & Medium Enterprises only 8 million are
registered! The need for reviving this sector has been a big challenge for the
government, which has grown manifold within the past over four months.
The promotion scheme announced
for these enterprises in the Atmanirbhar
Bharat Abhiyan would obviously encourage a number of unregistered units to
approach government for enrolment. However, the Prime Minister’s programme to
help small businesses back on their feet through $40 billion of government
guaranteed loans is being considered too little. It may not be enough to save
many companies in the sector. Around 85 per cent of MSMEs depend on informal
sources of credit and funding this huge a percentage obviously requires more
funds.
Fortunately, the
World Bank has stepping in, giving $750 million package for medium and small
enterprises in India, severely impacted by COVID-19 and the lockdown. The MSME
Emergency Programme is intended to support incremental flow of finance to MSMEs
and address the immediate liquidity and credit needs of some 1.5 million
enterprises in the category. “The MSME sector is central to India’s growth and
job creation and will be the key to the pace of India’s recovery, post COVID-19”,
stated the Bank’s Country Director Junaid Ahmad. This funding will support the
government’s initiative to protect the MSME sector by unlocking liquidity,
strengthening NBFCs and small finance banks and enabling inclusive access to
financing.
However, a major
section has been reluctant to go in for new debt and would have preferred the
government cutting the goods and service tax (GST) or waive off interest on
previous loans. In a letter to the Prime Minister, the Consortium of Indian
Associations has stated that nearly 35 per cent of the 650 million small
businesses across the country could shut down in the absence of government
support. And though government is pressurising to dole out loans, businesses
aren’t coming forward as demand remains tepid. Another aspect of the loan
scenario is that lenders are either asking for increased paperwork or those in desperate
need are being deemed ineligible.
Six out of 10 MSMEs
in the creative sector – advertising, publishing, design and performing arts –
have stopped functioning due to COVID-19. Over 50% of event management companies
have seen 90 per cent of their work cancelled during lockdown. A study titled
‘Taking the Temperature Report’ released on July 7 provided a snapshot of the
situation beginning March-end till June-end. The data across found that MSMEs
and self-employed groups make up 88 per cent of the sector and have been worst
affected.
Though the lockdown
started from March-end, the slowdown, which affected mostly the small and micro
enterprises, had started since last August. The revival of these units is a big
challenge--primarily due to cost factor, their products are not competitive and
cannot compete in most sectors. Besides, they are also lacking in terms of
quality and reliability.
Though government has
reposed lot of faith in these small enterprises their becoming productive and
competitive is in a haze. To start with, there is need for guidance from the
government – not just on finance – but possible areas of diversification in
manufacturing and providing technology partners. These could include assistance
in foreign tie-ups for technology support.
The Ministry of MSMEs
had developed around 25 Technology Centres (TCs), of which 15 are expected to
be operational shortly, but there is definitely need for more. These Centres
play a vital role to assist MSME ventures via access to advanced technologies, technical
advisory support and talented labour which offers technical skill development
to youth at different levels extending from school dropouts to graduates and
engineers. These Technology Centres provide a variety of training in various fields
such as Diploma in Tool & Die Making, Advanced Embedded Technology,
Artificial Intelligence & Internet of Things, Fragrance & Flavour
creation, Footwear Manufacture and Design, etc.
What is a vital development
is the government’s resolve to give more orders to these units. Plus, Amazon
has reportedly decided to invest $1 billion in digitizing small and medium
businesses in India and expected to export Indian made goods worth $10 billion
by 2025. These, however, may not be sufficient as units do want to emerge big
and strong. What is necessary is to equip them, specially with the right
technology, which could be made available from the IITs and other organizations
engaged in industrial research and development.
It needs to be noted that
manufacturing technologies in each and every sector has to be formulated
through an action plan, which should be set up at the national level. Mere
slogans of self-reliance by political leaders would be of no value unless
effective measures are taken by the government in consultation with the
chambers of commerce and experts drawn from industry and research organisations.
The
fact that needs to be remembered is that these enterprises account for 33 per
cent of merchandise exports and thus technology and financial support at this
time is imperative. Foreign-tie-ups are essential to upgrade quality of
products and also ensure large-scale marketing in different markets.
However, it can also
be said that despite numerous roadblocks, the SME sector has performed well in
the country. There are distinct barriers to innovation, the most important of
which seems to be government policy. While it does aim to facilitate growth of
SMEs by promoting various schemes and programmes to facilitate innovation
through its distinct institutions, impetus needs to be given to evolve a
realistic action plan in consultation with experts and State governments. The
scale of operations in both public labs and private research institutions need
to be revamped for greater outreach and support.
Another major aspect which
needs attention is that programmes such as Cluster Development, need to be expanded
to provide greater access to more individual firms within the cluster. Modernisation
and technology upgrading along with innovative methods of capacity building and
marketing of products are necessary. Finally, a holistic and separate
innovation policy for the SME sector can also be made to promote innovation.
The onus lies on the government, which needs to prove its resolve of
self-reliance through effective development of the small and micro sector.---INFA
(Copyright, India
News & Feature Alliance)
New Delhi
27 July 2020
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