Monday, March 11, 2013

Who is an SME? India and the World

Our family owns a small scale manufacturing business and I am deeply engaged in its day to day activities, exposing me to the “nitty-gritty” of being in the world of business. Besides, this involvement has given me the privilege to be part of a local small industries association. The network meetings and discussions in this association revolve around the dynamics and environment dominating the micro, small and to some extent the medium businesses in India. A common dissent is the misplaced identification of what construes a MSME in India today and the equally inadequate and inaccurate support to encourage growth of this segment.

Economies, across the globe, which are thriving with its inhabitants maintaining a reasonably accepted standards of living have extremely productive and efficient small and medium business sector. The bulk of employment is also generated by this sector.  Significantly, the larger enterprises are, invariably, dependent on small and medium enterprises not only for inputs but also for the consumption of their produce. Yet, the sector finds itself highly wanting in recognition and support.    

In the course of day-to-day parley, this critique was instigated by some random instances and prompted me to introspect.  The most common and oft-discussed issue was – it is time to redefine who is an MSME? 


I have been reading and writing about the MSME segment for some time now. In this interim, I have read some amazing articles, viewpoints and blogs. It has enriched my insight about the sector though a lot remains to be unraveled. However, I have compiled some of my observations and viewpoints.

Our MSME sector is blatantly unorganized. The percentage of organized players that we see is just the tip of the iceberg. This ensures that the subsidies, benefits and schemes reach only a handful of enterprises. A lot needs to be done and can be done in this regard and should be done. However, it “helps” to keep the sector unorganized (especially when many of the players themselves do not appreciate the need to be part of a greater whole for unethical issues like tax saving and circumventing the legal and statutory system). Why does it help? Because then these millions of small players do not have a voice! A voice that can create a lobby and influence policies and laws! When there is no organization, there is no identity or force to make their presence felt. An isolated enterprise is “a nobody”! Whom does it help? It helps the government and its administrative arms, the banks and financial organizations and the large companies.

A rape case created national level stir, people came together and the law was influenced. Therefore, it can be done provided there is an intent and unity among the MSMEs. Remember, it is not for nothing that it is said that the economy is driven by the MSMEs sector and that the MSMEs sector is the engine of growth and so and so forth.

Another issue is the lack of financial support or inadequate/ inaccurate support to the MSMEs. 
It is evident that MSMEs survive by themselves without any structured support. Even if there is any support, it is either too complex or simply inadequate. MSMEs deserve credit because they are the true fighters, foot soldiers and survivors, who actually face the enemy in the eye at the ground level in battle terms. A battle is not won by crafty strategies but when the soldiers on the ground engage with the enemy one on one and prevail. These same MSMEs when they reach the large scale state or become financially more viable by taking own risks; become the darling of the financial firms who swoop down to support them with funds and schemes. When does a child need support? – In the formative years or when they are old enough to fend for themselves? If enterprises are identified and segregated appropriately then the action to help them can be more focused and effective.
And who gets the bulk of the financing, benefits and sops? The large companies; who are already financially more secure and capable, who have larger “fashionable” overheads in the name of employee motivation and retention, who employ a mere percentage of the entire available working population! It is these companies who bank on the MSMEs to be their suppliers and prey on their costing, pricing and credit period for a better financial performance. And before someone points out the MSMED Act 2006 to me, let me again remind the reader to read the first line of this article.
The economy is not shaky because of global tremors; it is shaky because our fundamentals are not strong enough. We are not focusing on the plinth while constructing lofty buildings in thin air. The government talks about the glowing economy using all possible management jargons and how the large companies are pushing ahead India’s growth story while it is actually the MSMEs who are creating job opportunities for the masses and propelling conspicuous purchases, supplying goods to the large companies and helping them maintain a low inventory level, and still remain revenue generators, pay taxes.
I am sometimes astonished at the excessive awards function by media houses and other brands celebrating and recognizing “contribution to society”, “success in business”, “innovation” etc of large entities with their glowing faces pasted on the entire range of media from print to TV to the web; the bankers and the CEOs and owners of large companies hobnobbing together in these “social dos” with the clichéd “I scratch your back, you scratch mine”. Do they ever talk about or recognize the contribution of the MSMEs on whom they lean for their support? Are these MSMEs ever acknowledged? The same small enterprise that is actually instrumental in their growth and performance!
I sincerely implore the banking celebrities and financial think tanks to sit alone in front of a mirror, keeping aside their masks and honestly tell their own selves are they really doing anything for MSMEs? Are they really taking risks, going out of their comfort zone? Is there honestly no solution for the MSMEs? Maybe one person will stand up to create a difference and that it all it takes to change the rules of the game, to bring transformation, to create a new future, for good, for better.
I believe that the most important step today should be to enlarge and broaden the definition of MSME in the country. Countries are categorizing (as shown earlier) on the basis of capital investment, number of workers/ employees, turnover/ balance sheet figures, type of industry or business. There are even variations based on ownership and decision – making. This is also a pertinent factor. A bigger question is why there is a need to stress on the definition of SME? How will an enterprise benefit in India? A definition would justify why such businesses need support both from the government as well as banks and financial institutions, why they need tax breaks and how much support do they need for how long and on what concerns should the benefits be removed. The idea is to foster SME growth so that “they can fish and eat”. Proper definition will help develop more tailor made policies with better results and outcome. Which SME to support and why? How do we evaluate them? What should be the criteria?
For e.g. – A product that is a crucial raw material for another business is often bought by full down payment. Contrast this with another product which needs to extend a long credit period since it is not supplier specific or having any patent or uniqueness. Do both enterprises require same kind of support?
In any economy, MSME are the flesh and blood. They are life! Nurture them and they will sail all by themselves and take many more on board. Today, the need to redefine MSMEs has become grave and significant. Business is extremely complicated with too many forces at play simultaneously. We require a broader definition with specific provisions for industry – wise characteristics, location, product etc. A time bound program with serious involvement of actual enterprises from the entire cross-section of industries and associations (apart from government agencies, lawyers, chartered accountants, economists) should be created to come out with a comprehensive definition and description. 
It is an opportunity for India to bring about innovative definition of the sector and not blatantly emulating what the world does. Let us break new grounds, be innovative and transformational in our definition such that the world emulates us. Let us become trailblazers for once! 
Patrick Warburton said - I do believe that we have the opportunity to continue - I repeat myself over and over again with this - to redefine and reinvent ourselves and as long as we do that, then I think we've got some pretty good odds in our favor, because we're not always presenting the same thing.

Read the entire article in SME WORLD Mar 2013 Issue.

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