Originally appeared in Maharashtra Economic Development Council (MEDC's) MSME Compendium 2013
Betting on Small
Where are the jobs going to come from? Small business, manufacturing
and clean energy. Where's the money to finance them? The banks and the
corporations in America today have lots of money that they can invest right
now. ~ William
J. Clinton
In 2012,
when the US Presidential elections were fought, one of the prime areas of
concentration both for the Democrats and the Republicans was the small business
segment and the proposed thrust for it to excel. When a country with USD 15.7
trillion of GDP invests and commits such serious attention to the SME/ SMB
segment it really speaks a lot about the potential and criticality of the
sector for the growth of the economy and social development.
Germany is
another such developed nation which has a robust SME sector to power its
growth. This is one nation which has managed to stay above all the issues
surrounding other EU countries. SMEs contribute 57% of Germany’s GDP. According
to World Bank data, the percentage contribution of SMEs to GDP in High Income
Countries is in the range of 50 – 55% of GDP (UAE, Singapore, Qatar, Austria,
Germany, Denmark, France, Norway, US, UK)
We can go on
with examples from different countries which are doing remarkable well compared
to others solely due to a potent SME sector. World over economies are dependent
on the SME sector for employment, resource mobilization and utilization, rural
development, inclusive growth, improving manufacturing and service efficiency
and promoting consumption. All these factors culminate in improvement of
standard of living.
However,
India is yet to nurture this powerhouse of growth to the best of its potential
and benefit for the nation. There is total inertia on the part of the
government towards the sector. Our poverty numbers are despicable and the level
of governance is not worthy of any mention. There are some efforts for the MSME
sector through various quarters but most of it is lip-service rather than
grounded plans with quantifiable targets and steps for execution to realize
tangible results. As a nation we are expending too much energy for this sector
in a haphazard fashion which renders most of the plans and schemes useless.
When ten
people work in isolation and are trying to make progress in opposite directions
the resultant is status quo. We have multiple ministries affecting the MSME
sector who create and design modalities which are not in harmony with each
other. There is inherent lack of synergy which bogs down the sector.
Instead of
running in circles (evident based on the progress of the MSME sector in the
last decade and a half), we need to introspect. The call of the hour is root
cause identification and analysis. We must determine the contributing causes
hindering the sector from reaching its fullest potential.
What is holding us back?
Considering
that the SME segment is thriving in many countries, it is apparent that in
India, somewhere we are going absolutely wrong. Till we do not identify and
address those factors, we will not make any headway and all kinds of
SME-centric efforts will become futile. This is a sector that can truly
alleviate our issues of poverty, joblessness, creating an equitable society and
inclusive growth. This sector will actually help us realize the GDP growth that
we only see in whitepapers and theoretical projections. However, SME sector in India is riddled with
a range of issues.
·
Setting up a Business
There are a
lot of people with budding business ideas and possessing an entrepreneurial
zeal but the rigmarole of setting up a business simply turns half of them off.
The sheer complexity of permissions, licenses, compliance even before we start
making a single penny of sales hugely demotivates the entrepreneur. There is
simply a lack of transparency and simplicity. It seems all our systems are
designed for creating obstacles instead of breaking the shackles. Logically, if
someone is keen on setting up business, all other allied machinery should be
swooping in to provide support to ensure success. After all, does a successful
business only benefit the owner/ promoter?
·
Inadequate financial support from banks and
financial institutions
The
government frequently comes up with directives and guidelines but are they
really being met when it comes to lending to MSMEs? No! Irrespective of RBI
directives, the ground reality is far from what is expected or projected. The
government schemes also leave a lot to be desired.
The irony is
that the schemes, plans and aids etc. do not consider the needs and wants of
the MSME owners rather formulated as desired by the policy makers. If a person
needs food to survive, what is the sense in giving him subsidized soft drinks?
·
Lackluster Infrastructure
The lesser
said about our infrastructure the better. Energy is one of the biggest
impediments and we are simply unable to race with the growing demand of power.
There is a lack of robust plans to add generation capacity though consumption
is steeply shooting up. The roads of Mumbai are even dug up every third day
causing traffic snarls. With a huge coastline, how many ports do we have? What
about the access route to the existing ports and their ability to manage huge
container ships? One Yamuna Expressway or Bandra Sealink in the whole of India
is not the definition of a dynamic infrastructure to support trade and
commerce. People shy away from setting up businesses in rural India since
accessibility itself is an impediment.
·
Missing clusters
MSMEs can
grow better in a cluster environment where they become part of a larger value
chain. World-wide clusters have proven to be extremely effective. China itself
has multiple clusters for different types of products. Jewelry, footwear,
textiles and garments, chemicals and auto-parts business units are some areas
which can enormously benefit in a cluster setting. India lacks such vibrant
clusters barring a few examples here and there.
Source:
http://www.chinasourcingblog.org/assets_c/2011/11/Industrial%20Clusters-thumb-500x291.png
·
Weak R&D and miniscule innovation
Machines,
pharmaceuticals, IT solutions and products – have we actually come up with some
innovation that has taken the world by storm? How many Microsoft, Google,
Facebook or Wikipedia have been created by Indians? There is such noise about
patent of cancer drugs. How many have been developed in India? We buy
proprietary original equipments from their manufacturers located in Europe or
USA to run our factories. Why don’t we have such indigenous products?
·
Poor thrust on the manufacturing sector
The
dependency of our GDP on service sector is worrisome. China has become an
economic goliath on its sheer strength as a manufacturing hub. Today, any
product that we pick up from the shops has a Made in China stamp. And that is
not the case in India but even in US or Europe. Manufacturing business is
tangible and the mode of true value addition through resource utilization. They
create opportunities for the service sector not the other way round. Today,
India is harping on the potential of its services sector but it will not take
much for some other country to eat away into this segment because the resource
requirement is minor compared to manufacturing units. And the cost for setting
up new ventures is much lower with lesser complexity.
·
Inflation
The cost of
business operation is growing due to unchecked inflation. The government seems
to be waiting for some divine intervention to solve this problem. The pinch of
inflation is higher for smaller businesses whose narrow margins are further
eroded rendering them economically unviable in many instances.
·
Statutory compliance, record-keeping and
inspections
Operating a
business will surely entail certain amount of compliance, record-keeping and
periodic inspections. But the redundancy of data storage, complexity of filing
returns and intrusion of inspectors who are more inclined towards corrupt ideas
than actually inspecting the facilities are not in the interest of the small
businesses or their progress rather causing unnecessary hindrances.
·
Rickety MSMED Act 2006
When the
MSMED Act 2006; the general opinion was that it is a great step towards the
cause of MSMEs. Sadly, the truth is the Act lacks enough teeth and does not
seriously help resolve some of the key issues hampering MSMEs, one such being
the delayed payment clause.
·
Overburdened judicial system, Archaic laws,
Corruptible enforcers
A serious
set of issues that externally and internally hamper our small businesses is the
overburdened judicial system (which makes justice delivery painstakingly slow
or sometimes impossible apart from the cost) and its complicated ways aided
with 19th century laws applied in 21st century scenario. And
to add fuel to the fire is our law enforcers many of whom lack integrity and
honesty towards the job. If we gather a handful of entrepreneurs or small
business owners at a street corner, they will have atleast ten instances of
unnecessary harassment or injustice. Imagine the magnitude of the problem in
the whole country.
·
Regionalism and factionalism
NREGA has
already shown its down-side towards industry. One of the outcomes of our
democracy is the number of political parties, their ideologies, regional
interests that affect availability of labors and workers. Actually, only the
political parties gain and both the industry and the labor force are the
losers. Finally, it is the country that loses but somehow the powers that be
are unable to see it or have decided not to see.
Today, we
need solutions to remove the hurdles. Simultaneously, we also need to identify
the contemporary sectors that are conducive for MSMEs including women, young
entrepreneurs, residents of rural Indian and those living on the fringes that
can be brought into the mainstream. This will result in maximum outcome based
on effort.
Obstacles
don't have to stop you. If you run into a wall, don't turn around and give up.
Figure out how to climb it, go through it, or work around it. ~ Michael Jordan
Promising Sectors for MSME
With the
changes occurring around the world, opportunities are cropping up from unlikely
quarters. The growth of niches today is probably the most since independence. Though
the government has earmarked certain items to be produced by MSMEs only, it
does not restrict them from venturing into other areas. There are some sectors
more favorable for MSMEs to participate and grow. The following list is based
on modern global trends.
·
Education
This segment
has an entire range of options and demand from small to large like day-cares,
playschools, books and teaching aids, training programs, schools, colleges and
universities. Technology is a game – changer in this business. One can start a
good online business in this sector. See the case of Tutorvista.
·
Pharmaceuticals
Diseases are
not going to get eradicated that soon. And our life-style and depleting
environmental conditions are giving rise to newer issues every day. There is a
steady demand for generics and life-style drugs especially in Latin America,
Africa and South-East Asian countries.
·
Healthcare
Healthcare
is the segment to watch out for in the 21st century. People are more
open to alternate therapies like Yoga, Ayurveda and Unani medicines. The
life-style problems and the need to look good is driving people of all age
groups towards fitness centers. Long
hours in offices, travel time and fast-paced lives are causing various health
challenges that require exercise aids and frequent physiotherapy. Smaller
cities are warming up to the need for multi-specialty hospitals and better
healthcare. Many hospital chains are opening up in a hub-spoke fashion to cater
to the B and C class cities. The opportunities are aplenty and a huge latent
market waiting to be served.
·
Manufacturing
Auto –
parts, electronics, nanotechnology products, medical equipments, smart-phones,
computing devices are in great demand and will sustain in future.
·
Logistic Management
Globalization
has truly boosted the potential of logistics. Be it people or products,
something needs to be shipped and delivered just in time across the globe.
There is a need for enterprises that help support supply chains of companies to
meet their procurement and delivery targets. E-commerce has also given lot of
thrust to the logistics business.
·
Tourism and Arts and Crafts
Tourism in
India has a mystic allure and the westerners love to visit Rajasthan,
Uttaranchal, Kerala etc. Other states also have lot of heritage sites which if
show-cased properly can be huge tourist attractions. Our arts and crafts have a
decent global appeal and demand. We need entrepreneurs to gather these items
from rural India and present it to the buyers across the world.
Medical
tourism is a huge factor for India and people are flocking from around the
world for serious procedures like bypass to fashionable things like liposuction
and facelift. We need to look for the honey pot.
·
Food Processing
Instant food
market is booming. A decade ago it was probably Maggi that we knew. Now we have
all kinds of spices, semi – cooked food, samosas and parathas. The options are
endless. Knorr soups are now being challenged by Ching’s secret soups which
require much lesser time and effort to make and have. The young working class
and students in hostels are the major drivers of this packaged food segment. We
are opening our palate to international foods and health concerns are driving
us towards organic food, farm fresh etc. Indians travelling abroad or staying
in foreign countries are big customers of processed Indian foods.
·
Information Technology
The Indian
MSME story is incomplete without the amazing opportunities in the Information
Technology sector. Cloud solutions are gaining prominence. Big data analytics
for banks and pharmaceuticals is in demand. E-commerce business is coming off
age and everyone is into Flipkart and Jabong. A very potent business
sub-segment is cropping up in the form of Digital Marketing, Apps for smart
phones and Gaming devices as well as solutions. Companies are trying to reduce
their total cost of ownership by migrating towards server farms or the SaaS
model applications. And last but not the least facilities management is always
in demand.
·
Green Technology
Though we
are still a developing country but we can see a rise in awareness and adoption
of green technology. Expensive energy costs are leading to use of energy
efficient LED lamps and constructing green buildings that are less energy
hungry and more economical, ergonomic and happy. E-waste management market is
maturing.
·
Renewable Energy
The cost of
energy generated from non-renewable sources will continue to escalate as
scarcity grows. Simultaneously, availability of good quality power will become
a challenge. There will be a steady demand for alternate sources of power
atleast in housing / residential complexes for basic lighting and ventilation. Small
generation units and products will be in demand.
There are
opportunities lying to be exploited in various corners. How we identify and
turn them into booming business venture depends on the ingenuity of
entrepreneurs and the “surrounding
business environment.” A major role will be played by the government in
providing the necessary framework to help MSMEs outperform.
Wishlist 2020
What the
government needs today is a clear-cut roadmap to steer the nation towards
sustained growth and meaningful development by the end of this decade. Many
smaller countries are rapidly growing thus, making them a desirable business
destination. They are not stunted by the geographic size of their country or limited
population. The difference between us and them is – they have a well-thought of
plan and the resolve to execute it to the best of their ability and beyond. They
are aware of where they stand, definite about where they want to be and
relentless in doing what needs to be done to meet the goal.
We can blame
globalization, privatization, capitalism, cliques, vested interests, weather,
mindset, culture, “the system”, poor education, poverty etc. for the problems
grappling this sector but the honest fact is that we are not trying to the best
of our ability; we lack commitment, sincerity and conviction.
The
solutions are right in front of us. We simply need the will to do!
Following
are some of the pointers to start with.
·
Expand the
definition of MSME in India by making it more inclusive with multiple segments
and not just bold three categories clubbing all and sundry into one of them.
·
Involve
large number of actual industry players in policy formation to remove the
system barriers and thus promote entrepreneurship, business, trade and commerce.
·
The age old
practice has been to let enterprises setup their factories in remote areas and
then slowly build the infrastructure. We need a paradigm shift. Build the infrastructure
and invite people to invest. Unlike the chicken and egg story, roads should
come before industries. Period!
·
Ease the compliance
system and taxation, reduce data retention or atleast allow electronic storage,
simplify return filing and its periodicity, streamline inspection procedure
with increased awareness to the enterprises about their rights and that of the
inspectors. Government should bring innovation to its compliance process and make
it investor friendly and not draconian.
·
Develop
vertical and horizontal clusters across the country
·
Our judicial
system should be provided facilities and framework for faster, sharper and
stronger legal teeth and might to handle defaulters thus protecting MSMEs
·
Reward
enterprises that are employing more people which will promote further employment
and not burden with complex labor compliance which scares away owners.
·
Creation of
a huge credit flow system with accountability; government should join hands
with international banks and institutions like UN, ADB, and WB etc. for MSME
specific financing.
·
There should
be specific promotion of women entrepreneurs especially to aid them in rural
areas or smaller towns and cities where there are huge untapped opportunities.
·
Government
should provide structured support and policies for businesses to grow in size
instead of opting to remain stunted and circumvent legal and procedural hassles.
·
The laws
should provide honest and logical exit strategies because some businesses will
get stuck in the cross winds.
·
Industry –
academia interaction and collaboration for skill development, employment
focused curriculum, stronger vocational training avenues
Taking up
the upliftment of the sector should be seen as an opportunity rather than
obligation. We need to understand the growth potential and developmental reach
of small businesses in a geographically vast country like India with world’s
second largest population with no abatement to the rapid increase. Consider
growth of MSME sector in the best interest of the country, its sovereignty and
future.
“You have
within you, right now, everything you need to deal with whatever the world can
throw at you.” ― Brian Tracy
