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BW Businessworld

‘Small Sector Key To Growth’

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Micro, small and medium enterprises (MSME) play a pivotal role in the overall industrial economy of our country. In terms of value, the sector accounts for about 45 per cent of India’s manufacturing output and over 43 per cent of total exports. In an interview with BW | Businessworld, K.H. Muniyappa, minister of state (independent charge) in the MSME ministry, talks about why the growth of small and medium enterprises is key to the government’s efforts to boost growth amid a slowdown. Edited excerpts:

How has the economic slowdown affected the MSME sector?  What are the measures that the government has taken to arrest or minimise the impact of the downturn?

The government has taken a number of short- and medium-term measures to boost manufacturing and improve credit availability. MSME units have been given capital subsidy under the Credit-Linked Capital Subsidy Scheme and the Prime Minister’s Employment Generation Programme (PMEGP), guarantee-free loans under the Credit Guarantee Trust Fund Scheme, raw material support through the National Small Industries Corporation (NSIC) and marketing assistance. To enable the MSME sector to become more competitive, the National Manufacturing Competitiveness Programme (NMCP) was launched by the government in 2007-08. This programme (a private-public partnership in most cases) has also gained momentum over the years and proved beneficial.

In the current fiscal, Rs 101.2 crore has been earmarked for different components of the NMCP. The government has set up a committee to look into promoting manufacturing in the MSME sector, which would make recommendations on how to increase manufacturing in the sector.

It’s felt that only growth in the real economy, that is, manufacturing and agriculture, can help India end its economic turmoil. Can MSMEs play a major role here, and what can the ministry do to facilitate this?      
The MSME sector has consistently registered higher growth compared to the overall industrial sector. Its major advantage has been its employment potential at low capital cost. As per the Fourth All-India Census of MSMEs, the sector employs around 60 million people across 36 million enterprises. Growth in agriculture and manufacturing has a major role in balancing the country’s overall economic growth, and MSMEs have been contributing significantly as well. The government’s focus on this sector has been consistent, and it has put in place a number of promotional schemes across the country to supplement the efforts of states. These relate to credit support, performance credit rating to facilitate easy access to credit, marketing support, setting up of clusters and infrastructure facilities, among others.

A parliamentary panel recently expressed reservations about the new foreign direct investment (FDI) policy’s impact on MSMEs, saying enough safeguards had not been provided to insulate the sector from the changes. Do you agree?
The FDI policy for retail has already provided the required safeguard for the MSME sector in the form of mandatory 30 per cent sourcing of (local) goods by multi-brand retailers. The MSME ministry is already in the process of aiding capacity-building so that they (MSMEs) are able to meet this requirement. This includes quality management standards and quality technology tools, Credit-Linked Capital Subsidy Scheme, Design Clinic Scheme for design expertise, marketing support/assistance (such as barcodes), and a national campaign for investment in intellectual property rights. In such a situation, I don’t see any reason for MSMEs to have fears as long as they are quality-conscious and cost-competitive.

Are Indian MSMEs innovative enough? Is the ministry taking any steps to encourage innovation and R&D in the sector?
India is known for its jugaad mindset. The challenge before us is to convert this into an innovation ecosystem for our industries. Technology will be the foremost factor for enhancing the global competitiveness of the Indian MSME sector. The Prime Minister’s Task Force on MSMEs has identified poor technology — generally used by the MSME sector — as a major cause for the lack of competitiveness of the sector. Without infusion of appropriate technology, survival in the global marketplace would be in doubt for a large majority of MSMEs.

Realising the importance of technology and innovation, the MSME ministry has taken a series of initiatives to promote R&D and technology infusion in the sector via the MSME Sectoral Council, Innovative Cluster Initiative, Incubator Scheme, Design Clinic Scheme, IPR Scheme and a national award for R&D in the MSME sector, etc. Besides these, the ministry has launched various other schemes — in partnership with several national and international organisations — to promote innovation and increase access to technology, meet training needs for skilled and specialised workforce, among others.

What are the promising areas for MSMEs? How is the government encouraging entrepreneurship?
Products like auto components, biotech products, coir products, drugs and pharmaceuticals, food processing products, IT (hardware), KVI (known value items) products, leather and leather products, ready-made garments and sports goods manufactured by MSMEs can excel in the global market.

For strengthening entrepreneurship in these product groups, the ministry has been providing support in credit facilities, enhancing market access and competitiveness, technology upgradation and skill development through various schemes such as the Prime Minister’s Employment Generation Programme.

Around 400,000 people benefited from this scheme in 2012-13. During the same period, around 600,000 people were trained in different trades and activities under the National Skill Development Programme. Under the 12th Plan, the ministry plans to train 4.2 million youths for entrepreneurship.

Is the new public procurement policy beneficial to the MSME sector? Or, is it anti-competition? 

The policy aims to improve market access and competitiveness through increased participation by MSMEs in government purchases and encourages linkages between MSMEs and large enterprises. The policy is not at all anti-competition; rather, it provides transparent and fair opportunities to all sectors concerned.  

What is the future of the MSME sector?  What kind of a role will technology play in creating successful MSMEs?
The challenge for the nation is to derive a demographic dividend from the large population of youth, and this can be achieved by their engagement in development and productive activities, which is possible only through MSMEs. The Prime Minister’s National Council on Skill Development has set a target of training 500 million youths by 2022 to provide them with employment skills. The ministry has been assigned a target of training 15 million youths by 2022. To cater to the technological needs of the country, 15 new tool rooms and tech development centres (to facilitate training) are also being set up with assistance from the World Bank. Moreover, a technology acquisition/development fund is being set up to help MSMEs meet the challenges of a competitive environment.

How does the ministry intend to tackle problems such as poor access to finance, non-availability of collateral, etc., which have been plaguing the MSME sector?
Banks have also been apathetic towards lending to MSMEs, apprehending that loans given to MSMEs may become non-performing assets. To address this problem, the ministry is implementing a credit guarantee scheme under which collateral-free loans up to Rs 1 crore will be given to MSMEs by banks. This has resulted in an improved credit flow to the MSME sector. Moreover, a Performance and Credit Rating Mechanism for micro and small enterprises has been formulated.     

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(This story was published in BW | Businessworld Issue Dated 02-12-2013)