'SMEs need a change in perception'

The small scale industry (SSI) sector in India is different from the small and medium enterprise (SME) sector in other countries, said K V S M Krishna, senior faculty, Entrepreneurship Development Institute of India, while presenting a paper on prevention and cure of sickness in SME segment and medium enterprise in Ahmedabad.

"There is a need to broaden the definition of the small scale sector, which will create room for industrial revival," he added.

Stating the implications for sickness on definitional peculiraty, Krishna said, "There is no typology of medium scale in India and the Indian definition of small scale is investment specific, while in the rest of the world it is in terms of employment, assets or sales or combination of these factors. In India only manufacturing firms and industry related service enterprises are included in the sector whereas in most other countries even trading businesses are included."

India is the only country where there is policy of product reservation for small scale firms. Most policy interventions in India are protective in nature whereas in several other countries attempts to create environment that enables globilisation and competitiveness are in force.

Despite liberisation, the institutional procedures and formalities of floating and managing an enterprise in India are comparatively quite many and expensive in terms of both finance and time.

Several countries have made a focus shift towards simplification of these processes whereas India is still caught in the cultural web typified by non-entrepreneurial orientation of income generation, Krishna opined.

At least in some other countries, the comparatively high penetrating rate of small businesses becomes a motivation for creating an enabling environment rather than the sector's potential to generate employment, enhance exports and disperse wealth concentration.

Most of the GDP of the economies is contributed by only 20 to 25 per cent firms that are typically medium scale.

Firms with higher initial levels of productivity are found to be more likely to survive and grow in size and several major industries' growth in productivity is found positively related with the firm's size.

If these findings are looked closer, it may be possible to derive a policy imperative that incentives targeting a specific firm size are likely to be ineffective in encouraging productivity.