Ministries planning to allow small businesses to enter manufacturing sector

The micro, small and medium enterprises (MSMEs) and commerce ministries are discussing a broad range of moves to allow small businesses to foray into manufacturing sectors in which imports remain high.

Both ministries are identifying the industry sub-sectors such as medical devices, pharmaceuticals, plastics, and low-end engineering goods where small businesses can be encouraged — through specific subsidies or policy intervention — to make indigenously, a senior MSME ministry official said.

“Our officials have met their counterparts from the commerce department to chalk out areas in which imports are unsustainably high. Then, necessary policies will be framed, but it will take some time,” MSME Minister Nitin Gadkari said on Friday.

MSME exports low

Medical devices and equipments like MRI machines, stents, and prosthetics can be manufactured at a fraction of a cost, added Gadkari.

India imports nearly 75 per cent of its medical devices, remaining highly dependent on imports for particularly higher end products that include cancer diagnostics, medical imaging, and ultrasonic scans.

The MSME sector accounts for 30 per cent of the country’s gross domestic product, anchoring 45 per cent of total industrial production. It also crucially made up 48.1 per cent of total exports in 2018-19 (FY19), according to the official data from the commerce ministry. The government has always shied away from introducing an overall import substitution scheme, fearing it may be viewed as protectionist.

But sources say this can be circumvented by providing specific policy intervention in select sectors instead of an overarching policy.

“We believe the growth in exports of products manufactured by MSME units have remained low and need to be brought in tandem with overall export growth,” a senior MSME ministry official said.

According to the latest ministry data, MSME exports rose by 7.5 per cent in 2017-18 and 4.8 per cent in 2016-17. In the year before, MSME exports had contracted by 5.9 per cent.

Public procurement push

For 2019-20, the MSME ministry has made an ambitious target of at least Rs 50,000 crore worth of public procurement by the government from such enterprises. This figure had stood at Rs 40,326 crore in FY19.

Current laws stipulate that the government and central public sector bodies will procure 25 per cent of goods and services from MSMEs. Of the 25 per cent, 4 per cent are reserved for Scheduled Castes or Scheduled Tribes, while 3 per cent are earmarked for women-owned businesses.

Senior ministry officials say lack of awareness has made it difficult for central bodies to find out suitable MSMEs for procurement. Most small firms have also not registered on the government e-marketplace platform, mandatory for selling to public bodies.

As a result, the government is planning a series of meets known as Udyam Sangam at the district level to create awareness among MSMEs. The sector comprises 63.38 million units, according to the 73rd round of the National Sample Survey (2015-16) and has created 111 million jobs (49.8 million in rural areas and 61.2 million in urban areas) in recent years.