'India close to second industrial revolution'

Q&A: PHILLIPPE R SCHOLTES

There are more than 400 clusters of small and medium enterprises and 6,000 micro enterprises in the country, which contribute as much as 60 per cent to the country's exports. The United Nations Industrial Development Organisation (Unido) has been supporting the SMEs and MSMEs in the country since 1967 to deal with issues ranging from boosting competitiveness to implementing environment-friendly solutions. Phillippe R Scholtes, representative and regional director for Unido's South Asia operations, spoke to Rituparna Bhuyan on the sector. Excerpts:

How does Unido perceive India's current industrial environment, especially in the small and medium enterprise sector?

We have been working with India's small and medium sector since 1967. We believe that India at the moment is at the threshold of a second industrial revolution.

What are the opportunities that you see for the Indian SMEs?

The duty free agreements, which are likely to be finalised in the near future, provide a very good future for the SME sector. Free trade agreements with the European Union and Asean will create tremendous opportunities for Indian companies in terms of market access. However, it will also put pressure on them due to imports. This competition will give tremendous boost to the Indian economy through the manufacturing sector. The SMEs will have to be prepared for this. They will also have to upgrade their technology to bring in quality control to meet industry standards.

How can Unido help in this?

To give an example, we have a joint initiative with the Automotive Components Manufacturers Association of India. We had conducted a training programme with them. It involved training the firms on different aspects of quality and quality management process, and improving technologies and labour management. We also did a bit of hand-holding so as to help the firms implement whatever was taught to them during the training programme.

What are the challenges that the SMEs face in the current context?

The appreciation of the rupee has hurt the sector, especially the ones which are in the export field. At the same time, there are inflation-related problems. Thus there is a situation where the currency has been appreciating and the inflation levels are high. This puts pressure on the levels of productivity. This has to be solved through better labour management practices and technology upgrade.

It has been observed that FDI inflows into the country have primarily been in the capital-intensive sectors and not labour-intensive sectors, to which traditional SMEs belong to. What are your comments?

This is an area of concern. The nature of FDI inflows remains in a very narrow band. At the moment, the country is exporting a lot of commodities and intermediate goods, which need further processing at the receiving end. There is very little export of consumer goods or durables.

For example, India is emerging as a major exporter of auto components and completely built units of automobiles. This is what is needed for creating a second wave of innovation and competitiveness in the country. This is where the SME sector will be important.