Micro, small and medium enterprises in India are employment-intensive, and contribute heavily to industrial output and exports. Yet, they are short of capital, manpower, markets and technology. Ramesh Datla, chairman, CII National MSME Council and managing director, Elico Ltd, tells T E Narasimhan what needs to be done for them. Edited excerpts:
What challenges do Indian MSMEs face?
The problems – infrastructure, access to bank credit, access to capital, delayed payments, technology, skill, markets – are quite unique to the nature of the sector. There is a need for a coordinated and comprehensive institutional framework for maximising the results of various initiatives taken by government agencies, academia and industry chambers.
Is the government doing enough?
The situation demands comprehensive policy action more than short-run interventions to prop up growth. The recommendations made by the Sub-Groups of the Working Group on ‘Micro, Small & Medium Enterprises Growth’ for the 12th Five Year Plan are of critical importance. These cover all key dimensions of the MSME sector — credit and institutional finance, skill development and training, technology and innovation, marketing and procurement, infrastructure, khadi and village industries, coir, special areas, emerging technologies and institutional structures. Timely follow-up to these recommendations will greatly enhance the MSME sector’s contribution to industrial output, employment and exports.
MSMEs lack capital. Are banks still reluctant to lend to them?
Banks are primarily providing debt capital to SMEs, which limits their capacity to lend and bear the associated risk. This also creates an imbalance in the financial structure of SMEs. Hence, there is a need for banks to create options for equity financing by facilitating indirect lending to venture capital funds.
What is CII doing to help these units?
CII has six centres of excellence located in different parts of India working in the areas of green business, triple bottom line, supply chain management, quality, cluster development and HR. They offer services to industry in the form of training, seminars, conferences, consultancy and specific interventions. Then there is CII’s cluster programme, which commenced in 1998 with 10 vendor companies of Maruti Udyog Limited. It has had a multiplier effect, with more and more companies looking at the cluster companies as role models.
More than 200 clusters have been formed all over India, impacting almost 2,500 SMEs. The cluster programme is delivered by The CII-AVANTHA Centre for Competitiveness for SMEs, located at Chandigarh. Its vision is to provide SMEs a one-stop shop for all their needs pertaining to competitiveness.
How serious is the infrastructure constraint, including power and industrial parks?
Infrastructure continues to be a major concern for SMEs. With the accumulated losses of state electricity boards crossing Rs 70,000 crore, there is serious concern about the ability of a majority of states to supply quality power.
Sectoral industrial parks such as ‘Food Parks’ are now proposed for the purpose of creating infrastructure for the industry. The food processing sector is at an inflection point, and MSMEs can play an important role in its growth. The government is preparing to announce 15 new mega food parks under the Mega Food Parks Scheme. Each park will be developed by a special purpose vehicle (SPV) formed by a consortium of food processing entities and other related businesses. MSMEs could benefit from the scheme by forming their own consortium.
What must Indian MSMEs do about their manufacturing practices?
They should increasingly adopt global best practices in manufacturing processes. This would help them protect their financial fundamentals. They also need to continuously incorporate the latest technology into their production processes to gain efficiency, innovate in their marketing and management functions, and improve their inventory management.
