Sunday, July 29, 2012

MSME - A Behemoth in Making

India did recover from the crises of 2008 in a very impressive manner but this stint of speedy recovery didn't last for long. The invariably long stint of India’s growth story (GDP growth of 8-9%) as perceived by many was not the reality. But the fact was that the period of 2003-08 was considered now as an aberration and the real GDP growth forecast is around 5-6% from now on.

Now macroeconomic and financial stability is being pursued following the global crisis in India. But recovery from recession following financial crises takes much longer due to the overhang of debt because high leverage is almost invariably the cause of all the financial crises. Hence, the pace of recovery from the current crisis is very slow and uncertain. In this scenario, a strengthened and more resilient Micro, Small and Medium Enterprises (MSME) sector would aid in economic recovery and add greater stability to the system.

Inclusive growth is being accorded very high priority and is being assiduously pursued by the policy makers through financial inclusion, financial literacy and consumer protection initiatives. MSMEs are not only envisaged to be major beneficiaries of these efforts but are also expected to facilitate financial inclusion. MSMEs have a critical role to play in enhancing our export competitiveness given their very significant share in exports.

Several institutions have been structured like Industrial Development Bank of India (IDBI), Small Industrial Development Bank of India (SIDBI), national Bank for Agriculture and Rural Development (NABARD), Export Import Bank of India (EXIM Bank), State Finance Corporation (SFC)s, State Industrial Development Corporation (SIDC)s, National Small Industries Corporation (NSIC), etc. has enabled necessary institutional support to MSMEs for meeting their credit needs. Inclusion of credit to MSMEs as a part of priority sector lending has increased the scope of this industry to contribute a bigger chunk in the country’s GDP pie.

The Government of India has taken a number of measures to revitalize the MSME sector such as:
·         Approval of the public procurement policy (PPP) that envisages procurement of a minimum of 20% of annual purchases of goods and services from Micro and Small enterprises by the Central Ministries/Departments/PSUs
·          Permission to set up stock exchange/ trading platform for SMEs by recognized stock exchanges
·         Conducting skill development programmes for development of self employment opportunities as well as wage employment opportunities in the country and
·          Adoption of cluster approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of MSEs in the country.

In spite of the Government’s efforts the extent of financial exclusion in the MSME sector is very high. As only 5 to 10% of MSMEs are covered by institutional funding, there is a need to bridge the huge gap through enabling policies. Banks and financial institutions need to support the MSMEs in their need for finance. Some of them could grow into large corporates and potential MNCs in future.

If this sector is provided the right financial support and is entrusted with more responsibility of providing economic stability then it would play a very critical role in the economic development given its contribution in employment generation, export competitiveness and, more importantly, entrepreneurial development. As MSMEs are spread across the length and breadth of the country and have a strong presence in rural areas, their growth also leads to more balanced and sustainable development and eases pressure on urban infrastructure.

So I feel that right support at the right time to the right sector would definitely reap benefits for the nation and this time is absolutely perfect to provide impetus to this sector which would contribute magnanimously to the country’s GDP in the near future.

Excerpts from:
  • Small is still beautiful and competitive - Reflection on growth of MSMEs in India - Address by Shri Anand Sinha, DD, RBI.