NEW DELHI, August 19, 2014. “There is a need to create an ecosystem where entry, growth and exit from the MSME sector are incentivized,” said Mr. Ajay Shankar, Member Secretary, National Manufacturing Competitiveness Council, at the ‘MSME Summit 2014’ organized by FICCI-CMSME on the theme ‘MSME Prosperity – Reinvigorate the MSME Ecosystem’, here today.
In his Special Address, Mr. Shankarsaid thatIndian industrial sector does not look at labouror workersas an asset and partners in growth. This has emerged as thebiggest weakness of the Indian industry. Technology and machines across the world are similar, the real success and competitiveness are achieved by the skill and quality of a worker. Hence, it is imperative to increase the productivity of Indian workers and improve their quality of work, he added.
Speaking about the need to create young entrepreneurs, Mr. Shankar said, “We are yet to create an ecosystem where a college graduate starts an MSME. If we are able to achieve this in the next five to 10 years, then MSME sector can witness unprecedented growth.”
The government’s move to amend Factories Act, labour law reforms and encouragement to e-governance are some of the initiatives, which will go a long way in boosting the MSME sector, said Mr. Shankar.
Mr. Madhav Lal, Secretary, Ministry of Micro, Small and Medium Enterprises (MSME), said that a large chunk of MSMEsector is unregistered and remains segregated. This makes it difficult for the government to frame meaningful policies to cater to this sector with diverse verticals.
He said that MSMEs across the nation also face lack of information and awareness about the schemes and policies available to them. There are many government schemes available to MSMEs such as Cluster Development Programme and National Manufacturing Competitiveness Programme but MSMEs are unaware and are not able to avail the facilities provided by these. Hence, awareness campaigns are needed to help MSMEs to adopt such programmes to enhance their growth.
Referring to the Prime Minister, Mr. Narendra Modi’s call to overseas investors on Independence Day to ‘Make in India’, Mr. Lal said a positive response to this idea could make India a global manufacturing hub.
On the occasion three publications were released titled ‘MSME Definition in India: The Present State and the Imperatives’; Nurturing Entrepreneurship in India’ and ‘New Age Technologies for Business Development and Ease’.
Mr. Sidharth Birla, President, FICCI, said, “MSMEs face immense challenges and we need to work closely with the government to overcome these. The Union Budget has specified some concrete steps to promote development of the MSME sector. We welcome the announcement of revision of existing definition of MSMEs and hope this will give an impetus to ‘growth’ of MSMEs. The industry requires the ceiling to be raised to spur greater capital investment, while keeping eligibility for government incentives intact. The summit will also discuss viable options on the definition of MSMEs and we will submit our recommendations to the Ministry shortly.”
“We are keen to align our MSMEs within global value chains. This implies that our MSMEs have to become more competitive and reduce transaction costs at all levels. While MSMEs have the potential to innovate and adapt to market challenges, the weak link in the MSME ecosystem is inefficient backward and forward integration. We need a comprehensive framework to service MSMEs through cluster development, technology platforms and single-window clearances. Government has implemented several schemes at the center and state levels from Credit Guarantee Scheme to Manufacturing Competitiveness programme; however the uptake of these schemes has been limited. FICCI CMSME is happy to work with the Government to facilitate greater utilization of these schemes,” he added.
Mr. Birla said that with e-commerce changing the way companies engage, both B2B as well as B2C, there is a new opportunity for MSMEs to utilize digital platforms. In the recent budget, Rs.100 crore has been allocated to development of Technology Development Fund scheme. “We look forward to becoming a part of the consultative mechanism with the Ministry to strengthen technology adoption by MSMEs,” he added.
Mr. Sanjay Bhatia, President, FICCI-CMSME and Managing Director, Hindustan Tin Works Limited, said,”FICCI-CMSME recognizes the strengths of Indian MSME sector and hence is keen to facilitate active dialogue between industry players, government and other relevant stakeholders to create conducive environment for the growth of this important segment of economy. This year’s Union Budget has announced specific steps that provide a positive direction to the MSME sector for growth. We feel that from industry side industry chamber like ours can collaborate efficiently and complement with Government’s efforts towards development of Indian MSMEs.”
He said that the importance of MSME sector development as a driver of growth is based on a conceptual framework linking entrepreneurship and economic growth with major development objectives such as job creation. The framework implies a relationship between business and government, in which development is realized through entrepreneurship and investment, on the side of business, and an enabling policy environment and friendly investment climate, on the part of Government. MSMEs should strive to grow and come out from the dependence on subsidies as MSME prosperity lines in growing vertically but not horizontally. However, every enterprise needs support be it MSME or large enterprise. At the startup stage and at a certain level, there is a requirement of financial support in terms of subsidy from the Government but beyond that we urge that policies should be devised which incentivize and encourage growth.
In his concluding remarks, Mr. R Narayan, Vice-President, FICCI-CMSME and Founder & CEO, Power2 SME, said that promotion of an entrepreneurship driven ecosystem through active participation of enterprises investing in building entrepreneurship is the need of the hour. There is no comprehensive pan-India forum or a defined ecosystem yet that addresses the need of startups across sectors. There is a need to create an ecosystem wherein assistance could be provided to startups, which can link them with other service providers and promote entrepreneurship. He added, “Within FICCI-CMSME platform we are in the process of creation of a dedicated Entrepreneurship Forum.”
Mr. Narayan said, “The MSME Summit 2014 is an attempt to provide refreshingly new answers for coming out with recommendations towards enhancing easier flow of credit to MSMEs, promote technology adoption especially use of ICT, explore marketing opportunities and align MSMEs with global value chain. It is my hope that we will utilize this platform to engage, debate and work out solutions to some of these key challenges. This will indeed help us in putting forward our views and suggestions to the government for an inclusive and sustainable economic growth of MSMEs.”
A FICCI-CMSME-ISED (Institute of Small Enterprises and Development, Cochin) paper on ‘MSME Definition in India: The Present State and the Imperatives’ states that in the modern world, sustainability of these enterprises is a more crucial concern. The need for ensuring sustainability demands that this ‘bottom of the pyramid’ be properly defined in relation to their relationship with the total enterprise system. The defining criteria that delineate the SMEs from the rest of the system, however, cannot be arbitrary. It need to have a scientific basis, and should be subject to periodic review based on hard data and field experience. In India, the need for a revision of the definition of MSMEs has often been highlighted, but, their relevance needs to be examined from the point of view of empirical evidence and objective rationale.
The paper notes that all existing definitions of SMEs today start from an understanding of dominant characteristics of these enterprises. Having made such segregation, one finds that, most of these enterprises are subject to some degree of deprivation, in relation to functional areas such as finance, technology and market. This in essence means putting the cart before the horse! Instead, can we think of putting the horse before the cart? If so, one could explore arriving at a definition of MSMEs on the basis of their specific needs. For example the needs of a manufacturing enterprise and a service enterprise are different. Besides both a traditional service enterprise and a new economy enterprise are considered on par as services.
Cultivating entrepreneurship as a rich resource that contributes to the growth of the Indian economy: this is the role being expected from the MSME sector today. The twin pillars that can contribute to such a resource base are: (1) a vigorous growth of start-up; and (2) a trend towards inclusive innovation. The size definition of enterprises in India should contribute to this process, the paper concludes.
An analysis by FICCI-CMSME-Nathan Associates Inc, on ‘Nurturing Entrepreneurship in India’
Suggests that some of the important ideas that need to be acted upon to encourage entrepreneurship:
- Availability of finance continues to be a big challenge in the MSME sector. Recent Budget proposals for setting up of a Start-up Fund and setting up of a Committee to suggest a framework for infusion of higher private equity in the MSME sector is welcome. The framework should enable an environment wherein private equity participants (who fund the MSME projects without proportionate management control) view the individual projects in a competitive manner rather than a supply driven “first come first serve” initiative. Certain incentive would be needed to create a fair playing field across different industries and geographical areas (for example projects in urban area may have a natural advantage of getting selected because of better infrastructure). However, the premium or discount on the enterprise value should not be an administrative exercise but should be based on the principles of risk assessment. This will ensure that only the best projects get the funding at the cheapest rate.
- Government schemes and subsidies should be subject to a minimum size of investment.
- This will encourage start-ups to come out of mind set of limiting their project costs to the maximum eligible amount and will be an incentive to scale up their business and reach out for technical collaborations and modern technology.
- The proposed entrepreneurship friendly Bankruptcy Law will facilitate easy exit for loss-making units and unlocking of unproductive assets. The policy should be developed by undertaking consultations with the stakeholders in a time bound manner.
- Partnership firms perform better than proprietary units in terms of value addition and productivity. The government should incentivise proprietary firms to restructure as this would help them to bring in new capital as well as manage risks more efficiently. A Limited Liability Partnership (LLP) structure combines the limited liability benefits of a company with the flexibility of a partnership and is most appropriate form for the MSME sector. Incorporation of micro units as corporate entities will also help to mainstream the micro units in the formal sector.
- Given the continuing power shortages and high recurring energy costs and also to encourage mechanisation in the small and micro units (and thereby increase their productivity), government effort should be to promote use of non-conventional energy sources. Coordination with Ministry of New And Renewable Energy which already runs a subsidy scheme would help the sector to reduce recurring fuel costs and generate larger value in the MSME sector.
- The analysis shows that employment generated under the PMEGP scheme has a positive impact on State Domestic Product. It is thus recommended that the PMEGP should be evaluated for sustainability and impact before it is scaled up.
- This mandated filing of the EM forms by entrepreneurs could serve as a data base and would be a useful information source for the research community. Regular updation of information is necessary if it is to serve as a useful policy tool.
According to a FICCI-CMSME- ACDS (Apex Cluster Development Services Pvt Ltd) paper on ‘New Age Technologies for Business Development and Ease’, to be successful in business, it is imperative for the MSMEs that they should be suitably equipped with the latest technologies. A structural change in the technology ownership of MSME is a must. To face global challenges and to enter into new markets, the latest technology is utmost necessary for the MSMEs. For sustainability and survival, technology can play an important role. It helps in efficiently integrate with international markets and optimize the production process. Therefore, the key to success for MSMEs is technology driven innovation and differentiation.
The technology divide, the paper adds, is visible in productivity levels, therefore it is an opportunity for policymakers and the IT industry to implement strategies to remove barriers to IT adoption by addressing small businesses’ top concerns about using more technology.