Governance  |  Dinesh Rai

The main challenge before us is how to improve the informal sector where the real India resides. The only answer to this situation is better and freely available finance, and also judicious use of technology, says Dinesh Rai

MSME Sector Needs Better Focus

In industry, the focus is on clusters as India has more than 2,000 clusters. We feel that less money and less effort will be required, if we concentrate on clusters first, and this strategy is paying.

There is a growing worldwide  appreciation of the fact that  micro, small and medium  enterprises play a catalytic role  in the development of most   economies. The MSME sector constitutes an important segment of our national economy and has shown continued dynamism in terms of growth and in number of enterprises, production, employment and contribution to country's manufacturing output and exports.

The MSME sector contributes almost 45 per cent of the manufactured output and around 40 per cent of the exports. As per the census, there are about 26 million enterprises in the country employing about 60 million people. That shows the enormity of this sector. Also, in the unorganised sector there are more than 58 million enterprises employing more than 100 million people. This sector needs lot of attention because it is the organised sector which gets most of the attention. 

India is a country where most people reside in rural areas and if we have to help these people we have to use technology. We have to have better infrastructure. In rural areas the infrastructure is very weak. Even if somebody wants to set-up an industry, then getting power or other related infrastructure including land is always an issue. So, an entrepreneur faces lot of problems. The Ministry of Micro, Small and Medium Enterprises has launched several schemes to help the entrepreneurs. One of the premier schemes, the Prime Minister's Employment Generation Programme, seeks to provide employment in urban and rural areas. The margin money available in rural areas is more. Here, the contribution of the entrepreneur has to be only 5 to 10 per cent; the remainder is provided by either the banks or the government. The scheme envisages creating 37 lakh job opportunities and will thus definitely help in industrialisation of rural India.

The Ministry is also looking at development of entrepreneurship. India is a country of young people and if we do not provide skills and employment there is going to be trouble. The Prime Minister recently set the target of making 500 million people skilled by 2022. In skill development, there are almost 16 to 18 departments and ministries who are doing this work. As per our current capacities, we have to go for quantum jumps. We have to provide at least 3-4 times more opportunities for people to get skilled. It is not an easy task. To achieve this, again, we require technology. We have to use new technologies and have many trainers. This is a big issue.

Lately, the thinking in the government is to go for PPP mode. In industry, the focus is on clusters as India has more than 2,000 clusters. We feel that less money and less effort will be required if we concentrate on clusters first, and this strategy is paying. We are also using the PPP mode where we feel that the best solutions can be provided by the people themselves. So, whenever we select a cluster, we  encourage to form a SPV and through the members of SPV we try to  provide the soft skills, then if required we go for hard interventions. A diagnostic study is done before any intervention is taken up. This has helped many sectors and we require more technology in, say, sectors like automobile, engineering, leather goods and sports. The Ministry of Micro, Small and Medium Enterprises is also giving training from the lower end to the high-end through tool rooms. The Ministry has increased the targets three times in the last three years and is again planning to do that.  

Finance is a major problem for the unorganised sector. Many initiatives have been taken, but still a lot has to be done because only 4 per cent of the credit requirement of people, especially in the unorganised sector, is being met from the formal sector.  Unfortunately, the credit for the lowest segment is available at  higher  rate of interest. The banks are adopting to working through the micro-finance institutions (MFIs). They say that their transaction costs are very high if they deal directly, and once they deal with MFIs the rate of interest is 20 per cent and above. This is a big challenge and since our banks have to follow BASELII norms, they have to follow international best practices. Clearly, this is an issue.

The Ministry is also implementing a programme called "National Manufacturing Competitiveness Programme (NMCP)" where we have 10 segments and Rs 10 billion worth of funds.  The basic objective of NMCP is to enhance competitiveness of manufacturing sector MSMEs through various strategic interventions thereby facilitating acceptability  and penetration  of their products in global market.  The ten components of NMCP include (a)  Quality management systems and Quality technology tools - which provides   encouragement to MSME units in quality related matters,   (b) Building awareness about Intellectual Property Rights (IPRs) because India is very rich in IPR such as geographical indicators, (c) Incubation support to entrepreneurial and managerial development - to assist new innovations and business ideas, (d)  Market support assistance to MSMEs  in Bar Code system, (e) Setting up of mini tool-rooms - in industrial areas to facilitate tooling and also skill development, (f) Scheme for application   of lean manufacturing techniques - to improve the productivity of MSMEs by minimising wastes, (g) Scheme for design interventions to MSME manufacturing sector in the form of  design clinics - which will encourage MSMEs to adopt industrial product design for enhancing their competitiveness, (h) Marketing assistance through up-gradation of packaging and modern marketing techniques, (i) Technology up-gradation and quality certification - A scheme for encouraging MSMEs to adopt energy efficient processes, and (j) Scheme for ICT interventions in MSME sectors.  A successful example can be seen at Coimbatore under "Project Vikas", which has been implemented by Microsoft and local entrepreneurs to encourage adoption of ICT in textile cluster. On similar approach, it is proposed to finalise ICT scheme with Government assistance of about Rs 1.2 billion, so that 200 clusters all over the country will be benefited on ICT Tools.  All the above schemes will have a common objective to improve the competitiveness among the MSMEs. 

"Finance is a major problem for the unorganised sector. Currently, only 4 per cent of the credit requirement of people, especially in the unorganised sector, is being met from the formal sector."

The main challenge before us is how to improve the informal sector where the real India resides. The only answer to this situation is better and freely available finance and also judicious use of technology to meet their requirements. Another challenge is in the field of marketing. The Prime Minister has appointed a high level Task Force  under his Principal Secretary and seven subgroups have been formed — relating to credit, marketing, infrastructure, technology, skill development, exit policy, taxation matters, labour issues and special package for North East Region and Jammu & Kashmir.

Sub-Groups have submitted their recommendations to the MSME Task Force and it is expected that some important decisions will be taken soon to help this very important sector.

Dinesh Rai is Secretary
Ministry of Micro, Small and Medium Enterprises