The environment for SMEs, especially those in manufacturing, is far from conducive.
There is a cyclical downturn in global growth, hurting external demand and dragging down commodity prices. Domestic demand is sluggish due to slowdown in the investment cycle.
India’s industrial output has fallen in five of the ten months of this fiscal. Manufacturing GDP grew at the slowest rate since last June, in the recent September quarter.
These numbers capture both the large as well as the small businesses. So, it is quite possible that the contraction in output in smaller businesses could be sharper.
There are a couple of ways in which the Centre could help this sector.
One way is to help refurbish the brand of manufacturing SMEs to help them attract investors.
Firing the imagination
Over the years, the manufacturing sector in India has lost its dominant position to services. In 1950, agriculture contributed around 50 per cent to the GDP, services 30 per cent and industry around 18 per cent.
While the share of industry has increased to around 30 per cent, the growth rate is far lower than services that now account for over 50 per cent of the GDP. The growth rate of services also outpaces other sectors in the economy. This fast rate of growth is taking the much-needed attention away from manufacturing.
Then, we have the new age start-ups in the tech space that are attracting the attention of the public, investors and policy makers.
No one will dispute that there is a lot of money in the hands of investors – HNIs, PE funds, venture capitalists – who are ready to give money to a good idea. Most of this money is pouring in to technology companies, healthcare or other services.
Why is the money not coming to manufacturing SMEs? It has to do with the prospects of the sector as well as perception. Prospects of many businesses will improve with the economy.
What the Centre can do is help improve the brand of manufacturing to catch the attention of these investors. The ‘Make in India’ movement is a good start, but needs to gain greater traction. If the potential in the sector is highlighted so that investors are convinced, then it will not be difficult for the sector to find funding that can act as a catalyst for growth.
Lack of data
The lack of legible publicly available data to track the SME segment is also a major difficulty for policy makers looking to find solutions to the issues facing this segment.
If you tried answering a question, ‘what are the profit margins of companies in the SME segment in FY 16?’, it would be quite difficult. There just isn’t any database that captures the latest operational performance of these businesses.
The Inter-Ministerial committee set up to look at the issues of manufacturing MSMEs suggested building an IIP index for MSME segment alone. That is a good idea but that will give a broad picture alone.
In these days of big data and data analytics, having a publicly available data-base on all SMEs could help attract investments as well provide guidance to policy makers regarding the efficacy of their policies.
Perhaps block-chain technology can be used to make a public ledger updated by the SMEs themselves that is open to the public.
According to the MSME annual report 2015-16, there are 76,000 small and 3,000 medium enterprises. The number isn’t large especially when compared to 14,85,000 micro enterprises. So the task will not be too difficult.
Its time policy makers gave more time to this segment that can make a large difference to our economic growth.
Source: The Hindu Business Line
Image Courtesy: Businesseconomics
