Units that begin their lives in the Micro, Small and Medium Enterprise (MSME) sector must want to grow up and leave the nursery one day. If they forever remain small that would defeat the purpose of supporting them in the first place. Yet most of them live and die trailing a toy truck without real ambitions to adult life.
This tendency is overlooked, even considered precious, because of the general belief that “small is beautiful“. Consequently , instead of gaining in maturity and muscle tone, MSME share in the national economy is, in fact, declining. Their contribution to total manufacture in this country fell from 42% in 2006 to 37.3% in 2013, and is slated to go down even further. During this period, importantly , MSME’s addition to the total GDP also dropped from 7.7% to 7%.
At the same time, take a look at this paradox. In terms of the number of units, it is estimated that 18.7% more have been added to the MSME sector between 2014-15 and 2015-16. The number of employees in them too has shot up from 81 million to 117 million between 2006-07 to 2015-16. But as unregistered micro units are roughly 13 times the number of registered ones, the average employment per enterprise is just about three persons, maybe lower. A higher admission rate, all right, but a persistently poor pass out grade! Obviously nobody wants to leave school, or come out of their baby clothes.
Instead of numbers rising in the higher classes, such as in the medium and small sector component, it is the micro industries that keep burgeoning and yet contributing so little to the economy. In addition, there is hardly any transit from unregistered to registered units either. Nor is it that they are falling sick routinely as the incidence of ailing units in MSMEs came down quite impressively in the last decade or so.
The unchanging nature of the MSME sector ought to have set off alarm bells. Various committees were established from time to time, but their directions left the static structure of MSMEs intact. Even the Prime Minister’s Task Force in 2010 did not alter the format. At the end of the day, these experts really recommended more of the same, and little else. It is as if they were holding their noses and in a hurry to get out.
That most MSMEs should continue to remain micro sized and macro inefficient was, obviously, of little concern to them.Instead the Task Force asked for renewed efforts to revive those units in the sick bay by a transfusion of overdrafts.
For the record, there is a routine nod towards technical upgrading, but neither the mechanisms for it nor incentives to go that way are spelt out. Consequently, the easiest option is to search for sub-contractors which, as we know, leads to greater evasion of employment and environmental laws. The other is to look sideways when bank loans are not paid up because most of these enterprises are barely ticking.
So once in the MSME box the exit signs are hard to find; they’ve probably never been painted. As a result textiles, food and beverages dominate our MSME sector, for they are low technology items.
But there are institutions tasked with upgrading, like the MSME Development Institute, the NSIC, BCSB, SIDBI, NIMSMI, MGIRI and so on. Put together the acronyms read like an optician’s eye chart, yet the small and medium outfits are hard to find. If these developmental agencies are not delivering, it is because there is neither real pressure, nor appropriate incentives for MSMEs to take that route.
The Reserve Bank of India did attempt to break this mould when it raised a concern over the lack of supervision when implementing the credit guarantee schemes. Its most telling recommendation, among the many that fell like meteors, was that banks should continue credit support for three additional years to those units that grow out of being MSMEs.
Along the same lines, one could also think of interest subvention to those ventures that move from micro to small and small to medium. This would put the bit between the teeth of micro industries and spur the demand for higher technology and more employment.
As the small and medium are hardly visible in India’s MSME sector the 40% it contributes, in terms of gross value added to our economy, is primarily from the micro units. This keeps a huge chunk of our industry technologically inefficient, with fewer jobs and no afterglow.Looking towards Europe might help in this regard. Growing big is not a sin, nor is it necessary that the larger the unit the fewer the employment opportunities.
For example, Germany’s MSMEs contribute 57% of gross value added, but when disaggregated we find that as much as 35% is from the small and medium sectors. Employment-wise too, the small and medium units do better than the micro ones. While 79.3% of Germany’s MSME are micro, they only employ 18.8% of the work force. On the other hand, small and medium units comprise only 13.5% of total enterprises in the country, yet they employ over 47% of the total work force; way above what the micro units do.
Examples from Norway , Finland and Denmark show similar trends. But the most important point is that small is almost always not beautiful.
Source: Economic Times
