Micro, Small and Medium enterprises (MSME) have rightly taken centre stage of India’s economic model as it is home to the world’s largest working population. Every year over 12 million enter the work force and it is expected to grow to a humongous 800 million. If there is one sector that could absorb this growing labour force with comparatively less investment, it is the small scale sector. This sector will also strengthen manufacturing in the country,
To cite an example, a POSCO steel plant with Rs 52,000 crore investment is expected to provide employment to highly skilled 14,000 persons. Whereas a neem soap manufacturing Khadi unit with less than Rs one crore investment generates employment to 10,000 people.
Though there have been some hiccups in the small scale sector development because of reservation policy, inadequate credit and raw materials, lack of marketing network and so on, MSME has played a vital role in the growth of the economy, accounting for 45 per cent of industrial output and 40 per cent of exports. It is a welcome development Modi government has dereserved the entire MSME sector recently. Of course the phase out of reservation began in1991 when economic reforms were launched but it is noteworthy that Modi government hit the last nail in the coffin.
More importantly MSME is the only sector, which was growing reasonably well despite slowdown in the economy in recent years. If India were to achieve 4.5-6 per cent GDP growth in the last couple of years despite poor showing by manufacturing and other industrial production, it is because of small scale sector that provided the necessary impetus to the economy. Small scale sector can also contribute to rural development and arrest migration from rural areas.
Currently MSME accounted for over 11 crore jobs in the country and create additional 1.5 million jobs every year. The organized large industries provided jobs to a mere 12.5 million persons though investments are many times more. MSME produces more than 8000 quality products for Indian and International markets. With 60 per cent of the population still dependent agriculture, there is crying need to encouraging SME clusters in rural India, time tested model of economic development in the country and it is therefore in fitness of things, Prime Minister Narandra Modi has come out with several new initiatives to the sector. Also MSME development is crucial for the success of Prime Minister’s make in Indi’s a campaign. If the industrial corridors being set up in various parts of the country has to be successful, it is the MSMEs with specialized manufacturing, will hold the key.
Countries like Britain, Germany and Japan and lately South Korea and China have very strong presence of SMEs in manufacturing. To cite an example, there are only 600 German SMEs have their presence, whereas in China it is ten times more at 6000 units. There are 3000 Japanese SMEs have their presence in India as against 30,000 in China. So there is a huge potential for foreign SMEs to set up units in India. Modi government has taken number of steps to improve the ease of doing business and liberalized foreign direct investment particularly in the SME sector so as to tap the huge potential. The multinational companies have already established their presence in India and are expanding from time to time. It is the foreign SMEs, which are yet to come to India and the government has got its priorities right by encouraging it. The abolition of SME reservation will encourage greater investment, improve technology, standard and brand building to take on global competition. Modi government has started off well and only time will tell if it had cashed in on the huge opportunity.
