MSME Sector Continuously Neglected By Our Policy Makers Says Mr. Rajiv Bakshi Small Business Expert

March 04 11:12 2014
Mr. Rajiv Bakshi, suggests that the policy makers in India have always neglected MSMEs. They have underestimated the strengths of MSMEs and the policies are either non practical or if practical then do not reach the MSMEs. The MSME sector, with 36 million enterprises having fixed assets of Rs 689,000 crore and 80.5 million employees accounts for around 65 per cent of manufacturing output. It has been continuously growing at a rate far above the large sector. But they hardly get their due!

Ahmedabad 4th March 2014. SMEs attracted worldwide attention during and after transformation from Agriculture Economies to Industrial Economies. The importance of SMEs in India was recognized very late in 1980s, attracting the attention of main key players in the field.

During this period, it was started believing that the economic growth of the developed countries is directly related to the success of the private sector, called ‘’the Engine of the Economic Growth”. The large companies tend to outsource their activities to SMEs as it is cheaper, efficient and quick and most SMEs are specialized for some goods or services that the large companies are looking for. And the growth of the large companies depends on how the supporting SMEs do successfully in the trade and business.

The contribution made by the SME sector around the world to the employment, economy and the share of business is significant. 99.9% of the enterprises across the world are MSMEs while 80% of the global private sector employees are from SMEs.

When it comes to the Indian context, SMEs generate more than 55% of industrial value added year on year and 90% of total establishments of India, but we never see this sector in any of the glitzy magazines or the financial sections of any of the newspapers. It may not be incorrect to say that they are the forgotten entity of the Indian economy. But the reality is that it is the SMEs that are the real backbone of the Indian economy as SMEs are the Engine of economic growth, innovation, employment generation and poverty reduction.

SMEs make up a large part of India’s economy, accounting for 90 per cent of all businesses. These are found in all sectors of the economy, primary, secondary and tertiary and provide employment for persons of different skills, skilled, semi-skilled and unskilled. There are SMEs in the agri-business sector engaged in growing spices, fruits and vegetables and in the manufacturing sector engaged in numerous industrial activities accounting for about 60% of industrial establishments. In the service sector SMEs accounts for more than 90% of business establishments. SMEs are an essential source of employment opportunities and are largest amongst industrial employment. The SMEs play an important role in promoting inclusive growth. The focus on SMEs in policy discussions emanates also from their role in developing entrepreneurial skills, innovation and promoting economic growth. SMEs have been recognized as an important strategic sector for generating economic growth and the innovation mechanism and reducing unemployment, inequality and poverty. These are also seen as useful in promoting social cohesion. It is therefore considered essential that the environment these SMEs operate in be improved. The contribution of the SME to the GDP of India keeps increasing by double digits year on year.

The vision of SMEs in India can be disaggregated into important several elements subject to some assumptions. It is assumed that Global Competitiveness requires the sector to be dynamic, robust, innovative and technologically driven. It is also assumed that the existence of entrepreneurial culture in which the role of SMEs are recognized and respected by policy makers, administrators and others, are involved in SME development.

Businesses and industry associations, local and international non-governmental organizations (NGOs) involved in SMEs could also be effective bodies to provide various services to the SME sector as they work closely with SMEs and understand their potential and requirements well. These NGOs should receive support and encouragement from policymakers. Irrespective of the type of BDS providers (government, private, NGO or international), they must help the SMEs build their own competencies and avoid a culture of dependency.

Most SMEs are not strong and progressive enough to discuss their issues with formal bodies like traditional universities, research institutes and funding bodies. So it is an essential need that relevant government institutions, R&D firms and Universities move closer to SMEs for them to access new knowledge, information and investment possibilities. Officials of scientific community, administrators, and financial sector personnel, government officers, NGOs and other relevant bodies are required to move out of the personal and institutional traditional boundaries to assist SMEs. Availability of financial institutions and their spreading to all communities and regions are essential to develop the SME community. The problem of many SMEs in India is not of their size, but being isolated and working in enclave nature; therefore, SMEs individually have little capacity to respond to competitive pressure and to generate factors for expansion and innovation.

It is vital to identify and assess existing constrains to innovation, productivity and growth of this sector in the Indian economy. A few research done in SMEs in India to identify the key issues of this sector , suggesting need of providing common innovative infrastructure facilities (SME Sector can purchase commercial research outcomes, but not strong enough to invest on research when it comes to development and expansion) ;employing skilled and experienced personnel in financial institutions for identification of potential business environment, knowledge creation and innovation and identification of global market trends ; availability of accessible to Venture Capital (VC) and other Financial Services ;protection of domestic producers with foreign trade policies ; making convenient to meet the growth targets of facing the global challenges ; need of taking steps to knowledge protection for SMEs (Need to create confidence in the legal process to make sure no information is leaked to the competitors), which is a great threat of expansion and development of SMEs ;manageable prices for usage of electricity, water, telephone and obtaining certification and authority from respective agencies ; make awareness and the utilization of incentives given for research and development by the Government of India ; Establishment of Business Development Services (BDS) structure and networking across the available clusters of SMEs; identifying new potential clusters in SME sector to face challenges and demand of new globalized world and increased competition, while strengthening the network of available clusters and the subcontracting channels with large entities.

Largely SMEs in India believe, it is difficult to compete in the international trade. But this is not the case, even smaller countries have dominated the international trade in some products and services. Israel, Hong Kong, Singapore, Taiwan and South Korea are some of the smaller countries, which have successfully entered the international market. But there is a lot of work to be done to achieve the success and help the nation to grow. India is still a resource constrained country in terms of application, will and understanding, even though there are some positive trends. Domestic market still seeks low cost simple solution for their day to day requirements with very limited and unstable purchasing ability.

Seeking for potential collaboration and Public Private Partnership (PPP) for expansion and creating new businesses; purchasing patents from other nations to start new ventures (this is what Singapore did in its initial development stage) ;establishing stronger BDS structure to provide expertise, assistance, guidance and advice on their technical, financial and innovation issues and the possibility of expansions and collaborations, including clustering and subcontracting networks are can be very effective and efficient for the improvement of SMEs. Ministry of Higher Education, Ministry of Vocational and Technical Training, Ministry of Youth Affairs and Skills Development, universities, vocational and technical training institutes and private educational authorities should focus more on technical education and training suit to face the global challenges successfully.

As to the findings of international researchers, India is still in the nascent stage in the SME sector. Our high tech exports accounts only for around6.5% of the total exports, indicating that we export just low value products. As such there is a high potential of success in SMEs, if attention is paid to increase the value added exports and high tech exports, considerable increase takes place on GDP and hence upgrade in the standard of life. 

About Possible Business Solutions
Possible since its launch in 1999, focuses only on growth of SMEs. It guides SMEs to become strong, profitable, system oriented and recession proof. After having successfully conducted ‘Business Growth Concepts’ for SMEs in India, Central Asia and Far East Asia, ‘Business Growth Concepts’ is now being made available to SMEs of Africa, South America and MENA

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