Gurdip Singh | 16 Nov, 2010
A recent phenomena witnessed on the Indian economic scene is the liberal approach adopted by both State-owned and private Banks in lending to the Medium and Small Enterprises. Apart from financing, the banking sector is also offering consultancy services to them. Such an aggressive approach in lending operations has not been witnessed in the past.
Apart from this, there is also support from large corporates to assist the Medium and Small Enterprises in their endeavour to grow. Besides, a number of voluntary groups have also joined the growth.
MSMEs form the backbone of industrial growth in many parts of the world. An illustration in this regard is Germany, the fastest growing economy in the European Union, and Japan, still a rapidly growing economy.
The policy makers at home have realized both the growth and employment potential of enterprises. In a labour surplus economy, like India, where there is still a significant amount of unemployment in both the urban and rural areas, this is the right approach.
In fact, some of these Medium Enterprises have taken to acts of Corporate Social Responsibility(CSR), such as bringing about a better ecological order through greening of the environment around them and funding local level education and health programmmes.
India is not unique in this regard. Many countries in Africa, Asia and other parts of the world have realized the potential of medium as well as small and micro enterprises in supporting the growth prospects.
In short, the policy support is here to stay as also trends of the nature of financing of banks and NGOs in improving the dynamism of the MSE’S.
Various government agencies are involved in providing marketing assistance to these enterprises, a number of programmes have been launched entailing technological up gradation, and credit to the sector is provided under priority sector lending by the banking sector. The fact of the matter is that many tiny and small enterprises are in the unorganized sector. SME’s are also large contributors to foreign exchange, as they are involved in exports in a major way, such as garments, leather, electronics, gems and jewellery, handicrafts and apparel, to name but a few.
The development of entrepreneurial skills and harnessing Information Technology for the advantage of the SME segment are important variables in the growth strategies of this nature. A key generator which can fuel the growth of this sector is innovation.
Germany worldwide is an exporter of capital goods and machine tools, where SME’s play a critical role. So also are the fast growing economies of China, South Korea and Vietnam, where the SME sector continues to play a major role in the economy.
According to a UNIDO survey of Indian SSI clusters undertaken some years ago, there are 350 SSI clusters and approximately 2000 rural and artisan based clusters in India. It is estimated that these clusters contribute 60 percent of the manufactured exports from the country. Among the larger clusters, some are well known. The Panipat cluster accounts for more than 75 percent of the total blankets produced in the country; Tirupur in Tamil Nadu, is responsible for 80 percent of the country’s cotton hosiery exports; Agra with 800 registered and 6,000 unregistered small scale units make about 150,000 pairs of shoes per day with a daily production value of 1.3 million dollars and exports worth 60 million dollar per year; Ludhiana, a city that is known as the Manchester of India, alone contributes to 95 percent of the country’s woolen knitwear, 85 percent of the country’s sewing machines and 60 percent of the nation’s bicycle and bicycle parts. Finally, the world famous cluster of Bangalore, operate in the software sector.
Famous economist Joseph Schumpeter spoke of the perennial gale of innovation and competition that ensures the fittest among them survive.
Faced with a squeeze from every where, the small companies are left with no option, but to innovate— be it technology, marketing, sales, finance or human resources. Experts are unanimous on one issue— in the information age there is need for more knowledge as to what is happening in India and around the globe.
All in all, a new approach is emerging on the horizon—financing by banks, NGO support to the growth of medium, small and micro enterprises, government providing institutional support to the sector, innovation, cluster development and new research geared to the development of this sector. India thus holds a candle to the other developing countries to borrow ideas and policies to help in the growth of such industries. India, as in many international fora, is thus the champion of such a movement relating to the sector.
* The author is the Head of Business & Economy, UNI, Delhi.
* The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times.