SMEs' path to success still cumbersome

Staff Reporter | 30 Oct, 2007
It is indeed a fact that Indian Small and Medium Enterprises (SMEs) lose out on competitiveness due to various factors including, higher import duties, higher incidence of indirect taxes, lower operational efficiencies, higher transaction costs, lower labour productivity, higher cost of capital, inadequate infrastructure, etc.

It has become very essential in today's context to lower the cost of manufacturing and to improve the quality of products to provide a competitive edge. Several studies have indicated that retail prices of Chinese products are lower by almost 30 percent in comparison to Indian products in spite of similar labour and other input costs.

I strongly believe that Indian products would be competitive only when the cost of manufacturing is low. SMEs who are into manufacturing will readily agree that scaling up operations would be difficult to achieve without a strong demand. And a robust growth of domestic demand is essential for achieving the overall growth rates.

Having said this, we need to have policies for enhancing domestic demand. This would also drive an increase in the share of manufacturing in the Indian economy.

The tax regime needs whole-scale corrections — there is no doubt about that. The duty structure caused by Free Trade Agreements (FTAs) as well as in all cases even otherwise, need to be rectified. It goes without saying that domestic indirect taxes can be also singled out as a major reason why Indian products are uncompetitive. For instance the total taxes on manufactured goods are 25 to 30 percent of the retail price in India, compared to 15 percent in China.

And that's not all — figures tell me that indirect taxes in India contribute 50 percent to the difference in retail prices between India and other low-cost nations.

I feel lowering duties will boost not only domestic demand, but also go a long way in improving export competitiveness. Also procedures connected with export incentives and subsidies continue to be cumbersome. These need to be simplified on a priority basis. Lowering of cost of manufacturing and improving the quality of products are of high priority for SMEs. Let's hope the ears that matter are listening too!