MSMEs constitute over 90 per cent of total enterprises in most of the economies and account for the highest rates of employment growth and a major share of industrial output and exports. They produce more than 8,000 products with a 40 per cent share in overall industrial output. It is estimated that in terms of value, the MSME sector accounts for about 45 per cent of manufacturing outputs and 40 per cent of the total exports and 7 per cent of the GDP in India.
The sector serves the vital function of linking the agricultural and industrial segments of the economy. There are certain measures taken by the Government to promote this sector, as it has the potential to transform the rural landscape of India by improving the value of agricultural produce, ensuring better remuneration to farmers, and at the same time creating favourable demand for Indian agro-products in the world market. As per available statistics, the sector employs an estimated 31 million persons over 12.8 million enterprises, and the labour intensity in the MSME sector is estimated to be almost four times higher than that of the large enterprises.
Notwithstanding its importance, the MSME sector is beset with a variety of problems of sickness. Currently, more than 1.04 lakh units are encountering industrial sickness. The MSMEs are facing problems of finance, skills, supply chain, low productivity and quality. The situation in India is special and requires a tailor made approach.
Indian MSMEs are unorganized; therefore, models and methodologies are required considering the actual problems (low productivity, high cost, and internal failure) and limitations of the Indian MSMEs. Under such volatile conditions, MSMEs also face issues such as lack of optimal use of resources, lack of advanced technology, inefficient supply chain, global competitions, lack of finance and skill, increase in wastage, uncertain demand pattern of product due to global factors, and changing customer preferences. To tackle these issues, MSMEs need to optimize their resources and skills to increase growth and profitability by decreasing wastage and inventory. There is a need to ensure optimal utilisation of resources and also to integrate the process of MSMEs by ensuring a seamless supply chain is introduced.
Besides optimisation, there are also other ways in which productivity of MSMEs can be enhanced. Outsourcing of technology development helpdesk to accounting back-office and even high-end equity research by large corporations across the globe has taken solid roots in India. A similar phenomenon of outsourcing locally by companies, especially MSMEs, has started gaining traction, which if nurtured and adopted widely, can greatly improve the productivity of MSMEs.
Secondly, the concept of “Cluster Development” also offers new insights into the potential role of MSMEs. It is estimated that there are about 400 MSME clusters in the country. A cluster may be defined as a local conglomeration of enterprises (mainly MSMEs) that produce and sell a range of related and complementary products and services. An example can be a localised toy industry, including battery-operated units, plastic assembly spaces, miniature merchandise producers, designers, food processing units and craftsmen. The cluster also helps in the minimisation of transportation cost, implementation of Just In Time (JIT), integrating all actors of supply chain, etc.
Thirdly, online mechanisms should be provided to MSMEs to carry out all the necessary transactions for conducting business in the domestic and international markets. The Government should also provide online access to rules and regulations, electronic methods for registration and electronic applications for schemes, certificates, licences and realisation of incentives. This will help in the minimum cost of purchasing, inventory and information management. The present system of e-mail access and telephone is rather “sometimes working” system.
Fourthly, something called Integer linear Programming (IlP) is especially suited for Indian MSMEs. linear programming is a powerful problem-solving tool that aids the management in making decisions about how to allocate its resources to various activities to meet its organisational objectives. It uses a mathematical model to represent the problem being studied. IlP is a mathematical technique for optimum allocation of scarce or limited resources, such as labour and material, to several competing activities like products, services, and systems operations. Once the problem is accurately diagnosed, the next step is to formulate the problem. This involves several technical steps such as determining decision variables and framing an objective function that can help an MSME to maximise its total profit. The whole process of IlP is a novel and underutilized technique which holds great but untapped potential to help a company make a concrete, systematic and targeted approach to profit maximisation.
A major problem Indian MSMEs face is the availability of adequate and timely finances. In India, banks are the providers of funds to the industry, especially for MSMEs. Their importance to the MSMEs becomes all the more evident owing to the fact that the latter does not have access to capital markets. From the year 2005 onwards, the Government of India and the commercial banks have started to pay considerable attention to the MSMEs as they come under the priority sector lending. Indian banks are required to give a minimum 40 per cent of the adjusted net bank credit to the priority sector and foreign banks have a minimum 32 per cent exposure to the priority sector (RBI catalogues, March 2009).But this position needs to be evaluated in an economic climate that holds great promise with regards to the Indian MSMEs.
In 2006, the Government enacted Micro, Small and Medium Enterprises Development Act so as to facilitate the promotion, development and competitiveness of MSMEs. This was done with the intention of enhancing the role of MSMEs as a catalyst for change in a slumping economy. As under the Act, the Small Industries Development Bank of India (SIDBI) was an envisioned to be an apex forum for promotion, financing and development of the MSMEs. SIDBI’s role has, however, not been fully exploited in the recent years and it needs to be fully harnessed with a view of restoring the strength in the MSMEs that they currently lack.
* Rs10,000 crore be deployed for rehabilitation of potentially-viable NPA MSMEs.
* Identification of such projects to be assigned to the SFCs.
* The SFCs of the respective States to carry out a survey and undertake the total rehabilitation of the units till their turnaround takes place.
* Working capital tie-ups with banks for rehabilitated units be documented simultaneously during the rehabilitation process.
* The SlIIC (State level Inter Institutional Committee) be vested with statutory powers and its decision be binding on all agencies including banks.
* Before filling of suits against MSMEs by banks and FIs approval from SlIIC be obtained.
* The banking ombudsman be empowered to adjudicate all banking issues including commercial matters.
* Roll back the NPA period for MSMEs to 180 days of default from 90 days as on date until infrastructural development in sectors like electricity, telecommunication, IT, availability of need based bank finance, Government clearances etc. are at par with highly developed countries where 90 days NPA norms are feasible.
* To introduce various, productivity linked labour laws likes allowing ladies to works in the night shift, privatizing ESI, PF, Etc.
(The writer is working chairperson, EFCAI, ex-chairman, Orissa Assembly of Small and Medium Enterprise, Email: efcai12@gmail.com)