A small-scale unit in Japan reportedly sells nylon fishing lines to Alaska at a price almost 10 times higher than its competitors elsewhere. This company has developed its fishing line where the elongation is directly proportional to strength, contrary to all other fishing lines where the elongation is inversely proportional to its strength. This is innovation. To be more precise, “Doing ordinary things in an extraordinary manner of excellence is innovation”.
India may become the third largest economy replacing Japan which is definitely a credit to our nation, but more important for India today is inclusive growth. We need to stop starvation deaths and farmers’ suicide and mitigate the gap between the rich and the poor by alleviating the below-poverty line category to match with the developed nations. This should be our agenda and not banking on a few corporate houses or individuals being listed in the Fortune 500.
Inclusive growth can be achieved through development of micro, small and medium enterprises (MSMEs). The MSMEs can prosper through innovation. India with its vast resources, divergent culture, traditions and thinking process can contribute to this world numerous innovative ideas through different applications. On the contrary most Indian MSMEs today are struggling for survival. They generally encounter two kinds of problems:
Financial problems relating to under-financing, delayed financing, piecemeal financing and high-cost borrowing; nonfinancial problems relating to marketing, quality, manpower, electricity etc.
While the financial problems can be resolved through induction of funds in time and with reasonable cost, most nonfinancial problems can also be resolved through investment of funds as and where required. Hence, maybe, over 90 per cent of the problems of the Indian MSMEs can be resolved through proper financing. Having realised this, the Government has set targets for the banks for funding of MSMEs, different incentive schemes, but their problems still remains unsolved.
India has about 30 million MSMEs, out of which about 50 per cent are either sick or suffering from incipient sickness. Out of the remaining, about 46 per cent are stressed accounts and it is only the remaining about 4 per cent that are eligible for bank finance. It is a myth to develop the MSME sector banking on this 4 per cent MSMEs. Who shall take care of the remaining MSMEsIJ It has been now suggested by different committees, even by the RBI Governor, that timely funding of potentially viable NPA units is essential. Thousands of crores of public assets are locked up in these units. These assets must be put to right use which would generate employment and revenue.
Only after we have stabilised our MSMEs can we qualify to focus on innovation of our products. Be it automobile industry, food processing industry, IT industry; speak of any industry in the global scenario, most innovations have been brought in by promoters from developed nations.
The three main objectives of any industry are to develop/manufacture a product, generate employment and contribute to the State revenue. Development of a product plays a key role in social development. Motorcar was invented in a crude form; through constant innovation high-speed engine and comfortable cabin space in the latest design cars has made life comfortable. How have the Indian industries, precisely MSMEs, contributed to such innovations; practically negligible. Why is it soIJ
A young entrepreneur dreams of creating an enterprise and establishing his product or brand across the world. Most Indian MSMEs are registered by first-generation entrepreneurs, full of vigour; the enterprise begins; some of them flourish for about a decade, but most close down even before, unable to struggle through the laid-down system for the MSMEs.
On an average, Indian MSMEs’ promoters work seven days a week easily over 12 working hours or more every day. Still, the success rate is below 50 per cent. Do the India MSME promoters lack vision, education, hard work, financial abilities, technical skills or what is it that prevents an Indian MSME from achieving its goal.
“I need to report to 24 Authorities/Inspectors to continue running my enterprise,” said a member of our Association. “My day starts at 5 in the morning and goes on. I need to plan for my compliances, to pay the workers, to meet tax liabilities, to buy spares, visit offices…. after the planning is made, I need to look for funds. The account mostly remains dry and the enhancement application keeps getting processed in the bank. So, I need to visit the bank first and the full day is generally spent in the bank trying to speed up my application for sanction. Where is the time for focusing on product developmentIJ Product development is secondary; the first is to bring up my capacity utilisation above the breakeven level for which the main requirement is to source funds.” When this remains inadequate, the full time and resources of the promoter is spent in organising funds rather than working in the plant or discussing product developments.
Nano, developed by the Tatas, turned out to be an unsuccessful model even after a soft loan of Rs 9,750 crore was provided by the Gujarat Government which is 330 per cent of the expected investment of Rs 2900 crore in the first phase. Most large-scale industries enjoy adequacy of loans even when facing severe losses; whereas 25 per cent of MSMEs in the electrical equipments have closed down in our country mostly due to lending problems!
A well-performing engineer with the Indian Railways promoted an electrical bulb manufacturing unit in Odisha in the early 1980s in the small-scale sector. The industry ran for about a decade with excellent performance. With the advancement of technology when the filament bulb started losing market share, the enterprise needed funds to diversify to the new technology product. The promoter had initially thought he had a valid ground and his banker SBI would be happy to fund him without hesitation .He kept struggling for months and years but was unable to raise the required funds. The unit finally became an NPA; the land and building were sold and the machines crapped. Today, the promoter has resigned to his destiny, presently engaged in a teaching profession.
Our association viewpoints for revival of Indian MSMEs have been discussed in my earlier articles. To focus on innovation, a single-point agenda must be to provide adequate funding to an MSME and in time. This can create wonders for even the banking industry, which is scouting for suitable borrowers satisfying all their lending norms.
The Odisha Government announced a package of Rs 1,600 crore for the MSME sector which has reportedly not yielded the desired result despite the MSME Department aggressively making best endeavours to promote the sector. The reason is simple: the banks do not normally cooperate. They must be allowed free hand to fund potentially viable NPA units and stressed accounts. Similarly, the State’s Fisheries Department has been promoting excellent schemes to increase fish production, but the schemes still remain sluggish since to avail the incentives, the first stage is to avail bank finance which is not rightfully available. Similarly, the State’s rehabilitation programme for MSMEs has totally failed since the Directorate of Industries has reportedly no authority over the commercial banks that constitute the most vital part of the rehabilitation for sanctioning of the required loans.
The Indian MSMEs need to be freed from the present financing woes to focus on innovation. Besides allowing freehand for funding of the potentially viable NPA accounts, proper implementation of the existing RBI guidelines must be ensured. The nation needs a reply from the largest banker in the world and the biggest lender of our country, the State Bank of India, controlling about 50 per cent of banking transactions of our country and the trendsetter of the banking sector for centuries, for the large sickness of Indian MSMEs. Similarly, when the SBI is controlling about 70 per cent of the banking in Odisha, why should the State remain the poorest in the countryIJ It is like a teacher being responsible for mass failure in his class!
(The writer, the Working Chairperson of the Entrepreneurs & Finance Customers Association of India- EFCAI, can be contacted at efcai12@gmail.com )