It’s a long road ahead for MSMEs

Updated: Dec 25, 2010, 09:59 AM IST

Reema Sharma and Anil Satapathy

After Independence, Indian planners had focussed entirely on the heavy and big industries, hoping for self reliance and mass employment generation.

This line of thought was carried on for about three decades. However, the failure of big industries in creating mass employment generation and distribution of wealth among citizens led the planners to shift their focus to the Micro, Small, and Medium Enterprises (MSME).

With Indian population set to rise at a rapid pace and people between the age group of 15-40 constituting the bulk, generating enough employment opportunities is the biggest task for the government.

The major advantage of the sector is its employment potential at low capital cost. As per the Ministry of Micro, Small and Medium Enterprises, this sector employs an estimated 59.7 million people spread over 26.1 million enterprises. It is estimated that in terms of value, MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country.

Outlining the achievements of the MSMEs, Madhav Lal, Additional Secretary & Development Commissioner MSME, and Govt. of India told ,“SMEs have continued to contribute about 8 per cent to the national GDP. They are contributing 40 per cent to the manufacturing output in the country and about 40 per cent to the export.” He was talking to during the first MSME expo organised by Indian Industries Association (IIA) in Noida from December 17-19.

But, Lal also rued the fact that though “the number of MSME in organised and unorganised sector is about 26 million but a very large percentage; over 95 per cent are there in the unorganised sector.”

“It is very difficult to say how every segment fared post downturn. Some might have not performed well, consider the segments which are totally dependent upon export. But there are some segments which have done infact better. On the whole the MSME are pretty vibrant and hope they will benefit in terms of growth,” the Development Commissioner added.

The bigger truth

Worldwide, the Micro Small and Medium Enterprises (MSMEs) have been accepted as the engine of economic growth and for promoting equitable development. The labour intensity of the MSME sector is much higher than that of the large enterprises. The MSMEs constitute over 90% of total enterprises in most of the economies and are credited with generating the highest rates of employment growth and account for a major share of industrial production and exports.

In India too, the MSMEs play a pivotal role in the overall industrial economy of the country. In recent years the MSME sector has consistently registered higher growth rate compared to the overall industrial sector.

The sector which survived the recent economic downturn (thanks largely to a strong demand in India) shows that it still needs government support.

The challenges and opportunities:

In an exclusive interview with Alfredo Pinto Saavedra, Ambassador of Colombia said, “There are difficulties in getting technological factor. Credit access, concentration of wealth in big global firm is another challenge. Especially SMEs in the micro sector face more difficulty. The real challenge is how we can articulate the challenge vis-à-vis the global change in values.”

The future ahead:

No doubt, with increasing government support and rise in young population, there would be a host of opportunities. With lack of employment in the government and traditional sectors, people will gradually move towards establishing their own industries.

“It is an excellent scenario for the young entrepreneurs. The people of India want to be self made,” said Pinto.

Talking on the upshot of Indian entrepreneurship he said, “apart from having entrepreneurial skills you need to have specialised knowledge, market understanding and ability to innovate. SMEs are growing in numbers but not in participation. While big companies are growing in size, SMEs are growing from small to micro. They are not significantly contributing to the GDP.”