By
Sachin Shridhar Nov 17 2015, India’s micro, small and medium enterprises (MSME) sector estimated at over 1.3 million business units contribute over 40 per cent of the manufacturing output and account for over 35 per cent of the country’s exports. These MSME units, which traditionally are labour intensive, employ around 40 per cent of the India’s workforce. The figures read as if they would lead one to believe that India is a story of small entrepreneurs, innovators, hard working craftsmen and small industries in niche areas. By this account, India should be a nation of the self-employed. But the real story starts with the fact that this 40 per cent labour force contributes only 15 per cent of the GDP, which is, at best, a charitable estimate made by the government’s annual economic surveys. Several private estimates put that number at lowly 8 per cent. Simply put, it means that 40 per cent of the country’s workforce is producing only 15 per cent of the final output, thereby, remaining relatively unproductive, which in the present world of equal opportunities also means uncompetitive, and so, in the long run unsustainable. In human terms, this is where the foundation of the poverty of the nation lies. Today’s connected and globalised economy demands that the small industry competes at a daunting global level with cheaper producers from China, Bangladesh, the Philippines, Mexico and elsewhere. At times, it also demands tough competition at home with players masquerading as domestic firms even when the end beneficiary is an overseas company sourcing cheap capital at near zero interest rates against smaller local players with double-digit borrowing cost. Besides cheaper finance and deeper pockets that give them greater fire power and longer staying power, these players also have greater and cheaper access to better technology and processes. Further, if the overall production ecosystem in those countries is better eg, labour is cheaper in Bangladesh; Mexico is geographically and culturally closer to the US; the level of discipline and infrastructure is far better in China than in India or Bangladesh, and so on, then Indian industry starts with a handicap that cannot be overcome. Add to that the additional cost and delay of adversarial bureaucracy from production to final clearance of the cargo and you find your so-called advantage slipping. Another point of concern is that the main street of MSME manufacturing and service industry is experiencing a tremendous disconnect with the capital market, where the story of India being the only shining star in an otherwise gloomy world is being sold day after day. Businesses are struggling with poor demand, pressure from banks and non-existent margins. The small man toiling away in his business and somehow managing to pay off his employees and financiers are left wondering if he really belongs to the world being spun by the business channels busy weaving stories of a glorious India. The cumulative impact of these selective forces will be that more and more small businesses in India will be rendered unviable and forced to shut shop because they have no control over the disadvantages that they start with. Employment, occasionally formal and mostly informal, will soon disappear, as in the developed markets, while the country will record jobless statistical growth. The trend is all too visible all over the country, with the small businesses in traditional manufacturing centres forced to shut shop at an alarming pace. This is not only true for products where consumer tastes or technical obsolescence have altered the scenario on ground, but is equally true for routinely consumed products. With protection or state support unfashionable, the endgame looks pretty much cast on stone. The ministry of MSME mandates that a percentage be reserved for the MSMEs in government procurements. But this directive is more flouted on ground than followed in letter and spirit. Some of the leading state-run organisations have gone so far down the road that their procurements now specify brands that are mostly owned by the MNCs, even though equivalent products produced by MSMEs might be available. The struggling MSMEs cannot even compete on the liaison index, as penetrating the labyrinth of the complex procurement and tendering system is beyond their wherewithal. Once you start grappling with the problem of surviving the next quarter, new capex, technological upgradation and formalising your workforce are the last things on your mind and, in fact, appear like luxuries of the rich. Instead, a shoot and scoot mindset starts setting in — sell whatever you can and get out fast. So, if you cannot exit your business then sell the land and building to bail yourself out. Small regular blokes in the less hallowed business circles lament that it might have been better to invest in fixed deposits than sink cash in building a factory. This portends ill for the country. When active entrepreneurs with resources and capacity to take risks become despondent, it is time for businesse to stagnate. The euphoria of ‘make in India’ then hardly makes sense to most, except for the few big boys in the game. (The author is a former IPS officer and now an entrepreneur)
Source: mydigitalfc.com,
Image: flickr.com
