Millennium Post

SMEs in the emerging economy

India’s engineering goods export is one of the very few segments that did acquit themselves commendably in the current fiscal, even though the overall export growth is in single-digit due to extraneous factors compounded by domestic disabilities. Engineering exports consisting of iron and steel products, non-ferrous metals products, industrial machinery, electrical machinery and equipment, auto and auto parts, aircrafts and spacecraft ships and boats are likely to compass and even surpass the target of $62 billion this fiscal set by the Engineering Export Promotion Council (EEPC) India. Though the major market of West Europe continues to remain in the doldrums of downturn, rest of the Europe, Association of South East Asian Nations (ASEAN) plus Australia and New Zealand, North America and North East Asia became surprisingly the top destinations of Indian exports in January 2014, the latest monthly data showing an impressive 37 per cent export growth.

Interestingly, the surprising bounce displayed by the engineering exports was ascribed to the sterling performance put on by the small and medium enterprises which broadly come under the rubric of the Micro, Small and Medium Enterprises (MSME) sector. MSMEs consisting of chemicals, engineering, agro products, and leather, handicrafts and plastics and meat and meat products contribute conspicuously to employment generation and development of rural areas, besides bolstering and strengthening the manufacturing sinews of the country. Justifiably economists contend that without assiduously building the robust manufacturing bedrock, the country’s hope of cruising on a high growth trajectory and generating productive employment for legions of young people would remain a pipedream. Interestingly, MSME sector is one of the key drivers for the country’s manifest transition from a purely agrarian economy to a moderately industrial one with services sector making up the major chunks of the overall gross domestic product (GDP) growth in recent decades. As close to half of MSMEs in the country are owned by under-privileged groups, they contribute in no small measure to shape and sharpen the entrepreneurial skills and economic empowerment in the woeful absence of formal education not being availed of by many of them with the attendant lack of the requisite public intervention policies in primary and secondary education domain. The share of MSMEs in the country’s total export hovers anywhere near 44 per cent of.

Within the top six commodities accounting for about 70 per cent of total MSME exports, engineering products hold a sizeable slice. While MSME exports have grown at an annual average growth rate of 11 per cent during 2007 to 2011, their estimated export turnover for the period 2009-2012 amounted to a whopping $325 billion. According to the Chairman, EEPC India, Anupam Shah, the MSME sector, despite being a heterogeneous group, confronts some common problems such as lack of availability of adequate and timely credit, exorbitant cost of credit with interest rates hovering between 14-16 per cent, insistence by banks on collateral requirements for funding, marketing obstacles and low technology levels and dismal lack of access to modern technology at affordable cost. He said it is more than seven months since the inter-ministerial Committee for boosting exports from the MSME sector headed by former Finance Secretary R S Gujral with distinguished members at the secretary levels from Commerce, Revenue, Financial Services and MSME and the present RBI Governor, Dr. Raghuram G Rajan submitted its report. But no plan of concrete action on priority areas of concerns to the industry had been laid out to the dismay of this vibrant segment of the economy, undiscouraged by the existing insipid policy milieu.

Shah pertinently points out that since MSMEs have advantages of locations being spread across the country in semi-urban and rural areas, they can preclude migration of rural and semi-urban populace to the cities/towns, if only the authorities are keen to leverage these factor endowments.

Citing the case of engineering industry in general and export sector in particular, Shah maintains that among the several eminently practical proposals of the Gujral Committee, some need to be implemented immediately, if the tangible turnaround in engineering export is to be sustained and sustainable.  He said that while the budget for Market Development Assistance (MDA) and Market Access Initiative (MAI) being run by the Commerce Ministry is a measly Rs 50 crore a year, this corpus needs to be scaled up if the market diversification and product diversification expected of the industry is to be realised meaningfully and rewardingly. The Gujral Committee’s suggestion that there is a need to significantly augment the funds available for marketing and accordingly double the budgetary provisions for MDA/MAI schemes of Commerce Ministry from the extant level of Rs 50 crore/Rs 180 crore to Rs 100 crore/Rs 300 crore is the least that the government could implement swiftly to encourage and consolidate the gains made by the industry in the overseas markets.

Again, soft expenses incurred by exporters such as branding, advertisement, promotional events for which the financial availability is presently sparse should be enhanced, he said adding that the Gujral Committee had plumped for alternative means including the concept of allowing eligible companies to deduct against their taxable income twice the amount of expenses incurred on certain export related qualifying activities.


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