Published Editorial

Budget 2014: MSME sector needs access to finance, markets and skilled manpower

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ET Online

By

Amar Shankar
Associate Director - Advisory Services, EY

Prakash Singh
Associate Director - Advisory Services, EY

Micro Small & Medium scale Enterprises (MSMEs) are the backbone of the Indian economy as these enterprises contribute more than 40% of India's export and more than 45% of India's industrial output. Such enterprises employ the highest number of people after the agriculture sector.

The challenges faced by this sector are known and there have been several attempts in the past to address these by various Governments in the past. These challenges include accessing markets -international and domestic, accessing finance, accessing modern technology accessing skilled manpower and deficiencies in infrastructure.

On analysing this sector's issues and requirements it becomes clear that it requires focused support and a concerted effort from multiple stakeholders. It is in this context that the Government of India established a separate ministry focusing on the needs of MSMEs. By design being a horizontal ministry it requires support and collaborative decision making from other ministries to ensure the competitiveness of the Indian small and medium enterprises can improve.

Access to finance:

This is perhaps one of the biggest pain points for MSMEs in India. Despite several policy initiatives, schemes of the Government and allocation of funds by financial institutions and banks, this continues to be an issue.

A deeper issue is perhaps the utilization of funds by fewer firms and in some cases by larger firms. The forthcoming budget can address this by establishing separate funds for Micro Enterprises and SMEs so that appropriate target groups can be benefited. More importantly, such funds should be allowed largely for technology or quality improvement initiatives to improve competitiveness of MSMEs and re-payment options should be easy.

However, such funding should be at competitive rates in order to reduce the incidence of NPAs and in that context the idea of group loans may be encouraged.

Given that the trend towards crowd funding is gaining momentum, perhaps the idea of establishing an exclusive stock exchange for Micro and Small enterprises needs to be evaluated. If this could take flight, it would help in making funds accessible to MSMEs from multiple sources including retail investors, FIIs and Government institutions.

Access to markets:

This perhaps is one of the most neglected areas and where MSMEs need assistance. A significant step to address this challenge is the Public Procurement Policy of 2012, which issues directive to public sector enterprises to procure at least 20% form SMEs.

In addition to this, the Government needs to facilitate market linkages with academia and applied research institutes such that early research can be commercialised by MSMEs. The Ministry of MSME has many transformational programs including the Technology Centre Systems Program which aims to assist MSMEs in establishing ecosystems to improve competitiveness of MSMEs.

Another area which requires attention is the provision for creating Entrepreneurship Parks to bring all the government agencies under a single roof to make it easier to start an enterprise. In addition to space and common facilities, these centres can provide business advisory and inputs to build capacity for new entrepreneurs.

A provision of such sector focused parks across the country with an initial budget outlay may be the way forward. If Government can roll this out creatively, then perhaps these parks could be developed through public private partnerships with some leading entrepreneurship parks from around the world.

Skilled Manpower:

A lot of action has been taken and yet a lot needs to be done to ensure skilled man power is available to the industry and SMEs. The challenge is that despite thousands of ITIs/Diplomas/Engineers, India seems to be producing technicians who are not employment ready.

While skill development initiatives of various Central and State Governments are addressing the issue of skilling 500 Mn by 2022, another creative step towards encouraging private sector to engage fresh pass outs could be to provide tax incentives for such organisations.

This will attract industry including MSMEs to invest in in-house training programs and ensuring the fresh hires become job ready. Further, a national database of all students who have passed minimum 8th standard should be provisioned which could be updated regularly with linkages with a unique ID (NPR/Aadhar).

This would also ensure that there is a comprehensive track record of education/ skilling / work experience. This will not only help the potential employers but also to the government to improve its policies and schemes.

A relook at the budget of 2013 itself indicates that there have been provisions made for skill development, sector development, rural employment generation, etc. All these provisions directly or indirectly assist the MSME.

Therefore, there may not be a need for any additional provisions but need of the hour is reprioritizing or sharp targeting and implementation of existing programs to help improve the competitiveness of MSMEs.