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Will proposed govt reforms help SMEs in unorganised sector?

Entrepreneurship in India is increasingly changing the landscape of Indian industry and businesses

Tags: Entrepreneurs, SMEs, Kalraj Mishra, All India Association of Industries

BY Aparajita Choudhury  |  Dec 01, 2014 comments ( 0 ) |

Entrepreneurs are now more receptive to new ideas of doing business. Undoubtedly, entrepreneurship cannot be sustained without the support of institutions and the policy environment which are essential to the growth and development of entrepreneurship. For businesses to flourish, it is imperative that an enterprise operates within a policy framework that encourages a conducive business climate for growth and development.

Entrepreneurship in India is increasingly changing the landscape of Indian industry and businesses. With globalisation and India’s progressive economic liberalisation, entrepreneurship is gaining a new dimension.

Policy Reforms

Micro, Small and Medium Enterprises (MSME) contribute nearly 8 percent to the country’s GDP and constitute 45 percent of the manufacturing output and 40 percent of the exports. They provide the largest share of employment after agriculture. Considering their importance to economic growth and employment generation, the government should ensure that the MSME sector should be accorded the attention and priority that it deserves in the interest of national growth and development.

Vijay Kalantri, president, All India Association of Industries, says, “Bulk of SMEs is in the unorganised sector engaged in semi and unskilled production. Many operate in the cottage sector and are widely dispersed in remote areas. It is a major challenge to identify these units and therefore remain obscure. Efforts should be made to organise them in clusters so that they can be monitored and provided with necessary support in terms of finance and infrastructure. Cluster development must be promoted in the country on an extensive scale.”

In a recent report, Union MSME Minister Kalraj Mishra said that to empower MSMEs, the government is emphasizing to assist entrepreneurs and announced a separate policy for SME sector.

Recently, a media report said that state Finance Minister Saurabh Patel announced that the Gujarat government is likely to launch new policies for MSME sector and start-up businesses.

"Gujarat government will soon announce a new policy for MSME sector. The government is also working on a separate policy for the development of start-up businesses,” Patel told PTI.

He further added, "We are also mulling over a new 'start-up policy' to encourage and support new innovations. We have invited suggestions from experts in this field to find out ways to help young entrepreneurs in the state."

Glitches in Policy

The present legal framework is not in favour of SMEs and is likely to create major hiccups in the growth path of small business.

“The Government procurement from the SME sector to the extent of 20% is aimed at improving the viability of the SME sector. However the scheme remains largely on paper and despite the clamour from the SME sector, the Government appears to turn a blind eye to this issue’” says Kalantri.

Finance is yet another aspect that needs to be examined. Timely disbursal of bank finance is crucial for the execution and management of projects. This is particularly true of the MSME sector in the country which is   severely affected due to lack of timely finance.

‘Availability of finance’ is still shrouded in mystery. The government has made some changes to the present MSME Act to clear the cloud. The proposed amendment incorporates establishment of revival and exit committee, MSME facilitation council and establishment of appellate authority.

 As a part of the amendment, the government has recommended that the definition of MSME should be reviewed in order to provide this sector more access to easy capital.

The amendment also seeks to double the capital ceiling for manufacturing units of micro enterprises from Rs 25 lakh at present to Rs 50 lakh. And for small enterprises, the suggested limit is around Rs 10 crore. The present slab is at Rs 5 crore. It has also recommended to increase the ceiling for medium enterprises to Rs 30 crore from the present cap at Rs 10 crore.

Assistance to MSME sector

 In order to make the MSME sector competitive in international markets, government should start focussing on providing pragmatic support to the sector accompanied with latest technology and skill development policy.

Kalantri states, “The need of the hour is a holistic policy that will help balance industrial growth and economic development in the country.”

In order to fuel the Prime Minister Narendra Modi's 'Make in India' campaign and generate employment opportunities, MSME Ministry has inked a deal with International Labour Organization (ILO).

MSME Ministry said that the pact is initially for a 5-year period and will support the government's 'Make in India' programme, aimed at transforming India into a global manufacturing hub.

The ministry further stated that the deal involves some of the key activities which include entrepreneurship development, good workplace practices for improving productivity and enhancing integration into global supply chains, and research and knowledge-building related to sustainable enterprises and formalisation strategies. 

Host of issues like lack of finance and stringent monetary policies, inadequate infrastructure, burdensome taxes and non- availability of skilled labour seem to cripple the operations of the MSME sector in the country. So, time has come that the government should bridge the gap between them and entrepreneurs and fast-track the policies in favour of SMEs.


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