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MSME – “Miles to Go”

Internationally the Micro Small & Medium Enterprises (MSME) plays a vital role for the growth & development of the economy & treated as an indicator for inclusive growth & equitable development. The Indian economy is expected to grow over eight percent per annum until 2020. If at all this figure is achieved then it will be the third largest economy around the World after China and United States by 2032. For this the MSME industries has to play a significant role. At present MSME sector contributes around 8 to 9 percent to India’s GDP and is expected to touch the figure of 22 percent in the next three years. The Central Government has set up National Manufacturing Competitiveness Council to suggest ways to enhance competitiveness in the manufacturing sectors. The Government has already announced a National Manufacturing Policy that aims in augmenting the share of manufacturing to 25 percent of GDP by 2012.

MSME sector has the potential to spread industrial growth across the country and can be the major partner in the process of inclusive growth. These sectors not only play crucial role in providing large employment opportunities at comparatively lower capital cost but also help in industrialization of rural areas. The sector which consists of 40 million units as of today has accepted the innovation technique and acquired new business technologies, new business ideas and automation in industrial and allied sectors over the years. The SME sector is functioning forward quite aggressively and entrepreneurs are making remarkable progress in various industries like Manufacturing, Precision Engineering Design, Agro & Food Processing, Pharmaceutical, Textiles & Garments, Retail, IT & Service Sector. The financial position of availability of Credit Position in India from Banks as well as from financial institutions has been inadequate & difficult because of lack of awareness about the products & procedures. As a result, the unregulated leaders have catered to the mismatch. A two sided approach involving innovative leading from the financial sector and better corporate Governance Systems in the SME sector can lead to a growing flow of finances to the MSMEs. But despite of  the financial challenges in raising capital, MSMEs in the country have long suffered the absence of a suitable platform to hedge the risk associated with exchange rate volatility. As most of them are export oriented they are automatically exposed to high forex risk owing to limited size of their international business. SMEs usually do not get a fair deal from banks if they want to enter into currency forward trade to hedge their risk.

In terms of value, the sector contributes about 45 percent of India’s manufacturing output and 40 percent of total exports. But India is a country of paradoxes and in this economy micro, small & medium enterprises are considered to be less privileged than the most elite corporate sector. The sector which generates much employment and carry forward the knowledge economy and contributes significantly to the nation’s GDP is struggling with lack of proper infrastructure and other related regulatory issues like taxation, labour, environment and professionalism problem. India will achieve 8.1 percent economic growth in current financial year encouraged by strong consumer spending amid low inflation, infrastructure projects and Government’s reform majors. Investment is also expected to rebound, although unevenly gives the still low capacity utilization rate at about 70 percent. The “Make in India” initiative was launched in September 2014 to promote India as a global manufacturing hub. The Central Government at stressed more of the success of this scheme and has already taken initiative for broad based policy actions in enhancing human capital, access to inputs and finance.

The statistics of All India MSMEs sector is presented below in Table-I.

Table-I

 Total number of Enterprises of MSMEs 361.76 lakhs
 Total Employment in MSME  805.24 lakhs
 Total output of the MSME  1077212.88 Crore
 Total investment in plant & machinaries  199664.21 Crore
 Number of Registered employees  15.64 lakh
 Number of un-registered employees  346.12 lakh
 Number of micro-enterprises  14.85 lakh
 Number of small enterprises  0.77 lakh (4.89%)
 Number of medium enterprises   0.03 lakh (0.17%)

 

(Excludes activities under wholesale/ retail trade, legal, educational & social services, hotels & restaurants, transport & storage & warehousing)

State Scenario:

The anticipated growth rate of Odisha economy during 2014-15 has been estimated as 8.78 at 2004-05 prices in market price. The state economy is expected to recover strongly in 2014-15 after a sluggish growth rate of about 2.21 percent in 2013-14 that occurred due to adverse impact of the natural calamities & industrial recession during the year. The state witnessed the falling share of agriculture Sector to overall GSDP as fluctuating trend of growth rates for last few years.

The industry & services sector have emerged as main drivers of growth during the past decade. In real terms at 2004-05 prices, Odisha economy exhibited an average annual growth rate of 8.82 percent during the 10th plan period against the target of 6.20 percent. The economy grew in real terms at the rate of 7.05 percent during 11th plan. The standard of living in Odisha has improved over the years with a rise in real per capita income.But the continuing gap of real per capita income between India and Odisha is a matter of concern. Odisha economy is diversifying at a faster rate and though the state economy still continues to be adversely impacted by frequent natural shocks, it has acquired some resilience to such natural shocks. The industry sector contributes about 33.45 percent share of Odisha’s GSDP in real terms as per the estimates of 2014-15.

The number of micro, small & medium enterprises (MSME) in the state has been increasing over time. The state is expected to grow in breakneck speed in years to come as most sector friendly policies has been initiated by the State Government. The growth of MSMEs in the state is connected to mother industries. With vast natural resources and fairly well developed infrastructure, Odisha provides great opportunity for setting up of new MSME industries in the state as several Mega & big projects are at various stage of implementation. It’s a great journey of Odisha Government  which has notified  the IPR resolution 2007 to the revised IPR resolution of 2015 which specifies fiscal and non-fiscal interventions to boost the growth of the small and medium scale enterprises. The Department of MSME along with Directorate of Industries plays a crucial role to promote MSME, ancilliary and downstream industries in the State.

Facts & Figures:

Despite of the initiative taken in the successive industrial policies, the growth of MSMEs of Odisha is not at par with the national & international standards. The inherent richness of the State of Odisha in terms of abundant natural resources, human resources and an enterprise enabling policy need to be leveraged to realize the full potential of Micro, Small & Medium enterprise sector of the state. The new wave of industrialization being witnessed in Odisha today, especially in the Metal, Power, Cement, Petrochemicals, IT, Tourism sector and the current growth in the services sector provide enormous opportunity for the growth of MSMEs in Odisha. However, the indigenous initiation of the Odisha Government to encourage the Micro, Small & Medium enterprises drew attention even from the centre. The changing attitude of the local entrepreneurs as well as the initiative by the State Government is responsible for the steady growth of MSME units in Odisha. The growth of MSME units in Odisha is represented in Table-2 and among the districts of Odisha the dominancy of MSME industries is illustrated in Table-3.

Table-2

[Source: Odisha Economic Survey – 2015]

Table-3

[Source: Odisha Economic Survey – 2015]

It is encouraging to note that the number MSME units in Odisha is increasing day by day as revealed from Table – 2. Although the number of units set up in a particular year is increasing, the pace of growth is very slow. The State Government has to play a proactive role as it encourages promoters of mother industries to set up industrial parks in the vicinity of their units. The new Food Processing Policy which has been announced in 2012 has yet to show the result. Table-4 explains in detail regarding the total MSME units and the investment made in the entire process as well as the employment generated.

Table – 4 District-wise Break-up of MSMEs 2013-14

[Source: Odisha Economic Survey 2015]

From the Table it is relevant that in repairing & services and in Food & allied category the position is encouraging but in other sectors like Electrical, Electronics, Leather and in Rubbler & Plastic Sector the situation is quite alarming in nature. The most disappointing fact is that despite of the presence of some of the leading organizations in the sector like CIPET, CLRI & ETIT the result is quite discouraging. The District wise break up for setting up of the number of MSME units as well as the investment in Crores is reflected in Table-5.

Table – 5-Sector-wise MSME Units in Odisha by the end of 2013-14

[Source: Directorate of Industries, Odisha]

This table reveals that except Sundargarh, Balasore, Cuttack, Khurda and Ganjam the employment potential in other districts are very low. The districts which are capable of setting up of food processing industries are lacking in the field. Even in terms of participation of women workers in some districts is very low. Investment pattern is also quite discriminatory. This seems that adequate importance has not been given for the equitable development of MSME sectors in every districts depending on their potential.

Prospects:

Since Odisha is richly endowed with various type of minerals, prospect of ancillary and downstream industries is very much in  the card. While NALCO is setting up an Alumina Park at Angul, the Jindal Stainless (JSL) is setting up a stainless steel park at Kalinganagar. The Jamshedpur based RSB is setting up an auto complex at Choudwar. A food processing park at Khurda, a rice processing clusture at Bargarh and a drug manufacturing clustre at Cuttack, besides a plastic corridor at Balasore is coming up in the state. The newly inaugurated petrochemical complex at Paradeep provides enough opportunity for setting up of new MSME units in the vicinity. The “Make in India” policy raised the confidence level index of the state based entrepreneurs. The other factors which contributes a lot is the industry friendly attitude. The recent policy of the State Government to accept self declaration for environmental pollution monitoring in some MSME sectors is perhaps a great land mark. The State Government is regularly arranging seminars, training programmes, mega fairs to create awareness among the entrepreneurs and to spread the message that in Odisha  the situation has improved a lot over the years. The process of transformation of Odisha State Financial Corporation (OSFC) to a vibrant organization is on. In the latest MSME trade fair 2016 much emphasis has been given to promote the tourism sector. Tourism advisory Board, argued how internationally hotel chains can be attracted to boost domestic economy. Similarly the opportunity in floriculture & pisiculture is on for the State Government. The mega fair arrangement by the State Government provides platform to MSME for interaction with large institutional buyers and thus the entrepreneurs get a chance to upgrade their knowledge about the prevalent market scenario. The most unexplored sector is telemedicine sector. With having a huge potential of skilled manpower and the presence of institutions of national and international repute provides us lot of opportunity for training and consultancy in this regard.

Threats:

The implementation of clusters ‘for innovation and inclusive growth” has made Odisha MSMEs more refined and polished in their approach. At present there are twelve clusters actively engaged in their field of operation. But the state clusters are not devoid of traditional old age problems of technological obsolescence, poor product quality, poor market linkages, power shortage and a host of problems. As per a recent survey of the World Bank, inability to access finance may be one of the reasons why we do not see a robust correlation between SME prevalence and economic growth. In Odisha, lack of access to finance has seriously affected the success of SMEs impacting the sales of these enterprises. The high inflation rate clubbed with variable interest rate scenario is a big challenge for the entrepreneurs. Another factor which requires attention is strong technological innovation. Since MSMEs are operating in different states under different leadership a link-up between them regarding the latest technical know-how is an absolute requirement for the entrepreneurs.  The Prime Minister’s Task Force on MSMEs has identified poor technology, generally used by the MSME sector as a major cause for the lack of competitiveness of the sector. Although realizing the importance of this, lot of promotional measures like MSME sectoral council scheme. Innovative cluster initiative scheme, incubator scheme, Design Clinic Scheme, IPR scheme has been introduced but the result is not so encouraging.

Another problem is the huge difference of VAT structure charged by the State Government and the Central Sales Tax. While goods manufactured locally are charged 13.5 percent VAT, the same products procured from outside the state are charged only 2 percent Central Sales tax. This creates a huge gap in tax structure between the local entrepreneurs and outsiders. This is the reason why state entrepreneurs are loosing business to outside market. Since most of the MSMEs are on sole proprietorships, lack of professionalism in the sector also poses an obstacle. Due to lack of funds to hire qualified people, second tier management is very weak especially with financial literacy and the transparency regarding disclosing information. This is an important reason which makes the lenders uncomfortable to offer credit to these companies.

Although the State Government has formed a separate MSME Department, the basic input is missing. By merely creating a unit does not necessarily mean that its growth and development is assured. Organizing fairs, symposiums and training programmes alone can not solve the problem. The problem has to be dealt with ab-initio. Since the industry is growing, adequate care should be given for a vibrant growth.

Conclusion:

In the modern economy people can no longer expect large enterprises to guarantee them jobs for life. Individuals are increasingly expected to seek out their own opportunities, actively create values and behave ethically rather than faithfully follow rules and routines set by others. In particular, today’s young people need to learn to be enterprising, both when working for others and when setting up their own business. Being enterprising involves taking responsibility for decision making, becoming increasingly self reliant, pioneering adventurous, daring, dynamic, progressive, opportunist, ambitious and holding their own values, as well as being able to initiate ideas and see them through into action. So this is the most opportune moment for the policy makes, Bureaucrats and entrepreneurs to sit together and resolve their problems, so as to break the jinx and start a new era of industrial growth and economic prospect for the state which can be reflected in our inclusive growth for the posterity.

About Dr. Sukanta Mishra

Management Consultant

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