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MSME – A never-ending journey

Since Odisha is richly endowed with various types of minerals, prospect of ancillary industries through MSMEs is very much in the card. While NALCO is setting up an Aluminium Park at Angul, the Jindal Stainless (JSL) is setting up a stainless Steel Park at Kalinga Nagar. The Jamshedpur based RSB is setting up an auto complex at Choudwar. A food processing park at Khurda, a rice processing cluster at Bargarh and a drug manufacturing cluster at Cuttack besides a plastic corridor at Balasore is coming up in the state.

Micro Small & Medium Enterprises (MSME) has been accepted internationally as the engine of economic growth as well as an indicator of inclusive growth and for promoting equitable development. The distinct advantage of the sector is its employment potential at very low capital cost. In India, MSME plays a pivotal role in the overall industrial economy of the country. It is a matter of fact that due to the dynamism and promptness of the sector, this sector has shown admirable innovativeness and adaptability to sustain in the era of recent down turn and recession.

MSME also play a vital role in the overall industrial economy of the country. In terms of value, the sector contributes about 45 percent of India’s manufacturing output and over 43 percent of total exports. To enable the MSME sector more competitive, the National Manufacturing Competitiveness Programme (NMCP) was launched by the Government in 2000-08. This programme (in most cases a Public – Private partnership), has also gained momentum over the years & proved beneficial. But India is a country of paradoxes and in this economy small & medium enterprises (SMEs) are considered to be less privileged than the most elite corporate sector. The sectors which generates much employment 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 lack of professionalism problem.

The MSME sector has consistently registered higher growth compared to the overall industrial growth. Its major advantage has been its employment potential at low capital cost. As per the Fourth All India Census of MSMEs, the sector employs around 60 million people across 36 million enterprises. Growth in agriculture & manufacturing has a major role in balancing the country’s overall economic growth and MSMEs have been contributing significantly as well. The Central Government focuses on this sector and it has put in place a number of promotion schemes across the country to supplement the efforts of the states. Government of India has framed the Micro, Small and Medium Enterprises Development Act 2006 with a view to provide a complete and comprehensive legal frame work to address the need of both manufacturing & service sector.

The FDI policy for retail has already been provided the required safe guard for the MSME sector in the form of mandatory 30 percent sourcing of (local) goods by multi brand retailers. The MSME ministry is already in the process of aiding capacity building so that they are able to meet the desired requirement. This includes the long awaited quality management standards and quality technology tools, credit linked capital subsidy scheme, Design Clinic Scheme for design expertise, marketing property rights. Different sectors in MSME industries in India are represented in Table-I.

Table -1

Representation of different sectors in All India MSME industries

Sector Percentage of Share
Repair & Maintenance 8.46
Furniture 6.36
Fabricated Metal products 8.96
Wearing apparel 13.67
Food products & Beverages 14.26
Textiles 6.78
Machinery & Equipments 4.66
Non-metallic mineral products 3.77
R&M of motor vehicles 3.72
Wood products 3.53
Others 25.82

Source: All India MSME Census report

Odisha Scenario:

The Government of Odisha has notified the much awaited Industrial Policy Resolution – 2007 (IPR – 2007), which provides specific fiscal and non-fiscal interventions to boost the growth of the small & medium scale enterprises. While the Directorate of Industries is the nodal agency for promoting MSME, ancillary & downstream industries in the state a new department has been created to facilitate the growth & development of MSMEs.

Industry sector of Odisha contributes about 25 percent share of Odisha’s GSDP in real term. The sector has been hit hard due to the global economic slowdown, disruption and other mining activities factor. The growth of MSME 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.

Present Status:

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, petrochemical, IT, tourism sector and the current growth in the services sector provide enormous opportunity for the growth of MSMEs in Odisha.

 

The term MSMEs are classified as Micro, Small or Medium Enterprises; which depends on the financial limit and are shown in Table-2.

Table – 2

Limitation of Micro, Small & Medium Enterprise

Enterprises Investment in Plant & Machinery

(Manufacturing)

Investment in Equipments

(Service)

Micro Up to 25 lakh Upto 10 lakh
Small >25 lakh up to 5 Crores > 10 lakhs up to 2 crores
Medium > 5 crores & up to 10 crores > 2 crores & up to 5 crores

Source: MSME Today-2012-13

 

However, the indigenous initiatives of the Odisha Government to encourage the Micro, Small & Medium enterprises drew attention even from the centre. The Government is now emphasizing on ancillary & downstream industries, which falls under the MSME sector, with a view to support the mother industries. 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 of Odisha throughout the years which is reflected in Table-3.

Table-3

Growth of MSME Industries

Year No. of Units set up
2005-06 4786
2006-07 4556
2007-08 4710
2008-09 4806
2009-10 4907
2010-11 5016
2011-12 5505

   Source: Economic Survey, Odisha 2012-13

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. The figure which explains in detail regarding the total SME/MSME units and the investment made in the entire process and employment generated is shown in Table-4.

Table -4

   Yearwise investment & generation of employment

Year SSI/MSME units set up cumulative Total investment made (Rs. in crores) Employment generated (Persons)
2006-07 92417 271.14 20839
2007-08 97127 295.51 23301
2008-09 101933 227.92 20996
2009-10 106840 292.34 23195
2010-11 111856 395.02 24451
2011-12 117361 500.73 30387

Source: Economic Survey, Odisha, 2012-13

 

Another fact which is quite relevant is that in repairing & services & in food & allied services sectors, most of the MSME units have been set up. Adequate importance has not been given to other sectors like Rubber, Plastics, Electricals & Electronics and in leather sector. The most disappointing fact is that the representation in these sectors are poor; despite of the fact that some leading organizations in these sectors like CIPET & CLRI offices exist in Odisha. Another study reveals that the maximum numbers of MSMEs belong to the repairing & services sector (33.4 percent). In manufacturing & services sector, it is the food & allied sectors that have the highest number of MSMEs (24.2 percent) & investment (29.41 percent). In employment generation, it is the second highest employment generating sub-sector followed by glass and ceramics sub-sector (21.47 percent).

Industry sickness among MSMEs remains a major problem. The total number of registered micro, small and medium enterprises in the state of Odisha since inception till 31.03.2013 in District Industries sector wise as well as the present status is represented in Table-5.

 

Table – 5

Status of Regd. MSME units till 31.03.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source : Directorate of Industries, Odisha

Opportunities:

 

Since Odisha is richly endowed with various type of minerals, prospect of ancillary industries is very much in the card. While NALCO is setting up an Aluminium Park at Angul, the Jindal Stainless (JSL) is setting up a stainless Steel Park at Kalinga Nagar. The Jamshedpur based RSB is setting up an auto complex at Choudwar. A food processing park at Khurda, a rice processing cluster at Bargarh and a drug manufacturing cluster at Cuttack besides a plastic corridor at Balasore is coming up in the state. The stable Government raised the confidence level index of the state based entrepreneurs. The other factor which contributes a lot is the industry friendly attitude, transparent policies for project clearance and land acquisition & policies. The much needed training modules are also been prepared regularly and the Government also stressed more on Training & Development through various EDP programmes. The new food processing policy 2012 which has been announced recently would give a boost to the food processing industries in the State. Farmers & agro-entrepreneurs would take advantage of it. The Government is also planning to develop a new export policy for the MSMEs of the state. The process of transformation of Odisha State Financial Corporation (OSFC) to a vibrant lending organization is on.

The State MSME Department is also organizing lot of trade fairs to enhance the marketing capabilities and competitiveness of the MSMEs. The fair provided 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 recent MoU signed by the State Govt. with some leading health care providers in Telemedicine area for rural masses can generate lot of jobs for independent minded persons. The state having lot of Engineering Colleges having capacity of 30,000 students passing out every year can supplement the skilled manpower requirement to these industries which is struggling from poor technological knowhow & capacity utilization.

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 losing 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 & development is assured. Organising fairs, symposiums & training programmes alone cannot 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:

Business means professionalism which can be generated from a conducive climate mixed up with creativity & innovation. The challenge for the state is to derive a demographic dividend from the large population of youth, and this can be achieved by their engagement in development and productive activities, which is possible only through MSMEs. Odisha is a land of opportunity & possibility. But its road to greatness is neither assured nor earmarked. What we become will depend on what we do. We have too many expectations but least commitment. So, this is the most opportune moment for the policy makers, the think tankers (includes both Bureaucrats & Politicians) and the entrepreneurs to sit together and break the jinx to start a new era for the state’s industrial growth & economic prospect. Let us hope that the prospect of MSMEs not only provide the much awaited inclusive growth to the society but also bring laurels for the State & Odisha can soon be a path finder for other states of the nation.

Odisha industry-2014

 

 

 

 

About Dr. Sukanta Mishra

Management Consultant &

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