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Hope for MSMEs The PM-appointed task force has made some path-breaking recommendations

Updated: April 17, 2010 11:01 am

The UPA-II led by Dr Manmohan Singh is aiming to drives the micro small and medium enterprises (MSMEs) sector to a new high under the hope that the country would only be able to achieve the double-digit growth if the small scale sector attained its full potential. Dr Singh is himself overseeing the MSME policy road map suggested by an expert panel led by his principal secretary, TKA Nair. This is perhaps the first of its kind big push the sector would receive if all the major recommendations of the task force were implemented earnestly. It is understood that the key recommendations of the task force are currently under various stages of clearance given that these involve inter-ministerial roles.

            The PM-appointed task force has made some path-breaking recommendations that include the plea that the government should extend, for a further period of one year, beyond March 31, 2010, the components of the “stimulus package” which are specific to MSMEs. The government should ensure strict adherence to the stipulated targets by the commercial banks for the micro enterprises (viz. 20 per cent year-on-year growth for micro and small enterprises lending with 60 per cent apportionment for micro-sector). A separate fund may be created with SIDBI, using the shortfalls, if any, against the MSE credit targets set for the commercial banks. This fund named “Special Fund for Micro Enterprises” should be utilised exclusively for lending to the micro enterprises.

            Most importantly, a public procurement policy for MSMEs as envisaged in the Micro, Small and Medium Enterprises Development Act, 2006 may be introduced at the earliest. The policy may set a goal for government departments and PSUs to reach, over a stipulated period, a target of at least 20 per cent of their annual volume of purchases from micro and small enterprises (MSMEs), and mandate them to report their achievements in this regard in the annual reports. The offset policy of the government, particularly in the defence and aviation sectors, should give priority to MSMEs. A permanent guidance mechanism under the Raksha Utpadan Rajya Mantri (RURM) with Secretaries of Defence Production, MSME and Civil Aviation and CEOs of Defence PSUs should be considered for this purpose. A committee of secretaries meeting already cleared the proposal at a meeting last month. The MSME ministry is now developing a cabinet note on this proposal.

            The PM task force recommended government should earmark additional public spending to the tune of Rs 5,000 to 5,500 crore over the next 3-5 years to specifically target deficiencies in the existing infrastructure and institutional set up. These funds may be used to support the establishment of Rehabilitation Funds in the States for the revival of potentially viable sick units; assist MSMEs in the acquisition and adaptation of modern clean technologies as well as creation of Technology Banks and product-specific Technology Development Centres; promote establishment of

business incubators in educational institutions of repute; renovate existing industrial estates and develop new infrastructure for MSME sector, with sustainable urban governance mechanisms; re-engineer, strengthen and revitalise District Industries Centres to enable them to play a more active role in advocacy and capacity building for MSMEs and as appropriate, in their rehabilitation; strengthen NSIC’s equity base for enhanced market support to MSMEs; and up-scale the existing programmes of entrepreneurship and skill development targeted at MSMEs.

            It is further recommended that while the detailing of the schemes would be done on the basis of further examination, to avoid procedural delays in implementation of these schemes, a line entry may be incorporated in the Annual Plan 2010-11 of the Ministry of MSME. The government should take steps to create an overall enabling environment using appropriate legal and fiscal instruments, to incentivise the transition of MSMEs from the unorganised to the organised sector as well as for their corporatisation as entities. It should also encourage higher investments for innovative and knowledge based ventures as well as for research and development through greater partnership between the industry and academic institutions.

            The Prime Minister’s Office (PMO) is overseeing the development on each of these proposals and the MSME ministry is confident that given the support it has at the highest level, the recommendations would materialise soon, a senior ministry official said and explained that given the recommendations involved several ministries the process was little time consuming.

            A senior functionary at the Federation of Indian Small & Medium Enterprises (FISME) said the Prime Minister’s initiative in the sector would indeed offer a big boost. He said the role of micro, small and medium enterprises (MSMEs) in the economic and social development of the country is well established. The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and innovation. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the manufactured output and 40 per cent of its exports. The MSMEs provide employment to about 60 million persons through 26 million enterprises. The labour to capital ratio in MSMEs and the overall growth in the MSME sector is much higher than in the large industries. The geographic distribution of the MSMEs is also more even. Thus, MSMEs are important for the national objectives of growth with equity and inclusion.

            A sector analyst said, “The MSME sector in India is highly heterogeneous in terms of the size of the enterprises, variety of products and services produced and the levels of technology employed. While one end of the MSME spectrum contains highly innovative and high growth enterprises, more than 94 per cent of MSMEs are unregistered, with a large number established in either the informal or the unorganised sector.” Besides the growth potential of the sector and its critical role in the manufacturing and value chains, the heterogeneity and the unorganised nature of the Indian MSMEs are important aspects that merit attention of policy makers, he added.

            The MSME ministry, acting on the recommendations of the PM task force, has set up another expert body under Planning Commission member Arun Maira to audit the efficacy of the existing schemes announced over the years for the sector. The expert body would also look at the medium to long-term revamp in the institutional framework for the sector. The panel has been set up as suggested by Nair panel, which said government should set up an independent body at the national level for the promotion and development of MSMEs. This body may provide financial and managerial support for setting up of industrial estates/common facilities in partnership with the private sector, administer schemes for the unorganised sector, promote technology development (including clean technologies), provide marketing support and coordinate & disseminate information relevant to MSMEs.

            Currently, it said, the Development Commissioner (MSME) is the focal point for all policy matters, formulation of various promotional and developmental schemes as well as channelising certain incentives and subsidies to the MSME sector, the Small Industries Development Bank of India (SIDBI) is the principal financial institution for financing and related promotional and development work for MSMEs, while the National Small Industries Corporation Limited (NSIC) has been set up to facilitate MSMEs in procurement of raw material and helping in marketing of their products. In addition, various Ministries/Departments of the Government have promotional policies and developmental schemes for the MSMEs in their specific sector.

            The proposed independent body could use the existing structures of aforesaid organisations with appropriate changes in their charter and mandate. The experience of other countries with such institutions (such as the Small Business Administration, in the United States) may be considered while deciding on the mandate and structure of the National level institution.

            As institutional re-building is an intricate task, Nair panel suggested that an Expert Group might reflect on this and come up with suitable recommendations on the structure and mandate of this body within a timeframe of three months and submit these to the Prime Minister.

By K Anjna

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