Role of SMEs in Achieving and Sustaining Growth in Indian Economy

*Ubique Bedi *Rupinder Sampla Abstract

Small-scale industries occupy a place of strategic importance in Indian economy in view of its considerable contribution to employment, production and exports. However, since 1991 small-scale industries in India find themselves in an intensely competitive environment due to globalisation, domestic economic liberalisation and dilution of sector specific protective measures. Firms competitiveness is now a compulsion not an option in the present competitive world. Their competitiveness is desirable not only for optimal utilization of resources but also to maintain the livelihood of millions in a sustainable way. Globalization has also given a challenge to compete with the influx of cheap importable along with opportunities of availing outsourced operation and subcontracting. The notion of competitiveness at the firm level will make the unit as well as the sector strong and vibrant and subsequently the Indian economy globally competitive. This paper probes the implications of globalisation and domestic economic liberalisation for small-scale industries. The paper concludes with policy recommendations to ensure the sustenance and competitive growth of small-scale industries in India. Keywords: Small-Scale Industries, Innovation, Domestic Economic Liberalisation, Growth and Performance *Assistant Professor, PG Deptt of Commerce and Business Administration Lyallpur Khalsa College Jalandhar.

Introduction
Small-scale industries play very important role in the economic development of any developing or under-developed country. These industries meet the twin needs viz. solution of unemployment problem and checking the economic concentration in the hands of a few. These industries encourage self sufficiency, self-reliance and co-ordination. They provide beneficial reallocation of available resources and their proper utilization. The traditional village and cottage industries provide a vital means of livelihood to village artisans. These industries create the scope of employment to the rural persons ( Suresh and Shashidharp, 2007). Small-scale industries have been playing a momentous role in overall economic development of a country like India where millions of people are unemployed or underemployed. Poverty and unemployment are two of the burning problems of the country today. This sector solves these two problems by providing immediate large-scale employment, with lower investments. According to Dr. Manmohan Singh, the key to our success in employment lies in the success of manufacturing in the small scale sector. In a country like India, where capital is scarce and unemployment is wide spread, growth of small-scale industries is vital in order to achieve balanced economic growth. The strength of small-scale enterprises lies in their wide spread dispersal in rural, semi-urban and urban areas, fostering entrepreneurial base, shorter gestation period, and equitable distribution of income and wealth.

Present Definition of SMEs:

Investment Slabs in Manufacturing Enterprises
Size of Unit Micro Enterprises Small Enterprises Medium Enterprises Investment Limit Up to Rs. 25 lakh Rs.25 lakh to Rs.5crore Rs.5crore & up to Rs.10crore

Investment Slabs in Service Enterprises

Size of Unit Micro Enterprises Small Enterprises Investment Limit Up to Rs. 10 lakh Rs.10 lakh to Rs.2crore

Medium Enterprises

Rs.2 crore to Rs.5 crore

Source: www.smallindustryindia.com

Since the launch of five-year plans in country the SSI sector has grown at a phenomenal rate (Ramanaiah, 2011). This sector comprises 95 per cent of the total industrial units in the country, accounting for 40 per cent of the total industrial production, 34 percent of national exports, and 250 lakh persons of industrial employment. So, this sector emerged as a dynamic part of the Indian economy. In fact, it is one side of the coin. Another side tells us the declining position of the small-scale industries in India. Due to the liberalization, Privatization and Globalization (LPG), the importance of the government is shifted from labour intensive industries to capital intensive industries. It leads to decline of small-scale industrials gradually during post LPG period (Chakrabarty, 2006). This paper probes the implications of globalisation and domestic economic liberalisation for small-scale industries. The paper attempts to discuss policy recommendations and strategies to ensure the sustenance and competitive growth of small-scale industries in India.

Major Constraints
Though the MSE sector is of great significance, it has deep unresolved problems. In this age of globalisation, micro industries sector has a giant question of maintaining productivity and competitiveness.

(1) The units of this sector are dispersed and scattered at various places. There production is from simple equipments to the production of latest high tech devices. Handloom, power loom, handicraft, khadi, and cottage industries are important part of it. As this sector is unorganized, it does not take the benefit of Govt. schemes. The poor people in this sector are exploited by the middle men in this sector. (2) This sector has to face the dire question of markets also. So, though the product is of the best quality, it fails to capture a market for the product. In Rajasthan, raj samand district at tantel village, people have been working for 60 years in the silver ornament market, yet there has been no increase in the remuneration of these people since the last 60 years. Hence, they have to sell their products at a very low price. A decrease in the wages of this sector has been noticed. In UP's barabanki workers cannot sell their own products due to competition from

machine

made

products

and

products

from

china.

(3) The units of this sector face many challenges like packaging, durability of the products, etc. hence, they don't get enough market for their products. Those women who work for big organizations, they do not get wages until, the final product is finished. Even the govt. organizations and merchants pay after the product is sold

(4) Colours, chemicals, dyes, inflammatory products pollute the environment. So these organizations have to take a non pollution certification from their respective state governments.

(5) The organizations functioning under this category find it difficult to obtain starting capital. Bank loans available for the sector have decreased significantly from 15.1 % in 1991 to 8 % in 2008. Of the total finances available to this sector, 60 % are forwarded to MSMEs units (6) These units don't get a proper supply of electricity, raw materials, etc. (7) As there is lack of funds, these organizations can not go for research and development or designing. So appropriate changes as per the demand at a global scale cannot be made. They cannot spend a large amount on packaging and advertisements like large units.

(8) Globalisation and the introduction of new fiscal policies have an adverse effect on the micro units. Street hawkers, small scale sales men, workers, etc. are in a poor condition because of globalization.

Policy developments and programmes

The National Manufacturing Competitiveness Programme (NMCP) is the nodal programme of the Government of India for developing global competitiveness among Indian MSMEs through improvement in their processes, designs and technology and market access. With the balance three schemes operationalized this year, all its ten components are now under implementation. These ten components include building Awareness on Intellectual Property Rights for MSMEs, Scheme for providing Support for Entrepreneurial and Managerial Development of SMEs

through Incubators, Enabling the Manufacturing Sector to be Competitive through Quality Management Standards and Quality Technology Tools (QMS/ QTT), Mini Tool Rooms under PPP mode, Marketing Assistance Support to MSEs (Bar Code), Lean Manufacturing Competitiveness Programme for MSMEs, Promotion of Information & Communication Tools (ICT) in the Indian MSME Sector; Design Clinics Scheme for MSMEs, Marketing Assistance and Technology Up gradation Scheme for MSMEs and Technology Quality Up gradation Support to MSMEs. In line with the overall target set by the Prime Ministers National Council on Skill Development, the Ministry of MSME has taken up skill development as a high priority area. The agencies under the Ministry will conduct skill development programmes for about 4.16 lakh trainees during 2010-11. Further, the Ministry aims to train 4.78 lakh trainees in the year 2011-12 through its various programmes for the development of self-employment opportunities as well as wage employment opportunities in the country.(www.msme.gov.in) The Government has also adopted the cluster approach as a key strategy for enhancing the productivity and competitiveness as well as capacity building of MSEs in the country. under the Credit Guarantee Fund Scheme for Micro and Small Enterprises, over 1.5 lakh MSE proposals for an amount of 7568 crore have been approved for extending loans without collateral/thirdparty guarantee during the year (up to November 2010)thereby registering a growth of over 150 per cent in terms of number of proposals and over 200 per cent in terms of credit amount over the corresponding period of last year. Cumulatively, about 4.50 lakh M SE proposals for loans of ` 18,946 crore have been approved under the scheme up to November 2010.

Lack of reliable and stable economic infrastructure, reduced growth of credit inflow and technological obsolescence, which together would have led to inferior quality and low productivity are the major banes of small industry in India. But at the same time, international and national policy changes have thrown open new opportunities and markets to Indian small industry. Concerted efforts are needed both from the government and more importantly, from small industry itself to imbibe technological dynamism into Indian small industry. Technological upgradation and in-house technological innovations and promotion of inter-firm linkages need to be encouraged consciously and consistently. The benefits and need to go for technology development through either technology transfer or technological innovations or inter-firm linkages should be emphasized in the light of dimensions of global competition and its negative fallouts as well as positive opportunities, to small industry entrepreneurs through seminars and workshops at the local level. Financial infrastructure need to be broadened and adequate inflow of credit to the

sector be ensured taking into consideration the growing investment demand including the requirements of technological transformation. Small industry should be allowed to come up only in designated industrial areas for better monitoring and periodic surveys through DICs should enable policy corrections from time to time. A technologically vibrant, internationally competitive small industry should be encouraged to emerge, to make a sustainable contribution to national income, employment and exports.

CONCLUSION
To conclude, globalization has thrown many challenges to SMEs. One of the greatest conceptual challenge is that on one hand, the individual SMEs would be fiercely competing with each other within the nation and beyond, at the same time they would be forced to collaborate and work together than ever before to safeguard their own mutual interests to survive. The relevance of associations and competitiveness of technology would increase considerably their survival and growth prospects. Those who would realize their importance would have greater chance to succeed and survive. For only those who take initiative early enough, are able to achieve their goals consistently and attain global competitiveness and success. Our country needs such initiatives to be a global economic power. References Suresh V and Shashidharp,(2007), Competitiveness of Small Scale Industries of India accessed from http://dspace.iimk.ac.in/bitstream/2259/501/1/439-453. Vijaya Bharti G, Subbalakshmi P and Harinatha Reddy P(2011), Promotion of SSIs, International Journal of Enterprise Computing and Business Systems,vol 1,issue 2,July Mehta P and Purohit P(2002), Globalisation and India-Myth and Realities,published by Cuts, Centre for International Trade,Economics and Environment,Jaipur,2 Edition Pg-25 to 27 Ramanaiah V(2011), The Performance of SSIs in India Working Paper Series accessed from http://papers.ssrn.com/so13/papers BalaSubrahmanya.M.H(2005), SSIs in India in the Globalisation era, International Journal of Management and Enterprises Development, vol 2,number 1,Pg- 122 to 139 Bhargava Sunil(2004), Developing Competitive Advantage through SMEs to face the WTO Regime, The Chartered Accountant Pg-176 to 187 Chakrabarty K.C(2006), SMEs Financing- Need for Paradigm Shift, Cab Calling,julysept,Pg-10 to 14 www.msme.gov.in

www.smallindustrialdevelopment.com www.smallindustryindia.com