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by Rajen Kumar

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Interviews

Constraints Hampering SMEs Growth in Western India: Kalantri

Rajen Kumar
Dec 2010

SMEs are the backbone of Indian economy and as per the industry estimates there are about 35 million SMEs across the country. A large number of SMEs are located in the Western part the country who represents almost every segment of the industry. But like in other parts of the country, SMEs in the region face many constraints hampering smooth operations. Infrastructure problems are prominent. Frequent power and water shortages hinder SME activities. In the hinterland, poor road conditions impede transportation of goods. Communication services also need to be improved. Better road, rail, ports, airports connectivity will ensure sustainable regional growth and help SME development.

We tried to know more about the scenario of small and medium enterprises in Western part of our country from Vijay Kalantri who is a Chairman & Managing Director of Dighi Port Ltd. and President of All India Association of Industries. He is also Vice Chairman of World Trade Centre.

All India Association of Industries (AIAI) has a robust representation with more than 30,000 members in the SMEs sector. What are the challenges for the SMEs in India especially in western region?

The manufacturing sector in the western region of the country is dominated by a large concentration of SME enterprises. The SME sector in this part of the country is also fairly well diversified representing every segment of industry. By and large the SME sector's performance has been satisfactory although there is no doubt that there is scope for further improvement.

The SME enterprises continue to face many constraints hampering smooth operations. Infrastructure bottlenecks are a major problem. Frequent power and water shortages hinder SME activities. In the hinterland, poor road conditions impede transportation of goods. Communication services also need to be improved. Better road, rail, ports, airports connectivity will ensure sustainable regional growth and help SME development.

Access to adequate and timely credit at a reasonable cost is the most critical problem faced by this sector. The major reason for this has been the high risk perception among the banks about this sector and the high transaction costs for loan appraisal. Further, the MSME sector in India, with some exceptions, is characterized by low technology levels, which act as a handicap in the emerging global market.

Most of the SMEs in India are family-run businesses or being run by the first generation entrepreneurs. Do you think there is enough element of Corporate Governance in such businesses?

Corporate governance refers to internal disciplines of systems which govern the relationships among key players or entities that are instrumental in the performance of the organization. Corporate governance supports the organizations sustainability in the long term and establishes responsibility and accountability. More importantly corporate governance aim to achieve greater transparency, fairness and hold executive management of the organization accountable to shareholders. SMEs in India form large segment of business activities. Generally they take the form of private companies owned by small number of shareholders. Often they have less than 100 employees. Such companies are usually family-owned run by family members where the authorities and powers are generally held by an individual, normally the major shareholder. For that reason the owners commonly consider themselves as running their personal properties. The practice of corporate governance is practically non-existent for such entities.

Credit issue is the most ailing problem in SMEs sector. What could be the right solutions? What's your opinion about the institutional framework responsible for the credit flow towards the SMEs sector?

Uninterrupted credit availability is prerequisite for SME growth and functioning. Credit support through institutional leading is a major help but still there are many gaps. Credit allocation to SME sector needs to be streamlined. Besides there is need for appropriate mechanism to ensure timely payment to SME sector by large corporate. Banking institutions need to improve their credit assessment capabilities to improve the flow of credit to SMEs. It is necessary to scientifically assess the small scale enterprises and not to equate SSIs with high risk. The steep decline in SME credits is largely owing to increased loanflow to the retail and corporate sectors over the past years. The major development that has taken place over the last decade is the diversification of credit in India towards retail credit.

AIAI has been organizing trade fairs, seminars, workshops, B2B meet, etc. for the betterment and promotion of the SMEs. What is the viability of such events and to what extent these events achieve their objectives?

AIAI has been regularly organizing trade fairs, seminars, workshops, B2B meets with a view to sensitise Indian industry of the emerging opportunities in the trade and economic sectors as also to provide a platform to Indian industry and trade to forge ties with their global counterparts and seek new markets for their goods and services overseas. These endeavours are specially targeted at the SME sectors to enable them to expand their operations locally as well in the global markets. Keeping in view these objectives, AIAI and WTC Mumbai are organizing the second Global Economic Summit with special emphasis on SMEs from January 27-29 in Mumbai. This Summit will bring together SME enterprises from nearly 30 countries to display their products and services and forge alliances for exchange of technology, knowhow etc.

Entrepreneurship is now getting space in the top preferences by the new age professionals. What is the scope for entrepreneurship in India? As it is, we have few schemes to encourage start-ups. Don't you think there will be huge demand for entrepreneurship in the new economic order? With few jobs now available, how can we encourage entrepreneurship?

Entrepreneurship in India is undergoing major transformation in the new economic order in our country. With the changing profile of the Indian industry, a new generation of entrepreneurs is emerging with independent entrepreneurial wisdom and drive. It is necessary to encourage and promote start-ups and provide them mentoring and support. Such start-up are driven largely by innovation and state-of-the-art technologies. Undoubtedly there is utmost need for institutional support and policy guidance to encourage and nurture entrepreneurship in our country and improve competitiveness of Indian industry and business. There is a need for incubators, angel investors and venture capitalists to provide integrated service to start-ups and encourage entrepreneurship in the new economic order.

Why is there a lackluster attitude of the government towards promoting the SMEs sector? As an entrepreneur yourself, what do you think about the state of the industry in years to come?

SME sector forms the backbone of Indian industry. The role of micro, small and medium enterprises in the economic and social development of the country is well established. This sector contributes 8 per cent of the country's GDP, 45 per cent of the manufactured output and 40 percent of the country's exports. The MSMEs provide employment to about 60 million persons through 26 million enterprises. The MSMEs in the country manufacture over 6000 products. The MSMEs are important for the national objectives of growth with equity and inclusion.

The Ministry of Micro, Small and Medium Enterprises acts as the nodal agency for the promotion of the MSME sector in the country. The Micro, Small and Medium Enterprises Development Act 2006 provides the policy framework for the growth and development of MSMEs in the country. The policy enactments provide the basis for the effective functioning of the SME Sector in the country. The MSME sector in India is highly heterogeneous in terms of 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 the informal and unorganized sector. This poses a massive challenge before the government to coordinate the various activities of the MSME sector and address their specific needs. The heterogeneity and the unorganized nature of Indian MSMEs are important aspects that need to be factored into policy making and programme implementation in the coming years.

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