In Make in India’s shade, will small plants grow?
Policy makers and stakeholders must stay alert that big-ticket manufacturing projects don’t block the line of investor sight to MSMEs
What do companies like Infosys, HCL, Suzlon, Biocon, Future Group and Café Coffee Day have in common? Well, they all have been founded by existing first-generation entrepreneurs. They all rose to the pinnacles of their respective fields through sheer grits of their founders and co-founders, who are often seen as role models by wannabe entrepreneurs.
The founders of these companies, which are large today but started off small decades ago, also have one more thing in common. Most of them were well-educated professionals in their own right and their enterprises were, in one way or the other, business-world applications of their skills and acumens. Their exposure to formal education and the avenues that it opens up, arguably, also equipped them to make the most of the incentives that were available for the SMEs (in cases where applicable).
Not all MSMEs may, however, have the ‘founder advantage’ that some of these yesteryear counterparts of theirs would have had. And that is where programs like Make in India help.
Unprecedented awareness is already created: The sheer buzz and the resulting visibility that Make in India has generated makes every MSME sit up and ask: is there anything in it for me too? The billions of dollars in investment that have been pledged in by domestic as well as foreign investors have added massive substance to the style. While it used to take long time for budding entrepreneurs to understand the nuances of earlier SME schemes and programs, Make in India has transformed the way information is disseminated for other schemes as well. The more people know about the programs, the better they are positioned to take entrepreneurial decisions.
Boost for ancillary industries: With a flurry of big-ticket investments announced under the Make in India program, large-scale manufacturing plants are being planned across various sectors, including but not limited to IT and electronics. Focus sectors include automobiles, industrial equipment, pharmaceuticals, textiles, food processing and chemicals, among others. Since the success and competitiveness of large manufacturing businesses relies on a locally vibrant supply-chain, the investments spell good news for the long-term development and growth of ancillary units in the MSME sector.
Boost to cluster development: Make in India program has given a significant boost to the MSE Cluster Development program, given that a local ecosystem of material and part suppliers is essential to India’s long-term success as a manufacturing hub and global destination.
Procurement support from government sector: As the result of an ongoing policy-level guideline, all central government departments and PSUs are mandated to accomplish at least 20 percent of their procurements from MSMEs. This is already understood to be having a positive impact on the growth of MSMEs, as it gives them anchor customers in the form of government. This serves not only as a crucial leverage for the enterprises in scaling up but also provides a vital cushion to fall back in instance of rough business weathers.
Opens opportunities in service sector too: While sporadic service-sector related deals have been signed under Make in India as well, the coming up of new manufacturing enterprises is alone creating fresh demands across various service streams, including IT, logistics, catering and healthcare.
And the negatives
Make in India could hog all attention: There already is a scramble among various state governments to attract large projects under the Make in India program. That is understandable, given the development potential these projects often hold for the states. However, in the process, there is a growing risk of focus on MSMEs getting diluted. After all, one large investment could give a state’s economy the boost that hundreds of SMEs put together won’t be able to match.
As it is, the approval processes for SMEs have ranged from being efficient to tawdry to totally lacking across different states. The challenges relating to land acquisition, electricity and water supply are too numerous to be immediately solved by any single-window mechanism. Any further weaning away of state focus from these SME issues could be detrimental to the growth of the sector.
The red oceans could get bigger: Let’s face it, entrepreneurship is a high-risk game where red ocean strategies abound, creating fewer big winners than the government would like to see. Small winners are aplenty, and while staying small is no crime, growth is nevertheless important.
It would be important for both the central MSME ministry as well as the states to identify and develop blue oceans (uncharted areas of business) for MSMEs in India. In a recent interesting development, German SMEs have pledged to invest around Rs 3,000 crore in India for a range of projects including 15 new manufacturing units. There is certainly a case to explore and develop more such blue-ocean possibilities with other countries.
Taxation and financing issues: Like the Budget has incentivized startups in a big way by exempting profits from taxes for three years if turnover doesn’t exceed Rs 5 crore, there is a need to do something similar for SMEs too. Also, filing of returns could be simplified and relaxed (from quarterly or semi-annual filing to annual) for the initial years of operation. For those SMEs in the service sector that are B2B focused and hence don’t have frequent walk-in customers, the shops & establishment act may be relaxed for certain turnover thresholds.
That the Reserve Bank of India has been pushing for time-bound regulatory clearances without cumbersome documentation for the MSME sector in many states is a good thing. There also is a need to make financing for MSMEs more attractive to not only banks and other financial institutions but also to venture capital funds and other investors.