Small Enterprises - A Potential Big Solution
Raunaq Dubey
2nd Year, Finance, MBA++

World's second-fastest growing major economy!! That’s what India had established itself by 2008. A revival of economic reforms and better economic policy in first decade of the 21st century accelerated India's economic growth rate and therefore for all positive reasons 2011-2020 was predicted to be India’s decade. But then 2008-2010 slowdown coupled with a poor monsoon significantly slowed India's GDP growth rate to 6.7% in 2008–09.

Today on the global front except United Arab Emirates and Saudi Arabia we cannot expect guaranteed encouragement on the trade front by our major trading partners who include United States and Germany. It is an open secret that all across the western world, governments and major banks are eventually becoming insolvent which further extends the plummeting threat.

In this quest of Risk- Growth Balance we have to seek a solution which is feasible, inclusive and meets our objectives in the long term. In my opinion, SME/MSME should be targeted and allowed to play a pivot role in fighting this challenge as the sector not only significantly contributes in the GDP, Industrial output, employment generation and exports but more importantly the sector is the “laboratory of entrepreneurship” which is the future of India and the mankind anyways. The sector is worth $5 billion, second largest contributor to country’s GDP, makes around 50 percent of industrial output, 40 percent of exports, 95 percent of our industrial units and is an employment provider to around 60 million Indians through 26 million enterprises.

The Government has taken several policy measures for making MSME sector more competitive and to facilitate the achievement of their full potential but the need is to work on the following five basic constraints:

1. Finance: Chinese Central Bank Chief quotes, “The strategy to sustain growth and absorb inflation is to give large loans to small enterprises and in being prepared to ignore bad debts. Our central bank also needs to come up with a clear and aggressive framework like this.

2. Alternate Finance Options: Most SMEs are startups and providing collaterals for assets is a challenge and therefore this makes banking system inaccessible for SMEs specially the first generation entrepreneurs. Funds are a solution to this but the need is to be flood the markets with funds like SVCL and others. Chit Funds are another interesting domin.

3. Credit Appraisals: Many a times these entrepreneurs fail to foster confidence in banker because of lack of credit or financial history. Although SME Rating Agency of India Ltd (SMERA) has been setup but situation demands much better initiatives which are more aggressive in character.

4. Technology: SMEs need to wake up to the IT call. There is a lot that needs to be done. IT Incubation Cells throughout the nation seems a workable solution. IT/ BPR Task Forces should be deployed nation wide through the various Incubation Cells.

5. Organizing the sector: When 94 percent of the enterprises under SMEs are not registered then the above suggested solution will stand no meaning. The legal and procedural support is scarce in urban/semi-urban cities or is available at not so affordable cost and that is where our future enterprise energy is.

I believe, if we can overcome the above five constraints and formulate an all inclusive strategy for the SME sector we can overcome the predictable slowdown expected to strike the globe in next few months. The importance of SMEs is not only confined to in being an “Ancillary Unit” rather I believe they are our “Artillery” to fight the so ‘Coming Soon!’ economic challenge.