On the 15th of March 2012, Finance Minister Pranab Mukherjee presented the Economic Survey 2011-12 in Parliament, stating that the Gross Domestic Product (GDP) is likely to grow 7.6 per cent in FY 2013. The report adds that the economic growth is set to further improve to 8.6 per cent in 2013-14. While the estimated figures look good on paper, present percentages of growth indicators paint a different story.
India’s GDP growth rate has gone reverse from 9 per cent to less than 7 per cent in the past two years. The slowdown in Indian economy was blamed on the weakening industrial growth. The industrial sector has performed poorly, its contribution to the GDP having lessened to 27 per cent. The inflation rate hovered at 6.9 per cent in February 2012 and in the last two years Indians have reeled under high inflation. To control it, high interest rates had to be imposed which has adversely impacted on investment decisions, and the industrial growth rate teetered down to 4.1 per cent in February 2012. The slowdown in the industrial growth caused paucity of jobs and lower profits for business. Now the unemployment rate is quite high at 6.6 per cent with around 28 million people out of work in India.
The crisis has had a direct impact on Small Scale Industries (SSI). A recent report by the Export and Import Bank of India (EXIM Bank) has revealed that the SSI sector which forms the backbone of our country’s exports is struggling to do business in the wake of difficulties in availability of credit and access to technology. There are difficulties in accessing credits due to the high interest rates and the long time taken for processing the loans. Alternate sources of capital like angel funds and risk capital are also not available to most of the Indian SSIs. Compounding the problem are fiscal and regulatory impediments in the usage of funds by the SSIs which should be done away with. Other problems in the Micro, Small & Medium Enterprise (MSME) sector are non-availability of power supply, shortage of raw materials, marketing challenges and inadequate infrastructure. The ceiling on plant and machinery for the purpose of classifying the units as MSME does not encourage the Indian MSMEs to move up the value chain. For example an industry with an investment in plant and machinery not exceeding Rs 25 lakh is classified as micro industry; with an investment between Rs 25 lakh to 5 crore is treated as a small enterprise; and that in the range of Rs 5-10 crore is classified as medium enterprise. These short sighted policies need to be corrected.
During the year 2010-11 there were 312 lakh MSMEs in India contributing Rs 10.95 lakh crore to the country’s exchequer and employing 70 million people. Since the MSME sector contributes to 45 per cent of the manufacturing output and 40 per cent of the total exports of the country corrective finance policies should be initiated swiftly. Low inflation, a good banking system, and low interest rates are the measures to stymie the problematic situation for MSMEs. Else small industries will find themselves stepping into shoes too big for them.
