Fact behind fiction:: Want employment? Promote SSIs
Mar 28 2014
Despite Indian economy’s highest-ever growth, joblessness remains a major concern
As jobs can no longer be provided in basic industries such as power and steel, our urban manpower resources must be increasingly absorbed in low-skilled occupations such as construction and small-scale industries (SSIs). Pushing small and medium scale enterprises might be the best solution for generating jobs. When Mahatma Gandhi advocated trusteeship and promotion of cottage industries through khadi, he anticipated that SSIs alone could provide gainful employment to India’s gigantic population.
Besides, jobs, the government must also tackle the problems of rapid urbanisation of the economy. Clusters of SSIs have mushroomed across the country in the past 65 years since Independence, accounting for 40 per cent of manufacturing capacity, 45 per cent of export earnings and 40 per cent of gross domestic product. Yet, few seem to care for a sector accounting for two-fifths of the economy.
Unfortunately, policy planners are yet to draw up an implementable game plan for the small-scale sector. Right since 1947, the government has resorted to reservation for SSI units. This has not worked. Instead it has discouraged such enterprises from scaling up. No wonder, top government economist and national statistical commission chairman Pronab Sen argues that Indian policy planners have been trapped in the reservation mindset, i.e., reserve products, bank credit, regions and so on.
Government officials are hardly aware of what small-scale entrepreneurs really want. As Aam Aadmi Party (AAP) leader Arvind Kejriwal once said, it is much easier for one with an innovative idea to set up a manufacturing unit in the United States than in India. This ground reality has been holding back the country from emerging as a major manufacturing hub.
Unlike the west, India lacks fixed cost templates for setting up businesses, basically on account of corruption that is equally pronounced and complicated both at the higher and lower echelons of government. While the bigger players can afford to grease palms to get their licences and regulator clearances on time — paying for such deeds out of their overall capital expenditure — smaller players are deterred from venturing out on their own because of prohibitive costs of doing business.
Small enterprises are also often denied access to formal channels of funding, as with banks and financial institutions, and have to mostly depend on informal channels like chit funds and nidhis. Of course, there are times when these chit funds are in news for all the wrong reasons, as with Sahara and Sharada, but as an informal sector, several thousand chit funds, working on trust, have been doing yeomen service in areas with poor bank penetration.
As India’s economic growth decelerated to nearly half of what it was a couple of years ago, SSIs have kept the wheels of the economy moving, despite being denied sufficient bank funding. This must be subject of serious research and subject of future policy formulations, as the India growth story increasingly emerges from its 3,200 census towns, providing momentum to India’s future development.
With improved access to land, roads, telecommunications and IT connectivity, several big industries too are moving to the hinterland. In its recent election manifesto, the Congress has promised to create 10 crore new jobs, while the BJP is looking to promising 25 crore jobs in the next five years. Irrespective of which party finally wins, it is time policy planners looked at the entire MSME development model afresh. Politicians, bureaucrats and financial institutions must work together to bring about a systemic change in their approach to the sector.
One way could be to shape an orderly growth of chit funds that attract deposits at 15-16 per cent, while lend at 23-24 per cent to the SSIs which is roughly how the banks lend as well. Overzealous regulations may kill the industry, as with the micro-finance business, which was running well till the government came calling.
The government must look at strengthening traditional and informal banking arrangement with an arm’s length approach to create the much-needed jobs and push economic growth for the benefit of the masses. Less interference, fewer controls and unshackling the inspector raj might just do the wonders where it matters the most.