Ecosystem Assessment of
Enterprise
Support Services in India
Entrepreneurship in India – Overview
Micro,
small and medium enterprises (MSMEs) in India and abroad have
demonstrated considerable strength and resilience in maintaining a
consistent rate of growth and employment generation during the global
recession and economic slowdown. MSMEs are critical in addressing the
national objectives of bridging the rural-urban divide, reducing poverty
and generating employment to the millions.
Entrepreneurship in India – Macro Perspective
India is still ranked 130th globally in the World Bank's ease of doing
business index for 2015, which reflects the burdensome regulatory
environment in which SMEs operate. The high costs involved in meeting a
large number of regulatory requirements tend to negatively affect the
innovation capacity of the firms.
Available data from the Fourth All India Census of MSMEs in 2006-07,
indicates that around 60% of these enterprises are based in rural areas
of the country and 45% of the total manufacturing output in the country
is contributed by the MSME sector.
Entrepreneurship in India – An Assessment of Immediate Environment
The prevailing ecosystem of enterprises in India puts up various
hindrances for entrepreneurs. These include regulatory setup, political
risk and interference, ineffective legal and enforcement infrastructure,
lack of organised information sources and access to capital, to name a
few . The following section will highlight key challenges and
initiatives in the country to address the challenges in varied
components of the enterprise ecosystem.
1. Finance
As per the statistics compiled in the fourth census of the MSME sector
for registered units (April 2011), only about 11.7 per cent of MSMEs
availed finance from institutional sources and about 1 per cent had
taken finance from non-institutional sources. The vast majority of about
87.2 % units had either not borrowed finance or depended on internal
sources.
Bankers adopt a collateral-based lending approach for MSMEs rather than
a cash-flow analysis approach which is used for loans to large-scale
industries and this is seen as one of the concerns here.
Policy initiatives for financing MSMEs
-
The Reserve Bank of India's directive to the banking sector includes
implementing the recommendations of the Prime Minister's Task Force on
the MSME sector submitted in 2010. It mentions the need for the banks to
achieve 20% year-on-year growth in credit to micro and small enterprises
and a 10% annual growth in the number of microenterprise accounts. As of
March 2014, there were 2,887 specialised branches for MSMEs. Also,
collateral-free loans are mandated for MSMEs up to a limit of INR 1
million.
-
Government of India established various institutes and funds to support
MSMEs. Some examples are: Small Industries Development Bank of India (SIDBI)
in 1990 for promotion and financing of the MSME sector, Credit Guarantee
Fund Trust of Micro and Small Enterprises (CGTMSE) was set up in 2000 to
offer credit facilities to eligible borrowers, Credit Linked Capital
Subsidy Scheme (CLCSS) meant for technology up gradation of Micro and
Small Enterprises.
-
Most recently, MUDRA (Micro Units Development Refinance Agency) Bank has
launched a capital amount of INR 200 billion and a credit guarantee
amount of INR 30 billion to help Small and Medium Enterprises (SMEs) and
startups resolve problems related to financing. The bank started its
operations in April 2015.
-
A separate platform for SMEs was set up in 2012 in Bombay Stock Exchange
(BSE) and National Stock Exchange (NSE) for providing general purpose
equity to MSMEs.
2. Skills and Capacities
A recent report by the National Skill Development Council of India
forecasts that there could be an incremental shortfall of 240 million to
250 million people by 2022 in 20 high growth sectors of the Indian
economy and in the unorganised segment. Over 13 million people are
required every year in 90 skill categories. A mere 2% of Indian workers
are formally skilled. In the current situation, MSMEs are the biggest
generators of employment in the country and so it is necessary to reduce
skill gaps amongst MSMEs to promote the concept of inclusive growth.
Policy initiatives for skill and capacity building of MSMEs
-
Prime Minister's Employment Generation Programme (PMEGP) in 2008 aimed
to generate employment opportunities in rural and urban areas through
new self-employment ventures / projects / micro enterprises.
-
The creation of a separate ministry for entrepreneurship and skill
development will support in promoting entrepreneurship and encouraging
skill development initiatives in India. The government has set up a goal
of imparting skill development training to 300 million people by 2020 to
help them get jobs.
3. Technology and Innovation
More than 50% of innovative small and medium firms are engaged in
non-R&D innovation. Medium firms are found to be more engaged in R&D as
compared with small firms.
SMEs have very limited access to formal R&D innovations - research
institutions, laboratories and public and private universities. Indian
SMEs mainly use indigenous methods to develop innovations and are
relatively much less dependent on external sources.
Policy initiatives to support technology and innovation
-
Under the Department of Science and Technology, the Technology
Information, Forecasting and Assessment Council (TIFAC) has done MSME
cluster mapping and completed 22 technology gap analysis so far. The
Department of Scientific and Industrial Research also launched a new
programme - Promoting Innovations in Individuals, Start-ups and MSMEs
(PRISM), during India's Twelfth Five Year Plan and the department
supported 17 projects in 2014.
-
Digital MSMEs Scheme is launched as a component of National
Manufacturing Competitiveness Programme for promotion of ICT in MSMEs.
The scheme aims to promote an eco system of cost effectiveness and all
inclusive ICT applications for MSMEs through Cloud Computing to enable
MSMEs to search for value chain (raw material, experts) online and
enable IT as a medium of communication to revamp access to the markets.
Enhanced access empowers the market to undertake direct, faster and
better transactions.
4. Market Information and Assessment
More than 75% of the innovative small firms and 86% of the medium firms
face barriers pertaining to information on markets in India.
Market characteristics such as competition, protectionist nature,
dominance and monopoly and demand, among others affect a firm's ability
to innovate, especially product and market related innovations.
Policy initiatives for market linkages for MSMEs
-
As per the Public Procurement Policy, all Central ministries and PSUs
will have to ensure that a minimum 20 per cent of all their total annual
purchases of products or services are from MSMEs, and within this limit,
4 per cent of the orders should be placed to the SC/ST entrepreneurs.
-
The 10 component schemes under the National Manufacturing
Competitiveness Programme, by Ministry of MSMEs, targets at enhancing
the entire value chain of the MSME sector. The strategy also recommended
some sub‐sectors for immediate focus such as Textiles and Garments,
Leather and Leather Products, Auto Components, Drugs & Pharmaceuticals,
Food Processing and IT Hardware.
Ecosystem of enterprise support services in India is increasingly
supported by many flagship programmes that the Government is running on
technology innovation, finance and credit linkages, skills and capacity
building. The recent trends in the market also witness investments by
private players in the nascent entrepreneurship support system of the
country. ■
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Anshul S Bhamra
abhamra@devalt.org
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