New Delhi: MSMEs including agriculture contribution to national GDP, is projected to go up to by a minimum of 5% and touch 55% share of India’s GDP by 2011, since over 55% of MSMEs are aggressively upgrading themselves technologically to reduce their input costs and increase production and exports, says a Paper brought out by ASSOCHAM.
Currently, MSMEs including Agriculture ,share in national GDP is measured around 45% as in the last couple of years, the small scale part of Micro small and medium enterprises, have been facing not only recession but credit challenged and variety of regulations from centre, states and local governments. The scenario has started changing after enactment of Micro, Small & Medium Enterprises Development Act (MSME) 2006, the fruits of which have started flowing in as the sector has become more competitive and innovative , adds ASSOCHAM assessment.
The assessment incorporated in a Paper named ‘MSMEs-Cluster Development –Deepens Inclusive Growth’ reveals that MSMEs that have been growing @ 35% over the last 2 years will register a 40% growth rate which will be technologically driven and contribute to manufacturing outputs to an extent of 46%, their present manufacturing contribution is around 40-42%.
Releasing the Paper, the ASSOCHAM Secretary General, Mr. D S Rawat said that MSMEs share to national exports currently is estimated at around 38% which will surge to over 45% in next 5 years. The main reason of MSMEs doing exceedingly well in next 4-5 years would be because over 55% of MSMEs would have absorbed technological upgradation to their units. The recent down turn has strengthened the MSME sector more specifically the SME segment which now supplies critical components and ancillary parts to a host of large Industries like Auto, Agro Implements, Construction Equipments, Electronics etc.
Currently, this sector accounts for 95% of industrial units and its contributing about 40% on the value addition in the manufacturing sector. More than 60 lakhs as per latest quick survey, are spread over the country producing about 7500 items and providing employment to more than 600 lakhs persons.
The Paper, however, points out that ever since MSME 2006 has been enacted, the cluster development has been the driving force with more and more assistance both to the formal as well as non formal clusters flowing ranging from better infrastructure, marketing assistance, fiscal stimulus, and host of other incentives including better technology and global sourcing of raw material. The special mention of NSIC who have assisted in capacity building as well as technology up gradation, pooling for raw material and marketing on a pool basis, has built up stability and better price realization for MSME sector. MSMEs have been given two classifications, one is that of manufacturing and those industries that provide and render services have also been brought under the MSMEs jurisdiction. The activity has been classified as Enterprise. The agriculture sector is seeing large investments in agro related industries, Infrastructure-like irrigation projects, direct agriculture credit for seeds, pesticides, and related industries. The large growth in rural income levels as well as better support price for agriculture produce has set for consumption related demand.
As a result, the MSMEs sector has seen liberalized and deregulated to a large extent as earlier the small scale units were mostly governed under 60 central state and local laws. The recent High Power Committee report to look into needs and requirements of MSME sector has also recommended various path breaking steps including procurement policy of the government to source at least 20 % of its requirements of goods and services from MSME sector. All these and other proactive steps will confidently improve the contribution of the MSME sector in the GDP as well as overall National Enterprise value.
Such units were required to maintain as many as 116 registered forms from various inspectors which include labour, factory maintenance, environment, municipal by laws, taxation, power etc. Now the scenario has changed a great deal and would uplift the entire MSMEs not only technologically but otherwise too, said Mr. Rawat. This is other reason as to why the contribution of MSMEs to overall GDP and production and exports would increase manifold.
He, however, said that the main constraints which the MSME still face is the timely and affordable credit. This sector is still neglected by banks and financial institutions, mostly in the private sector domain. Since, banks, financial institutions, cooperatives still hesitate to lend money to MSMEs as per their mandatory requirement of nearly 40% of their total lending (Priority Lending). The public sector banks in India are the only hopes for MSMEs as it is they who meet their mandatory requirement for lending to MSMEs, rest have ignored them. But with the norms more stringent, there is hope that this sector will get its due share.
The credit that they receive is at very high cost and therefore their margins are minimum and input costs increase vis-à-vis their counterparts but the ASSOCHAM pointed out that since over 55% of SMEs have done technological tie-ups with their counterparts to upgrade their production facilities, their input costs would come down in future and supplies to their vendor be maintained at effective cost factor. The proposed SME Exchanges will provide opportunities to SMEs to raise capital for their capacity building as well as price preference.
All these good factor would have spiraling impact on overall SMEs production facilities and their contribution naturally in every sphere would go up, concludes the ASSOCHAM Paper.