Om Raj Katoch
The contribution of micro, small and medium enterprises [MSMEs] to employment, alleviation of poverty, growth and sustainable development is now widely recognized worldwide both in developing and developed countries. It can help to achieve a more equitable distribution of the benefits of economic growth and development and thereby help to alleviate many of the problems associated with uneven income distribution. Some estimates show that MSME sector also played very important role in developed countries of the world.
These enterprises have been accorded an important place in the national economy by the national decision makers. The Micro, Small and Medium Enterprise sector constitutes an important segment of the Indian economy in terms of their contribution to the country’s industrial production, exports, employment, and creation of an entrepreneurial base. In India this sector is contributing 44.86 percent of the industrial production, 8.72 percent of the gross domestic product, 40 percent of the exports and employing 695.38 lakh of persons [Annual Report, Ministry of MSME, GOI-2012]. In this way the performance of the sector, therefore, has a direct impact on the growth of the overall economy.
Indian economy is a developing economy and the resources are remaining either unutilized or underutilized. A major section of labour force is lying idle because of less investment. The output is insufficient and the basic needs of the people remain unfulfilled. In this way, industrialization by way of developing Micro, Small and Medium Enterprise sector is the only solution to this present state of economy. Such industries do not require huge capital and hence suitable for a country like India. The Micro, Small and Medium Enterprises are talent based business. They can easily be started in the rural areas of the country to prevent regional imbalances and concentration of economic power in the few hands. The the income generated in a large number of Micro, Small and Medium Enterprises is dispersed more widely in the community than income generated in a few large enterprieses and bring about greater equality of income distribution. As most of the population in India lives villages; these enterprises can tap the latent resources like hoarded wealth, develop entrepreneurer ability etc. and can be set up easily in these areas. There are many opportunities in MSMEs:
Opportunities
Less Capital Intensive: With its less capital intensive and high labour absorption nature, MSME sector can make significant contribution to employment generation and also to rural industrialization [Suresh & Shashidhar-2006].
Employment Generating Sector: Small Medium Enterprise sector in India creates largest employment opportunities for the Indian population that is next only to agriculture. Emphasizing the employment argument, Karve Committee 1955 stated, “The principle of self-employed is at least as important to a successful democracy as that of self-government”. It provides 50% of private sector employment.
Effective Tool for the Removal of Regional Disparity: People from remote and backward areas have the tendency to migrate to urban areas in search of jobs. This creates excessive pressure on urban areas and creates social problems. This problem can be addressed by setting up a network of micro, small and medium enterprises in economically remote and backward areas. MSME sector can take care of local needs, improve economic condition of the area and most importantly, can bring a qualitative change in the economy of the country.
Export Contribution: The products produced by MSME sector like sports goods, readymade garments, woollen garments and knitwear, plastic products, processed food and leather products, handicrafts etc have an excellent foreign market. Its contribution towards export is 40 percent.
Equitable Distribution of Income: The the income generated in a large number of Micro, Small and Medium Enterprises is dispersed more widely in the community than income generated in a few large enterprieses and bring about greater equality of income distribution.
Challenges
Micro, Small and Medium Enterprises in India are not progressing satisfactorily due to various challenges that they are facing like, absence of organized marketing and exporting system, inadequate credit assistance, irregular supply of raw material, lack of modern machinery and equipment, absence of adequate infrastructure, competition from large-scale units and imported articles, problem of skilled manpower etc. Due to all these challenges the development of MSMEs could not reach a prestigious stage. Therefore, there is a need to look into these challenges for benefiting the large section of population engaged in this sector.
Challenge of Marketing: Almost all business enterprises face marketing problems, but the problems faced by MSMEs are more severe in nature. Following are the marketing problems commonly faced by the Micro, Small and Medium Enterprises in India:
a) The MSMEs face a tough competition not only from the large domestic firms but also from the multinational corporations which are armed with modern technology, having R&D facility, managerial ability, skilled and technical workers, marketing experience and skills, branded and wide range of products etc. It is very difficult for the small enterprises to maintain their existence in front of the market players.
* Most of the micro and small scale entrepreneurs are not highly educated or professionally qualified to have knowledge of marketing concept and strategy. Their lack of expertise further inhibits their understanding of the prevailing trends in the market.
* MSMEs do not have a clear strategy for effective sale promotion because they lack the resources and knowledge for it. They used to pay a heavy commission to dealers for their selling efforts, which reduce their profits margins. Large enterprises mostly have well-known branded names. They also have huge amount of resources to spend on advertisement and other sales promotion strategies.
*At the time of purchase of inputs and selling of outputs, large scale entrepreneurs manage to get huge discounts, credit economies of scale. The MSMEs are denied such facilities and cannot bargain as the way the large enterprises bargain.
* The MSMEs are always called upon to sell their product on credit. However, at the times of purchasing inputs, they are denied that liberal credit facilities. As a result, they have to borrow excessive working capital than actually needed. This increases the cost of production and prices, making them weak for competing with big players in the market.
* Challenge of Finance: Finance is a very important aspect of any business establishment. It has always been a major problem for the micro, small and medium enterprises in India. The MSMEs mostly depend on internal sources of finance such as personal savings, loan from relatives, and loan from local money lenders than that of institutional financing by banks and other financing institutions. MSMEs face many challenges while managing finance for their unit: a) High interest rate due to high risk involved in making loans to MSMEs b) High risk borrowers due to their weak financial strength c) High transaction and administrative costs-usually MSMEs take small loans.
* Challenge of Technology: In India there exists a sort of dualism in MSMEs sector. Only a small percentage of enterprises operate with sophisticated and modern technology base whereas majority of enterprises in MSMEs use obsolete technology which results into low productivity and poor product quality.
* Challenge of Skilled Workers: It is difficult for the MSMEs to match the rate of remuneration, job security and other career development opportunities, available in larger enterprises and therefore they are not in a position to hire skilled, experienced and competent manpower for their firm. Thus, the MSMEs suffer from low managerial capabilities and low productivity.
India has been gifted with an adequate natural resources and this is a favourable factor for the establishment and growth of Small and Medium Enterprises. Small units generate employment at relatively small capital cost, mobilize resources of capital and skill at micro levels and are expected to meet the rising demand for various goods and services required by the economy. By developing Micro, Small and Medium Enterprise sector at least we can encourage the self employment among the unemployed youths. Government should come up with some incentives which can help to develop the MSMEs. This may encourage unemployed people to start their career in this sector. With proper planning and encouragement, we can make the dream of Mahatma Gandhi implemented in reality.
(The author is Assistant Professor in Economics, Govt. Degree College Ramban J&K.)
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