Tuesday, August 12, 2014

General Budget 2014-15 and MSME Sector

In June2014 issue of SME World I had talked of some challenges that newly elected government at the centre faces. The key expectations were identified as emphasis on rural entrepreneurship, entrepreneur-friendly regulation, skill development initiatives, and initiatives for coexistence of giant and tiny units. The new government took over the reign and introduced general budget on the floor of the house of parliament on 10th of July 2014, for the year ending March 2015. This annual document somehow provides an overview of the intentions and priorities of the newly elected government and further it is supposed to help us understand the direction in which the government is going to take initiatives. In this brief write up I shall like to discuss the provisions for MSME sector in this budget in the light of the expectations that I identified earlier.

The budget proposes for constituting a committee to examine the financial architecture, remove bottlenecks and to suggest creation of new rules and structures and to give concrete suggestions to the government on the wider issues affecting the operation of the MSMEs in India.  This committee needs to give its report in three months time.  This time bound approach needs appreciation and shows that the government seems to be seriously thinking on concentrating on this sector which is having huge growth potential in India.  The government has also indicated that it is planning to amend the Act to the effect of increasing the capital ceiling for a unit to fall under the definition of micro, small and medium enterprise.  The amount has not yet been categorized.  This step of the government shall broaden the purview of the Act and shall help the entrepreneur to contribute better through enjoying certain offered privileges.

The issue of unemployment and employability was raised by me in the earlier article and I had proposed that we need a committed provision for skill development, though we already have institutions imparting such training, still it is not enough.  Earlier government had created a National Skill Development Corporation (NSDC) in the year 2009 to work through public-private-partnership in the line of developing required skills in the entrepreneurs.  NSDC has identified twenty industries on priority basis to focus. I feel that further technical skills and soft skills, both have to be emphasized and to be taken up at priority level.  Our youth are full of enthusiasm and innovative ideas but what is lacking is the drive and direction which has to be addressed through encouraging and guiding them towards focusing on their untapped potential. They need to be equipped with confident backing. I am really happy to see that in the current budget it is proposed to launch a program called Skill India to skill the youth with an emphasis on employability and entrepreneurial skills.  I wish it addresses the issue of skill deficit in the entrepreneurs and to develop an ability to connect their products and services to the market and further to create and sustain competitive advantage in the identified markets.

It is proposed that a nationwide district level Incubation and Accelerator program for incubation of new ideas and necessary support for accelerating entrepreneurship shall be initiated by the government.  This step shall certainly build marketable competencies in the entrepreneurs and provide them with back-end support.  It shall also have far reaching results as it would be initiated and operated at district level.  I would expect that it could further be taken at the block and village level in order to encourage rural entrepreneurship.  Somehow we have not yet been able to enthuse that sense of entrepreneurship in the rural population even when we are aware that India still lives in villages.

Availability of finance and the red tape involved in its sanction, disbursement, and utilization has discouraged many entrepreneurs from seeking government support.  It is expected that the committee constituted for the purpose of suggesting improvement measures shall look into this and would make appropriate recommendations in this line.  However it is proposed in the budget that a fund of funds with a corpus of Rupees ten thousand crores shall be set up for providing equity through venture capital funds, quasi equity, soft loans and other risk capital specially to encourage new startups by youth. This is going to help the younger generation which is full of creative ideas and energy to initiate business venture to tap the market opportunity in different sectors of industry. We witness number of venture capitalists in the market who are making strides in different businesses with their calculated risk and stake. However such an initiative of the government shall provide a cushion to the young entrepreneurs and strengthen their risk taking ability.  The budget also proposes to develop an entrepreneur friendly legal bankruptcy framework for SMEs to enable easy exit.  This shall surely help ailing entrepreneurs and provide them a respite from running loss making units.

Technology is a big differentiator in the domain of entrepreneurship. Its effective use has turned many young entrepreneurs into millionaires. The present government seems serious about using technology for the advantage of the entrepreneurs.  It has proposed to set up a dedicated corpus of Rupees two hundred crores to establish Technology Centre Network.  This would facilitate resource sharing and help the entrepreneurs to interact and network with their counterparts.

As experienced marketing of products and services is a big challenge before the entrepreneurs and many times because of poor supply (quality & time) of raw material or poor delivery mechanism or appropriate distribution networks, the products do not reach the customer at opportune time.  Further the conditions laid down by the suppliers and vendors also sometime hinder constant supply of raw material and other required back-end support specially in highly competitive market.  This calls for an effective integration approach.  The government plans to launch a program to facilitate forward and backward linkages with multiple value chain of manufacturing and service delivery. It should really help new as well as existing businesses and support them from both the sides, viz., suppliers and distributors. 

It is heartening to note that almost all the challenges have been well addressed by the budget and as visible from the market responses it seems the stakeholders involved in the MSME sector shall take a sigh of relief that their concerns are addressed through this budget.  The greater challenge that every government faces is to take the policies to the grass-root level and to implement them in most earnest and honest way.  The policies on paper look very effective, their proposed framework indicate a positive direction towards self-sustainability, yet the past experience teaches us that many times it does not translate into reality because of their non-implementation or faulty implementation.  If the government is seriously concerned, it has to move a leap forward and efficiently implement the programs and assure a bright future to the entrepreneurial spirit of India.  

(published in SME World, August 2014 issue)
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