Free SMEs from funding woes

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: be encouraged for the SMEs to reduce their sole reliance on debt finance and private equity.

Meanwhile, for SMEs to function, we need to get rid of the rigidity in the system. FISME is hoping that the interest rates for lending to the SME sector, which is currently 12% to 13%, will come down to 10% to 11%.

FISME believes that cluster development is a good way to take growth forward and strengthen the SME sector. Italian clusters have served as a role model for Indian ones. What Italy has faced is that, with almost negligible governmental support due to a rapid fall of regimes (the average tenure of a government in Italy over the past few years has been barely 12 months), it was difficult for that country to have a long-terms policy for SMEs. But, it was a blessing disguise because the basic premises were there and they were left to fend for themselves. Eventually, they became self-dependent and achieved competitive levels and maturity in production, something which was ‘unthinkable’ before. In a cluster, a value chain gets built in a particular segment, such as leather goods, and each shares and exchanges information at a formal and informal level. This results in the achievement of a level of productivity that nobody could think of.

As a result, the SMEs in Italy not only competed with the ones in Germany, the UK and France, but outdid them in many areas—textiles and leather—to name a couple. In a cluster, a local supply chain of a particular product-line will reside at one place. In the medium and large sectors, it is certainly Germany and the UK that a person can look up to for hi-tech operations. France can be emulated for the success of its clusters in food-processing. The Italian model of cluster development has impacted a lot of thinking in India, hoping for quick gains. The ministry of commerce also wants SMEs to cooperate with the IBSA grouping (India, Brazil South Africa) for their own benefit, and FISME has presented a road map to the government on the areas where SMEs could have similar enterprises in these countries.

The government is nevertheless playing a very active role in cluster development of SMEs in India, given that over 90% of the manufacturing units in India are small scale.