Micro, small & medium enterprises (MSMEs) in India are likely to face the brunt of the global financial crisis. These enterprises are also likely to further suffer if the trade negotiators agree to the draft proposals for non-agriculture market access (NAMA) released by the WTO on December 6, this year.
The NAMA draft is likely to spell a doom for the industries, particularly the MSMEs in the developing world. It has suggested that the developing countries apply the Swiss formula to undertake far deeper tariff cuts than developed countries, thus reversing the mandate of “less than full reciprocity for developing countries.” Very little flexibilities have been given to the developing countries with only 5% of tariff line allowed for exemption and 10% for relaxation. This situation is further worsened by the introduction of anti-concentration clause which restricts developing countries from focusing too much on particular sectors which choosing flexibilities. There is another clause which makes “compulsory” participation by some select developing countries in a mandated “voluntary” sectoral approach in which tariffs in whole sectors have to be eliminated or brought to very low levels.
The National Commission for Enterprises in the Unorganised Sector (NCEUS) headed by the noted economist, Arjun Sengupta recently assessed the problems of the MSMEs. It has proposed credit package for these enterprises with interest rates same as that for agriculture, extension of credit guarantee, changes in debt recovery provisions and adequate export credit for small producers.
The panel called for increasing credit flow from 2% of the bank?s net credit to 5% for small enterprises having investment below Rs 5 lakh and from 5% to 8% for enterprises having investment below Rs 25 lakh.
The NCEUS is more concerned over the informal workers in both the organised and unorganised sectors. It said that about 77% of the workers in the unorganised sector live on less than Rs 77 a day. There are an estimated 58 million enterprises in the non-agriculture unorganised sector employing less than 10 workers. Of these 94% have an investment in plant and machinery up to Rs 5 lakh and another 4% have investment ranging between Rs 5 lakh to Rs 25 lakh. These enterprises contribute 31% to the GDP.
According to the 2005 data, 47% of the workforce in the formal sector was having informal jobs without any social security. Out of the total workforce of 475 million in 2004-05, 420 million worked in the informal economy?6% in the formal sector and 86% in the informal sector and thus informal workforce total to 92%. Concerned with this situation, the NCEUS suggested a bailout package of Rs 58,000 crore for the entire unorganised sector.
As MSMEs in India and other developing countries suffer from low investment and technology as compared to those in the developed world, the Unctad has suggested that they should enter the global value chains (GVCs) for building national productive capacities. India has already asked the developed countries in global fora like the UNFCCC to set up a $80 billion fund for implementing technology transfer to the developing world.
?GVCs cover a full range of interrelated productive activities performed by the MSMEs in different geographical locations to bring out a product or a service from conception to complete production and delivery to final consumers. Joining GVC developing countries MSMEs can access technology and skills upgrading and improve their competitiveness. While policies may vary at national and industry level, there is a need to develop specific measures to build national productive capacities, in order to maximise the benefits derived from integrating MSMEs into the international production system,? said Unctad?s acting deputy secretary general, Lakshmi Puri.
The Unctad also feels that the establishment of sustainable and mutually beneficial linkages between MSMEs and large companies is indeed one of the most efficient ways to integrate domestic suppliers into the GVCs.
The apex industry body, Ficci, has called for setting up of a Global Technology Acquisition Fund (GTAF) for boosting the MSMEs which was first proposed to the Prime Minister by the chairman of the Knowledge Commission, Sam Pitroda.
Ficci has suggested three ways for setting up of the fund. Citing examples from across the world it said that these funds have been established through proceeds of commodity exports (either owned or taxed by the government).
Such funds are Abu Dhabi Investment Authority, Government Pension Fund-Global (GPFG) of Norway, Kuwait Investment Authority, Stabilisation Fund of Russian Federation, Reserve Fund of Libya, Qatar Investment Authority,
Alaska Permanent Reserve Fund Corporation, Brunei Investment Agency, Reserve Fund of Algeria, Kazakhstan National Fund. Most of these funds are set up by proceeds from oil exports, while GPFG has been set up with proceeds from copper exports.
A GTAF can be set up through transfers of assets from official foreign exchange reserves. Large current account surpluses (coupled with capital account surpluses in some cases) enable the countries to transfer their excess reserves of foreign exchange to stand-alone or separate funds. Such funds are created in Singapore, China, Hong Kong, Australia, Ireland, South Korea and Malaysia. On basis of primary objectives, these funds can be categorised into stabilisation fund and savings or inter-generational fund.
Stabilisation Fund aims to even out budgetary and fiscal policies of the government by separating them from short-term budgetary or reserve developments that may be caused by price changes in the underlying markets like oil or minerals but also in foreign exchange conditions.
Savings of inter-generational fund creates a store of wealth for future gene-rations by using the assets they are allocated to spread the returns on a country?s natural resources across generations in an equitable manner.