Small- and medium-scale industries have waded through the current slowdown with scant help from the government. A reason for the government indifference is the lack of reliable indicators to measure the impact of the slowdown on the sector.
While output in different sectors of the economy and industry are tracked quarterly or monthly, one has to go by the census estimates of 2001-02 to make any assessment of the current state of the small-scale industry. The government?s poor grasp of the sector is amply demonstrated when it has used the 2001-02 numbers to give information on the number of small-scale units that have been closed down in the recent years.
The lack of data on the small & medium industries is surprising, given their significant role in the economy. Most recent estimates show that the share of the micro & small enterprises (MSE) sector in the total manufacturing production during 2006-07 was 38.6%. And the contribution of micro, small & cottage enterprises to the GDP was estimated to be 7% in the year.
The 11th Plan has stressed the role of the sector by vastly increasing the Plan target for it. The Plan estimate is that the total output of the MSE sector would, at current prices, go up from Rs 6,82,613 crore in 2007-08 to Rs 13,98,803 in 2011-12 and the total employment in the sector would rise from 32.2 million to 39.2 million during the period.
But despite the large size of the sector, the allocation of funds for promoting the sector has been meagre. Numbers show that the ministry of micro, small & medium enterprises (MSME) had spent only Rs 1,920 crore in 2008-09 and the Budget allocation in 2009-10 has gone up only marginally to Rs 2,033 crore for various schemes/programmes of the ministry.
The insignificance of the fund allocation for the SME ministry becomes all the more apparent when compared with the large number of programmes run by the ministry. A survey of documents shows that the most important of them include the Prime Minister?s employment generation programme, national manufacturing competitiveness programme, cluster development programme, credit guarantee scheme, credit-linked capital subsidy scheme, performance & credit rating scheme and the market development assistance scheme.
A reason for the central government?s frugality with the micro & small industries is its belief that the promotion and development of MSMEs and providing them with better infrastructure are primarily the functions of the state governments. So the argument is that the role of the central government is only to supplement the state government efforts by providing supportive measures through specific schemes.
Given this dual responsibilities of the federal and state governments, the small-scale industry has had to depend on central bank interventions to mobilise resources to fuel its growth. In fact, banks have taken on substantial responsibilities of the sector?s development by floating several schemes.
A major policy initiative to step up credit to SMEs was announced in 2005. The target was to double the credit flow to the sector within five years. This target has been surpassed within four years, with the number of SME accounts in the public sector banks going up from 13.95 lakh in March 2005 to 43.02 lakh in March 2009, and the outstanding credit increasing from Rs 68,000 crore to Rs 1,90,968 crore during the period.
The financial support the SMEs have got in their hour of crisis, through liberalised credit norms, has come as a major breather. The measures include the extension of the loan limit under the credit guarantee scheme from Rs 50 lakh to Rs 1 crore with a guarantee cover of 50%; increasing the guarantee cover under the credit guarantee scheme from 80% to 85% for credit up to Rs 5 lakh; an advisory to central public sector enterprises to ensure prompt payment of bills of MSMEs; interest subvention of 2% in pre- and post-shipment export credit; refinance limit of Rs 7,000 crore to Small Industries Development Bank of India for incremental on-lending to the MSE sector; the grant of need-based ad hoc working capital demand loans of up to 20% of the existing fund limits; and a reduction in interest rates for borrowing by micro enterprises by 1% and by SMEs by 0.5%.
The apathy of the central government in boosting allocation to the SME sector during the slowdown would have been also guided by the poor data that show the sector could have escaped the brunt of slowdown. This is based on the government?s understanding that the worst impact of the slowdown was concentrated in a few sector like textiles, leather, gems & jewellery, auto components, where the share of the SMEs are not too large. According to figures available with the government, the share of the SMEs in these sectors in the total number of SMEs varied from just 0.2% in auto components, 1.3% in gems & jewellery, 1.4% in leather and 3.7% in textiles.
The most recent survey numbers brought out by the ministry of labour show that the impact of the slowdown in the worst-hit sectors has softened in recent months. While the number of jobs lost in the textile sector declined by 1.54 lakh, in the gems & jewellery segment, the figure went down by 0.20 lakh. Both the textile and automobile segment has show an increase in employment during the period. Though that reduces the worrylines for the government, the MSME sector is largely left to fend for itself.