Though the primary responsibility for the development of micro, small & medium enterprises (MSME) is with the state, very few keep a close track of the sector. One exception to the rule is Tamil Nadu, which had unfurled a micro small & medium industries policy in 2008 to enhance the competitiveness of the sector and to push up the growth rate to double-digits. In fact, the southern state has even targeted to raise the direct and indirect employment in the sector by 10 lakh in the 11th Plan period.

Numbers for the first three years of the Plan period show that though still short of targets, the growth in employment has been impressive with 4.06 lakh jobs created. At a broad level, numbers indicate that the failure to generate the expected employment was mainly due to the recession that slowed employment creation. Employment generation in the MSME sector was a high 1.5 lakh in 2007-08, but it slowed to 1.1 lakh in 2008-09.

A consolation is that employment has bounced back to 1.46 lakh in 2009-10.

But a closer look shows that the core of the small-scale sector has remained buoyant, steadily increasing employment generation each year and that the fluctuations in employment creation was mainly on account of the trends in the government-sponsored programmes in the sector.

A major programme whose performance has derailed the state?s attempts to boost the employment targets is the Prime Minister?s Employment Generation Programme (PMEGP) that aims to empower first-generation entrepreneurs to set up micro enterprises. Employment generated under the scheme has steadily decelerated from 52,655 in 2007-08 to 22,712 in 2008-09 and further to 20,968 in 2009-10. Consequently, the share of PMEGP in total additional employment generated has declined by more than a half. The experience has been similar in industrial cooperatives where the number of employment opportunities generated steadily slipped from 1,700 in 2007-08 to just 1133 in 2009-10.

However, the performance of the core MSME sector, private sector enterprise, has been more impressive as the segment was able to recoup the setbacks dealt by the recession and add new jobs much faster than before. Though the number of additional jobs created in the private units slipped sharply from 72,972 in 2007-08 to 63,013 in 2008-09 it rebounded back to an impressive 88,036 in 2009-10. But the share of employment generated by the private MSME units has steadily increased from 48.5% to 57.1% and further to 60.3% over the last three years.

Though relatively smaller in size, the performance of cottage and handicraft industries was even more impressive. Employment in cottage industries went up from 13,958 to 14,280 and further to 21,644, pushing up their share in MSME employment generation from 9.3% to 12.9% and further to 14.8%.

One factor that has contributed to the less-than-expected growth in employment generation is the decline in the growth of credit to MSMEs in the state. Though the absolute amount of credit to the MSME sector has steadily gone up from Rs 33,283 crore in 2007-08 to 37,859 crore in 2008-09 and to Rs 31,977 crore in the first nine months of 2009-10, the growth of credit has decelerated from 22.89% to 21.82% and 20.73% during the period. A reversal of these trends would hopefully restore employment generation.