Ten policies that must change-3: the case of small enterprises
The need for reforms is being felt almost by everybody. But, the pace of reform has not matched the rising societal expectations. On certain reforms, a political consensus has to be achieved. Unfortunately, when this consensus prevents critical and frugal thinking, it can also come in the way of reforms. A good example of such misplaced consensus is the so-called Food Security Act on which both major parties agreed to subsidize millions of people who did not demand and also did not deserve such subsidies. Therefore, the culture of widespread debate on major policies of public consequence is essential.
d) Revamping the support system for micro, small and medium enterprises: Despite the critical role played by the MSME in providing large scale employment as well as frugal goods and services, the support systems has been very weak. Even in some of the prosperous MSME clusters, more than 70 per cent members lacked websites. If the students of computer sciences and web design are mobilised to do this for all small enterprises as a part of their learning exercise, this can be done in six months. Catalogues of all such firms can be uploaded to harness the global demand for local products and services. China has perfected this art, India has not. But it can catch up.
The risk capital for technology students is completely absent. Not one of the awardees of Gandhian Young Technological Innovation Awards received any support from Technical Development Board or other such public funds. The hunger for good ideas but at extremely early stage is missing in the country, particularly in the area of hard manufacturing technologies. The new government must recast the IIIF fund by MSME to make it available to the young innovators in the field of technologies and social business. It should not be used to provide easy exit to western funds, which invested in so-called product and services for the base of economic pyramid. It should also not be used to provide low cost easy capital to existing profitable enterprises in the name of poverty alleviation. One must reduce transaction costs for such enterprises to improve their reach. But, risk capital should be reserved for fledgling young entrepreneurs who may not have set up even companies yet.
The 13th Finance Commission, on our recommendation, set up a District Innovation Fund of `.1 crore in every district. The guidelines have been made so cumbersome that results are expectedly poor. We can trust District Collectors for thousand things but we cannot trust him to run this small DIF through local committee of well-meaning entrepreneurs. Every sanction has to go to state level and in some cases perhaps to the central level. This must change.
The 14th Finance Commission may consider supporting a similar fund for entrepreneurial ventures by the students and faculty of public educational institutions and other government departments. This fund should allow experimentation of entrepreneurial models for solving various civic problems and meeting the unmet needs of society. The Centre for Innovation in Public Systems [CIPS] created by the Finance Commission should move to new institutions so as to fulfill the mandate which it unfortunately couldn’t meet.
The MSME need, a vibrant ecosystem at district level. MSME need test beds, IT support, cloud services, IPR guidance, collaborative problem solving platforms, etc., with low transaction costs. They also need to learn from each other. The under utilized capacity of various units can be catalogued and put on a capacity-exchange so that new entrepreneurs can use it to reduce their capital expenditure in the early stages. It will also make banking investments more viable. The academic institutions can contribute by linking students’ projects in the final year with the unmet needs of MSME and other social entrepreneurs.
There is a need for quarterly meeting of the Prime Minister with the MSME representatives so that small business can get importance they deserve. The large capital can cope with global pressures better. The public policy must require the top leadership engaging with the problems at the lowest level of entrepreneurship. Once the foundation of economy is strengthened, the periodicity of interactions can be reduced. India must learn from China but also southeast Asia. The centre of the world has already moved eastward.