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SMEs as an engine of national growth

Options to promote innovation and local economic development

FROM THE point of view of India's commitments at the international level to open up its market, a thrust on innovation has special relevance.

The European Union and the U.S. have unleashed a subsidy regime for their small and medium industries under the cover-up rubric "Innovation Fund".

Why not India take cue from this and restructure several of its Yojanas? One can include in the list SGSY, NPRI, PMRY, AHKVY, Cluster Development Programme, REGP and several other programmes being implemented by the commodity boards and promotional agencies.

It is time that India drew lessons from elsewhere, from the angle of growth-cum-trade strategy, as also for stepping up employment opportunities at home. Hence, the Finance Minister may find the following proposals in the right direction:

A suggested strategy

Announcement of an Innovation Policy for the small and medium enterprises (SME) sector, in the forthcoming Union Budget itself, may be relevant. The Finance Ministry may set up an expert committee to work out the modalities in this regard, in consultation with the Ministry of SSI. Detailed studies should be commissioned in this area.

The activities of the Ministries of SSI and ARI may be restructured, under two divisions: SME Innovation Division; and SMEs in Local Economic Development (LED) Division.

The first division may cater to the imperatives of growth of this sector, whereas the latter can focus more on the social aspects of regional balancing and employment generation.

With significant strides in the area of Panchayati Raj, as also the focus given on progressively scaling up the tempo of rural development through schemes such as PURA and Rural Business Hubs, it is time that these activities are coordinated with the enterprise development activities initiated by the Ministries of SSI and ARI.

Besides, the thrust on local economic development is in line with the latest thinking of the International Labour Organisation as well. This will also help public policy to focus increasingly on job quality, along with enhancement of employment opportunities.

Innovation Fund

An SME Innovation Fund may be set up with a corpus of Rs. 500 crore. This fund should be administered by the Small Industries Bank of India. It should be utilised for training, exposure programmes, support to innovative professional agencies, awards for successful entrepreneurs, support to BDS (business development services) organisations, research activities, and for international exposure programmes for relevant stake holders.

All current activities of the Ministry of SSI and related agencies should be merged with this larger programme. The P&D component of the SIDBI budget now constitutes only 1.2 per cent. The new initiative will help SIDBI play a more meaningful role.

A restructuring of PMRY has been recommended by several expert committees and studies undertaken by various expert institutions (including the Institute of Small Enterprises and Development).

The restructuring should take place by dividing PMRY, based on two different thrusts; (1) creation of growth — oriented and innovation — oriented enterprises; and (2) creation of employment- oriented enterprises. Accordingly, the funding norms for the former category should be raised from Rs. 1 lakh to Rs. 5 lakh. These entrepreneurs should also get the benefit of the Innovation Fund.

The activities of the Planning Commission relating to the SME sector also need a thorough review. The Village and Small Industries (VSI) Division should be bifurcated with the two following divisions: SME Innovation Division; and

Enterprises in Local Economic Development Division.

All enterprise related subjects of other divisions of the Planning Commission should be merged appropriately with these two new divisions.

The Planning Commission may come out with a Perspective Plan on Innovation as a prelude to the Eleventh Plan. An expert committee should be set up for this purpose.

Given the significant changes in policy approach, as suggested, a Small Enterprise Commission should be set up at the national level, in order to act as a think-tank, which will offer continuous flow of information and insights for the working of the institutional structures envisaged under the proposed SME Development Bill now before Parliament.

Budgeting so far has contributed to several reform measures as it relates to SMEs. However, the speed, direction and coverage of reforms is more crucial than reforms per se.

P. M. Mathew

Director, Institute of Small Enterprise and Development, Kochi. He can be reached at director@isedonline.org or ised@md2vsnl.net.in.

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