As the country faces external headwinds, a view has emerged in the Planning Commission to boost the small and medium enterprises (SME) sector, for putting the country on a sustained high growth path in the 12th five-year Plan (2012-17).
A paper, presented by the Planning Commission at a meeting with state planning boards, says small businesses are a way to faster growth, as SMEs are more attuned to the domestic economy. When asked, the author of the presentation, Pronab Sen, principal advisor, said the paper looked at objective conditions. He said corporate sentiment was down due to problems related to the Euro zone and other domestic issues. In this situation, the focus should be on the small scale sector.
Asked when he thought corporate sector sentiments would be up again, Sen said,"It can reverse a day after tomorrow. If Euro zone conditions improved, the whole attitude of the corporate sector can change."
- Small businesses are a way to faster growth, as SMEs are more attuned to the domestic economy
- As external conditions are not in India's hands, the country must focus on things which are under its control
- For pushing up the SME sector, governance needed to be improved.
- SMEs need to be given more fund
- SMEs’ infrastructure, such as power, issues must be addressed
The presentation, he said, noted external conditions were not in India's hands. "Let's focus on those things which are under our control."
Yesterday, in fact, rating agency Moody’s Investor Services had cut its outlook on Germany, the Netherlands and Luxembourg, all with the highest rating, due to the Euro zone problems, signifying how serious these external challenges were.
If things are fortunately situated, the corporate sector would come back roaring. "That is not an issue. If it does not, let's get the SME sector up," the former chief statistician said. If the SME sector story could be perked, it would provide conducive conditions for the corporate sector as well. "But that will take time. It will take a year and a half."
India’s economic growth slipped to a nine-year low of 6.5 per cent in 2011-12 and initial signs for this year are not encouraging as well. While industrial production contracted in May for a consecutive month, both exports and imports fell for a second straight month in June.
Sen said for pushing up the SME sector, governance needed to be improved. SMEs face challenging issues in terms of corruption, in terms of all kinds of hurdles to their establishment and operations. The second issue was finance. "With corporates withdrawing, finance has become less of an issue. But, to really give SMEs a boost, they need to be given more finance than available today."
The third issue is infrastructure. "Corporates can overcome infrastructure bottlenecks through their own resources. SMEs do not have those resources." Infrastructure issues mainly relate to power.
The Planning Commission itself has already truncated the additional capacity creation in the power sector to 88,000 Mw from the Plan approach paper's 100,000 Mw. Asked about this, he said the approach paper's target was based on the XIth Plan target of 74,000 Mw. In that Plan, ending on March, 31, 2012, only 50,000 to 54,000 Mw could be added. "Those targets were based on a nine per cent (yearly) growth (assumption) in the 11th Plan and nine per cent in the 12th Plan. The 11Ith Plan would (now) be less than eight per cent (yearly) and now we are talking of 8-8.5 per cent growth in the XIIth plan," he said.