IASbaba’s Daily Current Affairs – 23rd April, 2016
General Studies 2:
Government policies and interventions for development in various sectors and issues arising out of their design and implementation.
General Studies 3:
Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
Inclusive growth and issues arising from it.
Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
Need of the hour: Inclusive growth of small enterprises
Small enterprises are the best bet right now to create the millions of jobs that India needs to create every year if it is to maintain social stability.
New data released by the Reserve Bank of India last week provides a good glimpse into how small enterprises are the champions of the Indian growth story right now.
The data on 237,398 small private limited companies that are neither owned by the government nor are in the business of financing shows that output by these enterprises has been growing faster than the underlying nominal gross domestic product.
This is in contrast to the more sluggish growth in the 5,788 listed companies whose financial performance dominates public discourse—especially the over-leveraged giants that are so important in the various stock market indices.
What is a micro, small and medium enterprise all about?
Two classes of enterprise –manufacturing and service are recognized by the MSME (Micro, Small and Medium Enterprises) Act of 2006.
The MSME Act 2006 provides the legal framework for recognizing the concept of enterprise, facilitating its development and enhancing its competitiveness.
These can be defined as micro, small and medium depending upon their investment levels.
A manufacturing enterprise is termed as micro small and medium based upon its investment in plant and machinery – up to Rs. 25 Lakhs for Micro, Rs. 25 lakhs to Rs. 5 crore for small and Rs. 5 crore to Rs. 10 crore for Medium Enterprise.
For a service enterprise, an investment in equipment up to 10 Lakh qualifies as micro, Rs. 10 Lakh to 2 Crore as Small and Rs. 2 Crore to 5 crore as medium.
Why India needs vibrant small enterprises?
Small enterprises account for less than a tenth of GDP but nearly 45% of industrial output and 40% of exports.
Small enterprises employ an estimated 60 million people because small enterprises generally have lower capital intensity.
Data from the Organization of Economic Cooperation and Development shows that even the US is not an exception: small and medium enterprises made up 98.9% of its total enterprises in 2005 and were responsible for 57.9% of jobs in that country.
The recent economic census showed that India has millions of tiny enterprises that seem to have absorbed the millions who have left farming out of desperation.
What was the growth story of small enterprises in recent past?
India had tried to encourage small companies after the 1970s with the help of two barriers of protection.
Firstly the ridiculously high levels of import tariffs for the entire economy.
Secondly, reserving the production of certain goods for small companies.
These two policies created inefficient small firms that were neither capable of scaling up nor facing global competition after the 1991 reforms.
A government committee headed by T.K.A. Nair, in its 2010 report, identified credit constraints as one of the key problems faced by small enterprises. It remains to be seen whether new institutions such as MUDRA Bank can open up credit markets for small enterprises.
What are the recent initiatives take by government to encourage Small enterprises?
India Aspiration Fund (IAF):
India Aspiration Fund (IAF) would invest in venture capital funds for meeting the equity requirement of MSME start-ups and for this the initial corpus of Rs. 2,000 crore has been set.
Life Insurance Corp. of India (LIC) will be a partner and co-investor in this fund.
SIDBI Make in India Loan for Enterprises (SMILE):
It is a debt-fund which will carter soft term loans to MSMEs to meet debt-to-equity norms and pursue growth opportunities.
SIDBI has set Initial corpus of Rs. 10, 000 crore under SMILE fund.
Scheme of Fund for Regeneration of Traditional Industries (SFURTI):
To develop clusters of traditional industries in various parts of the country over a period of five years commencing 2005-06
To make traditional industries more competitive with more market-driven, productive, profitable and sustained employment for traditional industry artisans and rural entrepreneurs
To strengthen the local governance systems of industry clusters, with the active participation of the local stakeholders, so that they are enabled to undertake development initiatives by themselves
Prime Minister Employment Generation Programme(PMEGP)
A credit linked Scheme to facilitate participation of financial institutions for higher credit flow to micro sector.
Its objectives are to generate continuous and sustainable employment opportunities in Rural and Urban areas of the country through start-ups.
Connecting the dots:
Can inclusive growth of small enterprises is considered as means to generate jobs and elevate people out of poverty? Comment.
What is a micro, small and medium enterprise all about? Mention the recent initiatives taken by the government to encourage small enterprises and also throw light on how can these small enterprises add value in a big way to India’s growth story?
No proof required- GDP debate: RIP- Now that the new GDP data have implicitly received the RBI good housekeeping seal of approval, perhaps we can all move on to more challenging appraisals of the Indian economy