India cannot become $ 5 tn economy without MSMEs: Sanjeev Chawla

In this interview with Rakesh Rao, Sanjeev Chawla, Director, Office of Development Commissioner (DC) MSME, Ministry of MSME, discusses challenges faced by MSMEs and probable solutions.
India cannot become $ 5 tn economy without MSMEs: Sanjeev Chawla

Established in 1954, Office of the Development Commissioner (MSME) has seen its role evolve into an agency for advocacy, hand holding and facilitation for micro, small and medium enterprises (MSMEs). It provides economic information services and advises Government in policy formulation for the promotion and development of MSMEs. Recognising the changing global environment, Office of the Development Commissioner (MSME) is currently focusing on providing support in the fields of credit, marketing, technology and infrastructure to MSMEs.

In this interview with Rakesh Rao, Sanjeev Chawla, Director, Office of Development Commissioner (DC) MSME, Ministry of MSME, highlights on the challenges faced by MSMEs and how the DC MSME office is playing a role of catalyst in the growth of MSME sector.

You have been involved in MSME development for the last 23 years. What are the key hindrances/obstacles in the growth of MSMEs in India?
Timely, inadequate and costly funding has always been a hindrance to the growth of MSMEs. They do not get sufficient funds for their regular needs like term loan for machinery, infrastructure, etc and working capital. They need timely and adequate funding with cost of funding being low.

At the same time, working capital management by MSMEs is not so good. They are deploying working capital in non-productive assets leading to higher cost of raw materials and delayed payment to suppliers. I would suggest MSMEs to have sufficient working capital as liquidity is necessary to manage your business better.

There is another problem. They are either not aware of or not capable to go for equity finance. In equity funding, you are not blocking your capital (as you can reward your shareholders through dividends when you make profit). But in case of loans, you have to pay interest regularly. MSMEs, who are graduating to a higher level, must go for equity funding from the market as this can reduce their cost of funding. this.

Many MSMEs are still using obsolete technology due to the low scale of production or the lack of information and funds. Whenever we discuss with them to increase the level of technology or get a technology transfer from outside, the question comes how to acquire new technology as it is costly for them. I would advise companies to come together and join hands to acquire technology to solve this problem.

Another obstacle for growth is that MSMEs do not hire professional managers for quality control, marketing, product design, etc. These days MSMEs have to be part of the global value chain and for that they will have to hire people who know brand building, e-commerce, maintaining supply chain, etc. These have become normal requirement for the growth of MSMEs.

Costly infrastructure adds to the problem for MSMEs. If you want to put up an industry, land and infrastructure is very costly. So, the capital gets struck in infrastructure. We are competing with countries like China, Vietnam, Bangladesh, etc where cost of land and infrastructure is lower than India. Hence, to tap exports, these issues should be solved so that MSMEs become cost-competitive.

All these hurdles are related to management and financing. If MSMEs are provided proper training to apply systematic approach to their businesses, these issues can be addressed to a certain extent.

Government is taking steps to reduce cost of funding and promoting technology centres. It is now upto MSMEs to take advantage of these schemes and policies and to overcome these hindrances.

How is Office of DC MSME, in general, and your office, in particular, helping MSMEs in manufacturing sector? How can MSMEs benefit from CHAMPIONS Portal for MSMEs?

DC Office has launched various schemes for MSMEs in most of the verticals. For infrastructure, we have lunched MSME cluster development programme. For exports, we have marketing schemes that are aimed at helping MSMEs to their products in overseas markets. For technology upgradation, we have capital subsidy scheme for new technology/machinery to MSME.

 By availing the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) units can get loans upto Rs 2 crores without any collaterals.

During COVID, we launched new products like Fund of Fund, which will be available to the industry very shortly. Fund of Fund scheme is for MSMEs when traditional funding is not possible. Traditionally, lenders give loans against tangible assets. But there are also intangible assets which need non-traditional approach for funding. Fund of funds will provide funding options for non-traditional sectors.

Champions portal has been established to address public grievances and invite suggestions. It is a one stop solution for all the issues related to MSMEs as it provides all relevant information about the government schemes and policies. We have set up 66 offices working as Campion Desks, across various states, who responds to the issues raised by MSMEs. These Desks were very active during COVID 19 pandemic as they helped MSMEs in dealing with problems like issues during reopening of manufacturing units, supply of goods and raw materials, etc.

To avail these benefits, is it necessary for them to be registered with Ministry of MSME?
For general advice, we do not insist on registration. But, to avail monetary and under benefits, registration of the MSME units is mandatory. Registration process has also been simplified and made hassle-free. From July 1, 2020, the government operationalised Udyam registration portal for MSME, which is completely paperless and based on self-declaration. This dynamic portal has removed distinction between services and manufacturing in the system.

Globally, it has been found that MSMEs benefit from the cluster development program. How important is cluster development program for MSMEs in India? What steps is the government taking in this direction?
Since last 20 years, DC Office is working with cluster development concept, which has evoked over the years. Units in a cluster can use common resources, which otherwise are difficult for individual units to build and run.

We focus on activity which cannot be undertaken by individual units. For example, in Yamuna Nagar, we are putting up a machine for plywood manufacturing which costs Rs 8.1 crore. For micro and small units, operating in the cluster, this is a huge amount and they cannot afford it. For the machine, the majority of the contribution came from the Central Government and the rest coming from the State Government and individual units. As a result, the manufacturing units in the cluster were able to use state of the art machine with minimum investment.

With quality standard requirements becoming stringent, the cluster development programme is also focusing on training and setting up testing centres. The cluster development programme has been successful in various sectors like footwear, textiles, machine tools, etc.

In recent times the government has come out with a lot of Quality Control Orders (QCOs) for various products. Are MSMEs prepared to match the quality standards set by these QCOs?
This is a very critical issue for the industry. In order to ensure that only quality products enter the Indian market, the government has made quality testing mandatory for imported products. Under WTO, same treatment has to be given to imported as well as domestic products. Hence, QCOs are applicable for local manufacturers.

Under QCOs, the products have to be manufactured by adhering to BIS standards for which the companies will have to have in-house QC/QA labs or take the services of external testing labs. In addition to increasing the cost of the products, the testing process will be cumbersome for the MSMEs, as they have to maintain the records of these tests and follow the stringent quality standards. It is challenging for MSMEs as some of them are struggling with this.

But it will be useful for MSMEs and the whole sector in the long run.

In recent months, the government has taken many steps to restrict imports. How can MSME benefit from this?

If production is taken up by large scale industries, benefits will percolate down to MSMEs because in the supply chain of large companies MSMEs play the most vital role.

In automotive industry, the supply chain consists of OEMs, Tier 1, 2 and 3. Majority of tier 3 suppliers are MSMEs. Similarly, in defence production, we have an off-set policy, as per which 30 per cent of the content has to come from India. If OEM sources products from MSMEs, they get a weightage of 1.5 times. So, MSMEs stand to benefit from these policies. But the question is:

Are we ready for this?
In spite of the off-set policy, MSMEs are not able to supply products to the defence sector to the extent that they are expected to deliver.

Even if we restrict import, local manufacturers may not be able to take the advantage if we are not able to develop perfect supply chain. It is also important to produce quality product on time at competitive prices to be relevant for global companies.

As part of Aatmanirbhar Bharat Abhiyan, what kind of opportunities are being presented to MSMEs?
Post-COVID 19 lot of things have changed. Aware of this situation, the Government has taken number of measures to step up manufacturing in the country.

Before 1990, majority of pharmaceutical ingredients and raw materials were manufactured in India. Today, majority is imported. To solve such problems, the government has launched Productivity Linked Incentive (PLI) scheme. It has brought a special scheme for manufacturing of medical devices and parts. Then we have special focus on Electronics System Design and Manufacturing (ESDM) products.

In mobility space, the government is incentivising electric vehicles through tax break, manufacturing incentives for lithium ion batteries, charging stations, etc.

India is aiming to becoming a $ 5-trillion economy by 2025? How important will be the role of MSMEs in this?
India cannot become $ 5 trillion economy without the contribution of MSMEs. They will have to contribute substantial in this growth journey.

Youth are moving away from manufacturing to service & IT sector. It is also a big issue. So, we need to encourage youth to take up manufacturing job. MSMEs have to be supported for their survival and growth as they provide millions of jobs, which is very important for a country like India which has a huge youth population.

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