Entrepreneurship in India – Overview

Micro, small and medium enterprises (MSMEs) in India and abroad have demonstrated considerable strength and resilience in maintaining a consistent rate of growth and employment generation during the global recession and economic slowdown. MSMEs are critical in addressing the national objectives of bridging the rural-urban divide, reducing poverty and generating employment to the millions.

Entrepreneurship in India – Macro Perspective

India is still ranked 130th globally in the World Bank's ease of doing business index for 2015, which reflects the burdensome regulatory environment in which SMEs operate. The high costs involved in meeting a large number of regulatory requirements tend to negatively affect the innovation capacity of the firms.

Available data from the Fourth All India Census of MSMEs in 2006-07, indicates that around 60% of these enterprises are based in rural areas of the country and 45% of the total manufacturing output in the country is contributed by the MSME sector.

Entrepreneurship in India – An Assessment of Immediate Environment

The prevailing ecosystem of enterprises in India puts up various hindrances for entrepreneurs. These include regulatory setup, political risk and interference, ineffective legal and enforcement infrastructure, lack of organised information sources and access to capital, to name a few . The following section will highlight key challenges and initiatives in the country to address the challenges in varied components of the enterprise ecosystem.

1. Finance
As per the statistics compiled in the fourth census of the MSME sector for registered units (April 2011), only about 11.7 per cent of MSMEs availed finance from institutional sources and about 1 per cent had taken finance from non-institutional sources. The vast majority of about 87.2 % units had either not borrowed finance or depended on internal sources.

Bankers adopt a collateral-based lending approach for MSMEs rather than a cash-flow analysis approach which is used for loans to large-scale industries and this is seen as one of the concerns here.

Policy initiatives for financing MSMEs

• The Reserve Bank of India's directive to the banking sector includes implementing the recommendations of the Prime Minister's Task Force on the MSME sector submitted in 2010. It mentions the need for the banks to achieve 20% year-on-year growth in credit to micro and small enterprises and a 10% annual growth in the number of microenterprise accounts. As of March 2014, there were 2,887 specialised branches for MSMEs. Also, collateral-free loans are mandated for MSMEs up to a limit of INR 1 million.

• Government of India established various institutes and funds to support MSMEs. Some examples are: Small Industries Development Bank of India (SIDBI) in 1990 for promotion and financing of the MSME sector, Credit Guarantee Fund Trust of Micro and Small Enterprises (CGTMSE) was set up in 2000 to offer credit facilities to eligible borrowers, Credit Linked Capital Subsidy Scheme (CLCSS) meant for technology up gradation of Micro and Small Enterprises.

• Most recently, MUDRA (Micro Units Development Refinance Agency) Bank has launched a capital amount of INR 200 billion and a credit guarantee amount of INR 30 billion to help Small and Medium Enterprises (SMEs) and startups resolve problems related to financing. The bank started its operations in April 2015.

• A separate platform for SMEs was set up in 2012 in Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for providing general purpose equity to MSMEs.

2. Skills and Capacities

A recent report by the National Skill Development Council of India forecasts that there could be an incremental shortfall of 240 million to 250 million people by 2022 in 20 high growth sectors of the Indian economy and in the unorganised segment. Over 13 million people are required every year in 90 skill categories. A mere 2% of Indian workers are formally skilled. In the current situation, MSMEs are the biggest generators of employment in the country and so it is necessary to reduce skill gaps amongst MSMEs to promote the concept of inclusive growth.

Policy initiatives for skill and capacity building of MSMEs

• Prime Minister's Employment Generation Programme (PMEGP) in 2008 aimed to generate employment opportunities in rural and urban areas through new self-employment ventures / projects / micro enterprises.

• The creation of a separate ministry for entrepreneurship and skill development will support in promoting entrepreneurship and encouraging skill development initiatives in India. The government has set up a goal of imparting skill development training to 300 million people by 2020 to help them get jobs.

3. Technology and Innovation

More than 50% of innovative small and medium firms are engaged in non-R&D innovation. Medium firms are found to be more engaged in R&D as compared with small firms.

SMEs have very limited access to formal R&D innovations - research institutions, laboratories and public and private universities. Indian SMEs mainly use indigenous methods to develop innovations and are relatively much less dependent on external sources.

Policy initiatives to support technology and innovation

• Under the Department of Science and Technology, the Technology Information, Forecasting and Assessment Council (TIFAC) has done MSME cluster mapping and completed 22 technology gap analysis so far. The Department of Scientific and Industrial Research also launched a new programme - Promoting Innovations in Individuals, Start-ups and MSMEs (PRISM), during India's Twelfth Five Year Plan and the department supported 17 projects in 2014.

• Digital MSMEs Scheme is launched as a component of National Manufacturing Competitiveness Programme for promotion of ICT in MSMEs. The scheme aims to promote an eco system of cost effectiveness and all inclusive ICT applications for MSMEs through Cloud Computing to enable MSMEs to search for value chain (raw material, experts) online and enable IT as a medium of communication to revamp access to the markets. Enhanced access empowers the market to undertake direct, faster and better transactions.

4. Market Information and Assessment

More than 75% of the innovative small firms and 86% of the medium firms face barriers pertaining to information on markets in India.

Market characteristics such as competition, protectionist nature, dominance and monopoly and demand, among others affect a firm's ability to innovate, especially product and market related innovations.

Policy initiatives for market linkages for MSMEs

• As per the Public Procurement Policy, all Central ministries and PSUs will have to ensure that a minimum 20 per cent of all their total annual purchases of products or services are from MSMEs, and within this limit, 4 per cent of the orders should be placed to the SC/ST entrepreneurs.

• The 10 component schemes under the National Manufacturing Competitiveness Programme, by Ministry of MSMEs, targets at enhancing the entire value chain of the MSME sector. The strategy also recommended some sub‐sectors for immediate focus such as Textiles and Garments, Leather and Leather Products, Auto Components, Drugs & Pharmaceuticals, Food Processing and IT Hardware.

Ecosystem of enterprise support services in India is increasingly supported by many flagship programmes that the Government is running on technology innovation, finance and credit linkages, skills and capacity building. The recent trends in the market also witness investments by private players in the nascent entrepreneurship support system of the country.  ■

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Ministry of Micro, Small and Medium Enterprises. (2017). Guidelines - Digital MSME Scheme for Promotion of Infromation and Communication Technology in MSME Sector. Government of India.

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Anshul S Bhamra
abhamra@devalt.org

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