If Narendra Modi plans to keep his promise to the electorate of creating more jobs for our youth, this is one group he can’t afford to ignore: the small and medium (SMEs) enterprises which provide the bulk of the jobs outside agriculture. With the Union budget to be presented by Arun Jaitley just three days away, these are the people worth listening to.
According to the 2012-13 Economic Survey, of the 102 million workers in industry and 121 million in services as in 2010, barely 28 million were in the organised sector; the rest were in the unorganised sector, including SMEs. This suggests that 87 percent of the jobs outside agriculture are in SMEs. They are the job-creating engines since agriculture is now shedding jobs. And India has 48 million SMEs.
Organised industry is not creating enough jobs as the stress is on automation and less labour. This means the main job creators of the future will be the SME sector – provided the key concerns of this sector are addressed adequately.
To find out what were the real concerns of the SME sector, Firstbiz commissioned Greyhound Knowledge Group to talk to decision-makers in the SME sector to know their key bugbears and what their wish-list for the coming budget could be.
Over the last two weeks, Greyhound surveyed 540 key SMEs in nine Tier 1, Tier 2 and Tier 3 cities. The Tier 1 cities covered were Delhi, Mumbai and Chennai; Tier 2 cities were Chandigarh, Ahmedabad and Coimbatore; and Tier 3 cities were Nashik, Indore, and Kanpur. Among others, enterprise owners, managing directors, CXOs, business heads, production heads and export-import managers were interviewed in depth to get an understanding of what holds this sector back.
They had many concerns, but the No 1 issue was money: the dearth of easy finance and credit instruments. This was followed by limiting regulatory policies, non-availability of appropriate technology, lack of basic infrastructure, lack of exclusive marketing and distribution networks, and inflexible labour laws.
But when asked for their budget expectations, their first demand was not cheaper money, but infrastructure and easing regulations – with 96 percent of the respondents putting this on top of their list. Clearly, Modi’s top priorities should be to focus on the ease of doing business and improving infrastructure.
It is only after these two priorities that labour laws, easier finance, marketing and technology turn up as important demands of the SME sector.
The 2013 Economic Survey, prepared under the guidance of Raghuram Rajan when he was chief economic advisor, notes that “too many firms in India stay small, unregistered, unincorporated, largely informal or in the unorganised sector because they can avoid regulation and taxes.” Quoting a World Bank study on the ease of doing business, the Survey notes that “it takes about 12 procedures, 27 days, and a paid-up capital of 140 percent of the per capita income” to start a business. India’s neighbours manage to do it with seven procedures, 19 days, and 18 percent of per capita income on an average.
Even in South Asia, India is not the right example to follow.
Though it is no surprise, the Firstbiz-Greyhound survey of SME businesses and their expectations from the budget ought to be the basis for formulating job-creating policies in this government.
Over to you, Arun Jaitley.