Most Indians know of Bajaj but, except for a few hundred loyal customers, nobody knows of First Konzept, a small interior decorator firm run by J Bhuvaneswari. Or Vivahaa Caterers run by RK Ragavendran or Evergreen Modular Kitchen run by Kavitha.
It may come as surprise that the primary driver of the sustained high growth of India’s GDP is enabled by the likes of First Konzept, Vivahaa Caterers and Evergreen Modular and not from big companies like Bajaj. Most economies, particularly those of developing countries like India, march on the shoulders of small businesses, especially those involved in providing services. The numbers speak for themselves.
Globally, the Services sector contributes a whopping 75% of the global GDP and overall employment. India’s GDP composition, according to multiple sources, is as follows: Agriculture: 16%; Industry: 26%; Services: 58%. In other words, the Services sector contributes more to India’s economy than the other two sectors combined.
Not only is the Services sector the largest contributor to the Indian economy, it has also been the fastest growing among the three. Compared to its contribution of 58% to the economy today, the Services sector contributed only 33% in 1950s. Not only do these services MSMEs contribute mightily to the overall GDP growth, they have a powerful, multiplier impact on the local economies.
Unfortunately, the World Bank survey says India is one of the worst countries to both start a business (ranked 156th among 190 countries) and for ease of doing business (ranked 100th). It is sad to note that strife-ridden countries like Botswana, Iraq and Myanmar are ranked higher than India for ease of doing business.
As India emerges as one of the brightest economic spots in the new millennium, it should focus on ways to make help MSMEs, the most powerful driver of its growth survive, succeed and soar.
Service organizations vary widely in size. At one end of the spectrum are large companies such as airlines, telecoms, IT companies, banks and insurance companies. At the other end of the spectrum are an estimated 10-50 million Micro-Small-Medium-Enterprises (MSMEs) who offer myriad services in services ranging from astrologers to accountants, caterers to car cleaners, yoga instructors to musical bands, flooring contractors to roof leak repairers, interior decorators to movers and packers.
But, service sector MSMEs face four major problems as they seek to survive and succeed. The mortality rate of Services MSMEs is high as the accumulation of these four problems turns into existential crises.
1. Lack of sustainable work: The biggest problem most businesses have is they do not have enough customers and enough work to cover their fixed costs and earn an income.
2. Lack of Capital: Since most service MSMEs do not have hard assets, they do not qualify for sizable credit lines to invest for growth.
3. Absence of Affordable and Accountable Marketing Channels: Most mainstream media are best-suited for large corporate brands and are neither affordable nor effective for MSMEs who seek immediate return on their spending.
4. Excessive Regulation for Starting, Running and Closing a Business: India, still straining under the weight of socialistic conditioning and ethos, has byzantine regulations that make it very difficult for entrepreneurs who are deemed to rapacious.
Both central and state governments can do multiple things to make it easier for MSMEs to start and grow a business. Here are four specific ideas:
1. Availability of Uncollateralized Credit: Create or sponsor multiple streams of credit funding for legitimate MSMEs as most service MSMEs do not have hard assets against which to secure credit.
2. Free or Subsidized Education and Training in Business Management: Publicly funded colleges and universities must be set-up to create free or subsidized curricula for MSMEs to gain business knowledge and related skills.
3. Simpler Business Registration and Insolvency Regulations: Make it easier to form new businesses and to suspend operations or restructure with adequate insolvency protection as is the norm in most countries.
Sulekha has done extensive surveys on the SME sector – particularly those that are focused on local services. The survey shows that multi-crore annual turnover can be done by SME’s like the ones run by Bhuvaneswari, Ragavendran and Kavitha. However, the survey also highlights that that several local service MSME’s are stuck at a few lakh of turnover due to the impediments that Government can start solving.
The writer is Founder & CEO Sulekha.