An insider’s account of the success, failures and travails of this key segment of the economy
It is quite fashionable, in public forums, to hoist India’s micro small and medium enterprises (MSMEs) on to a lofty pedestal by describing them as the ‘life-blood’ or the ‘steel frame’ of the economy.
But after showering such accolades, the debates usually descend into the superficial. The tendency to lump all of India’s 63 million MSMEs with over 6,000 different products under one umbrella, over-simplifies both the diagnosis of their problems and the solutions needed to address them.
In the circumstances, it is good to see a seasoned practitioner like Yerram Raju, who has spent three decades as a banker, taught in industrial training institutions, advised RBI committees and has been hands-on in MSME rehabilitation, write The Story of Indian MSMEs — Despair to Dawn of Hope. Without dwelling too much on how MSMEs came to contribute 25 per cent of India’s GDP and 40 per cent of manufactured output, the book dives straight to its subject matter, which is the problems besetting MSMEs and what can be done to address them.
Much of the data and academic material on Indian MSMEs currently in public domain are dated. This book fills this information gap by examining the policy environment, enabling institutions, access to finance, and exit policy for MSMEs in the current context, with a lot of attention given to post-2016 interventions.
Not money alone
The chapters discussing MSMEs’ access to finance offer insights on why many small enterprises tend to be so precariously placed on their finances, despite myriad schemes to assist them. The author, without mincing words, criticises the alacrity with which Indian banks declare MSME entrepreneurs as ‘wilful defaulters’ and invoke the SARFAESI Act against their assets, at the first sign of distress. This is certainly at odds with the kid-glove treatment they seem to accord to big-name defaulters from India Inc.
At the same time, the book argues for tighter monitoring of the end-use of funds lent to MSMEs by banks, that can curb funds diversion and keep entrepreneurs on their toes. It also clarifies that while lack of access to finance is one of the issues holding back MSMEs, it is far from being the only hurdle.
Inadequate market research before launching products, adoption of outdated technology, lack of marketing prowess or brand investments and even external risks such as natural disasters or sudden regulatory shifts can all sound the death knell for a well-funded enterprise.
Warts and all
In fact, a striking feature of the book is the balance it brings to the subject, by focussing on the shortcomings of MSMEs and their founders along with the travails they face. For instance, in profiling the risks that lenders face in bankrolling MSMEs, the author puts entrepreneurial risks foremost.
He highlights how the downfall of many a small enterprise arises from an over-confident entrepreneur’s desire to ‘squeeze oil out of sand’ by opting for second-hand machinery or cast-off technology which results in unmarketable products. The price of this misstep is often borne by lending institutions.
He also highlights how the use of obsolete technologies leads to small enterprises contributing 70 per cent of the total industrial pollution load, despite chipping in with just 40 per cent of the output.
Drawing on his experience as a lender and now as part of the Telangana Industrial Health Clinic initiative to revive MSMEs, Raju presents over a dozen case studies that offer good insights on how and why MSMEs succeed or trip up. There’s a wrenching account of partners in a transformer firm with an excellent record being declared as ‘wilful defaulters’ by the bank, after the firm’s funds were siphoned off by a fraudulent partner inducted on the recommendation of the relationship manager from the very same public sector lender.
There’s also the story of an established diesel pump manufacturer having to run from pillar to post between banks and the State Financial Corporation for one-time settlement of his dues, after the 1999 cyclone interrupted his order flows. There’s the case of the retired scientist who launched a project for edible spoons without much market assessment and availed of finance from multiple banks as well as crowd-funding, before landing in jail with mounting dues.
There are also heartening cases of MSMEs that made good. The common thread that runs through them is their unerring commitment to product quality, efforts at talent retention and a willingness to adopt state-of-the-art technology and machinery without trying to cut corners on initial capital costs.
On the downside, despite the alluring title, the book’s treatment of its subject is far from storybook like. More than an account of the evolution of Indian MSMEs over the years, it is an attempt to inform policymakers about the key facets they ought to focus on, to set MSMEs up for success.
While the academically-oriented writing lends analytical depth, it also detracts from it being an easy read. This book isn’t for the layman reader hoping to learn the ABCs of MSMEs. In an effort to pack a lot of content into the 219 pages, the author alternates between text, bullet points and tables. These shifting formats interrupt the flow for the reader. While the book dissects some of the recent policy prescriptions for MSMEs such as MUDRA loans and the bank restructuring package in some detail, other initiatives such as the Trade Receivables Discounting System or the 59-minute loan are rather cursorily dealt with. One would have liked to have more insights on the workings of these much-hyped interventions.
But then, a problem well-stated is half-solved. On this score, this book is a very instructive guide to both policymakers and participants in the MSME ecosystem who would like to acquire a deep understanding of the real-life issues faced by small entrepreneurs in this country.