Leading commercial banks hesitate to lend to micro, small and medium enterprises (MSMEs). The MSMEs on the growth path are overawed by the equity markets and latch on to the debt markets notwithstanding the travails that they are used to. Most MSMEs lack knowledge in accountancy and negotiating contracts. Negative growth in lending to the sector is worrisome as employment dwindles. Manufacturing clusters do not attract investors in the MSMEs for want of dependable infrastructure.
Attracting investments in the small enterprise sector in Telangana would depend upon general improvements, project specific infrastructure and effectiveness in implementing policies such as the amendments to the rules under the Factories Act, Labour Laws, TS-iPass, envisaged Sick Industries Revival and Rehabilitation Policy and establishment of Industrial Health Clinic as NBFC with a corpus of Rs 100 crore through private equity participation.
There may, sometimes, be a case for governments to protect enterprises in infant stages from unfettered competition. But such protection, not necessarily through tariffs that would protect all domestic enterprises to the same degree, should find ways to help innovators better than imitators. In many fields, the savings that sheer size once made possible are fading as new technologies make customisation cheap, inventories small and capital requirements low.
The State took full advantage of the existing IT infrastructure in creating a unique model in T-Hub and established Research and Innovation Circle of Hyderabad (RICH) to integrate laboratories to machine production. The continuing efforts to create manufacturing niche through investments that would anchor MSMEs would take at least another year or two.
So what are the reasons for the slow progress in Make-in-Telangana? The policy to reach grassroots requires robust institutional interventions. While the reach of the citizens to district administration has improved with more districts, insofar as MSMEs are concerned, the District Industries Centres (DICs) are not on the lips of entrepreneurs. Most DICs reaped comfort in releasing subsidies for transport vehicles and little for manufacturing because the latter requires officials’ guidance and effort.
Therefore, there is a need for renewed policy thrust and specific strategies to rejuvenate the State’s manufacturing sector in the MSME space. (See chart on Policy Prescription)
The DICs should survey each industrial estate and identify the infrastructure deficiencies. Such survey should be done through a Clean up the Corridor (Cutcor) Committee consisting of representatives of financing institution and technology, labour, energy and environmental experts.
The findings would throw up viability as well as infrastructure gaps. International funding institutions should be approached for sprucing up infrastructure within a set timeframe in PPP mode. The Cutcor Committee must monitor the effective and time-bound implementation of decisions by all the stakeholders. The other areas of focus include:
· Screening proposals of allotment of space for new enterprises
· Blacktopping of all main and sub-arteries in the corridor after estimating the load-carrying capacities of the trucks that pass through the corridor so that repairs are minimum
· All wiring must be underground through weather-insulated pipes
· All the corridors to be industrial zones
· Lung spaces, residential areas/complexes, heavy transport parking bays with full amenities, environment protection measures, including for air, sound and water treatment, must be evolved within the next six months – again through industry associations’ active participation.
· A road map with clear milestones should be prepared and implemented by the Empowered Committee.
· Each district should have one Rural Enterprise Estate with comprehensive forward and backward linkages, logistics, quality testing and branding facilities in the sub-industrial hubs networked with the industrial hub at the State level for market promotion and development.
Each industrial corridor must avoid miscommunication for diffusion of more efficient and appropriate technologies. To overcome such problems, networking of technology applications and knowledge bases is very crucial.
The existing knowledge centres, skill development centres and MSMEs should be brought under the fold of Telangana Industrial Technology Network (TI-Technonet), which should provide guidance and assistance in preparation of product and engineering designs, application of specific process technologies, managerial guidance, technology and market information. TI-Technonet should, in effect, be a network of:
Education, research and development institutions: Strengthen the existing R&D institutions and universities among others, and reorient their research and management courses to the requirements of the corridors. The industry would require more welders, turners and CAD/CAM operators. Existing technical education institutions should be fine-tuned for creating new courses and syllabi through an ongoing consultation with the industry. RICH would widen its scope to cover this aspect.
· State government: Ensure industry participation in consultation with industry associations in the Board of Studies of the universities
· Technology-based training institutions: Frame appropriate syllabi and review it on an annual basis three months ahead of the commencement of academic year.
· Testing laboratories: Should be established in all the industrial estates (existing and future) with industry associations investing in them under PPP.
The supply of basic infrastructure should always exceed the demand at all stages of development.
Though it is laudable to entrust the civic administration to the industrial area local authorities, these bodies cannot clean up the amenities to the levels from where it would be easier to maintain. Hence, the State government/TSIIC should bring the level of maintenance in most of the industrial estates in the State from where it will be easier for them to take off.
Annual returns on production by units must be submitted online. There is already a provision to this effect although monitoring mechanisms fall short. After providing an initial corpus fund required for carrying out these tasks, the government can pay for services and network costs. Small action groups can be formed for the purpose.
Model PPP agreements for the MSME sector should take into account the disabilities of the sector and should necessarily provide for an arbitration clause so that recourse to legal action by the involved parties is minimum and a last resort. Governments and PSUs under all circumstances must resolve the conflicts in payments and services only through arbitration within the framework of the Arbitration Act and MSME Development Act.
(The author is Adviser, Telangana Industrial Health Clinic Ltd)