By Songbedna Bauri: Strong infrastructural constraints in India have hit the SMEs as they have not been able to perform as per their full potential causing higher transaction costs and lowered competency, said Niranjan Hiranandani, president of Indian Merchants' Chamber (IMC) while talking exclusively to SME News. Moreover, various bottlenecks, such as insufficient capital, investment and also policy paralysis, are also impacting the profitability of the Indian SMEs.
Here are the excerpts from the interview...
What is the role that Indian Merchants' Chamber (IMC) aims to play in Indian SME sector? Niranjan Hiranandani: IMC’s role is to facilitate promotion of business in general by advocating the cause of trade, commerce and industry in general. Since SME is an important segment of the economy and a large chunk of the IMC members is from SME businesses, the sector becomes a focus for IMC. IMC plans to systematically identify the issues faced by SMEs and to explain to the sector how to equip itself to make the most of the changing world. IMC seeks to develop a holistic policy approach towards building sustainable capacities in the SME sector.
What are the current projects being undertaken by IMC? Niranjan Hiranandani: The projects which are being undertaken by IMC this year include: - India Calling China: IMC’s annual flagship event of business delegation in other country. - Fusion: Entertainment Galore - This is a new initiative by IMC. It is a conference covering sports, media and entertainment industries. Mumbai Development: A seminar involving leaders of political parties giving their vision about holistic development of Mumbai. A compilation of opinions will be published later. - 7th Finance & Banking Conference: IMC annual conference featuring current trends and issues in banking sector. - RuDICON (Rural Energy Security Through Distributed Clean Power Generation): This will be for India to emerge as future economic power house on the global firmament with adequate availability of energy to meet power shortages. - BRICS Cities Conference: A conference where a chamber and municipal authorities in each city of the BRIC countries are partners. It is going to be held in Mumbai this year in November 2012 hosted by Mumbai Municipal Corporation. - Skill Development Centres: IMC acts as a catalyst and facilitator in setting up of skill development centers. The first one was opened in Navi Mumbai recently. The aim is to facilitate establishment of 100 such centers for diverse skill streams. - Economic Research & Training Foundation (ERTF): Water, Education and Healthcare: IMC-ERTF is the research wing of the Indian Merchants’ Chamber used to promote applied Economic Research and skill dissemination through various training programmes. This year ERTF department will be undertaking research in the following areas. a) Water: ERTF is conducting research study on Investment Opportunities in India’s water sector along with RIRA. In this publication we are focusing on assessment to understand the water footprint and to identify the gaps in water resources management. We are illustrating on activities for creating a host of new investment opportunities for investors. Amongst other, this book will also capture review of the current regulatory policy, pricing mechanism, demand and supply usage of water, pollution, water treatment, infrastructure, case studies on best practices, investing opportunities across assets classes, evaluation of financing mechanisms and lastly recommendations for an enabling framework for investing in water project. b) Education: It is believed that India's economic growth is not generating enough jobs or livelihood opportunities. At the same time, many sectors face manpower shortages. To address both, we need to improve our education and training systems and create efficient and accessible labor markets for all skill categories; and encourage the faster growth of small and micro enterprises. To improve the education system it is necessary to identify the skill set, skill gaps vis-à-vis employer needs, understand the perception/attitude of the employers that will enhance the employability and even there should be proper demarcation of the role of academia, industries and policy makers in skill enhancement activities. Only reforms in the education sector can play a role of game changer for strengthening and sustaining Indian economy in the near future. c) Healthcare: Healthcare in India should raise the level of physical, economic and social access to balanced diet, clean drinking water, safe environment, and health care (preventive and curative) for every individual. For this both private and public health care organisations should look forward for effective partnerships for improving safety and outcomes of the common man by enhancing the healthcare infrastructure like more hospitals and dispensaries to be set up for the common man at affordable prices. - Arbitration & Mediation: IMC renders the services of institutional arbitration and also mediation for resolving commercial disputes expeditiously and economically. - Student’s Forum: Bi-monthly Seminars for students with eminent speakers needs to take place. The mentorship for students where each one of them will be placed for a day with a successful leader in the area of student’s study.
How do you think that the Indian SMEs are performing in the present global scenario? Niranjan Hiranandani: Their performance is mixed. On the one hand, competition brought about by the globalisation of the economy leads to an improvement in the quality of operations and products and services offered by the sector. On the other hand, there are tremendous infrastructural constraints in India leading to higher transaction costs and reduced competency, due to which our SME sector is not able to perform at its full potential.
What are the key challenges faced by the Indian SME sector? Niranjan Hiranandani: Our labour laws are terribly archaic, and until they are modernised, we cannot hope to compete internationally in manufacturing, particularly commodity manufacturing, which so many SMEs are engaged in. There is also an issue of SMEs not having access to adequate finance for their routine operations and growth. Introduction of new technology and technology upgradation are yet another challenge being faced by the SMEs. In the absence of these issues being not addressed adequately, SMEs are not able to define their core competencies and chalk out a competitive role for them.
Do you feel that government policies (both Centre and state) are working in favour of the SMEs? Are they assisting these companies in alleviating the pertinent issues? Niranjan Hiranandani: By and large, government policies are directed to assist the working of SMEs. However, more needs to be done. A major reason for it could be that the SME sector is mostly unorganised. Also, government does not seem serious about implementing labour reforms in the country, hence the viability of SME businesses in India is jeopardised.
What is the outlook for the SME sector in this year? Niranjan Hiranandani: The dependency of the SMEs on government policy is huge. If the policy paralysis continues, then the SME sector will continue to be hit. High interest rates prevailing in the economy are also deterrent to the growth of the SME sector.
Analysts feel that technology adoption by SMEs and marketing are problems for SMEs. How far do you think it is correct? Niranjan Hiranandani: India’s inadequate infrastructure and uncertain power situation (shortage in supplies and unscheduled power cuts) have led to a very limited technology adoption by SMEs. As far as marketing is concerned, it needs to originate some new ideas, which could be executed pragmatically, and be performed with the goal of achieving a healthy return on investment. It is debatable whether all this is really happening in India.
Recently, Indian government displayed its keenness to change SME definition to facilitate investments from Swedish furniture giant IKEA. What's your take on it? Niranjan Hiranandani: This kind of a move displays shortsightedness and has a touch of favoritism to it. Rather than changing definitions to benefit an individual company, it would have been better if the government had focused on infrastructure development, dispelling the notion of policy paralysis, beefing up the quality of governance, and bringing about a business-friendly environment all over the country.
Fitch downgraded the outlook for the domestic retail sector to "negative" from "stable". In the past other global agencies cut the outlook for India to negative. Do you think it will affect Indian MSMEs? Niranjan Hiranandani: It will affect Indian MSMEs to the extent that it will be harder for them to raise funds abroad. The downgrading of the country’s credit rating by international global agencies does not bode well for the domestic MSME sector.
RBI's move to leave rates unchanged for the second consecutive policy review has been criticised by India Inc. How do you think it will impact the growth of SMEs? Niranjan Hiranandani: Economic activity and investment are adversely affected in a high interest rate scenario. There is no doubt that higher interest rates are going to hurt the bottomline of SMEs, thus hampering their growth prospects. However RBI has expanded the availability of credit and hence there will be a covering of interest rates in future.
Kindly share the roadmap of IMC for the ongoing financial year 2012-13. Niranjan Hiranandani: The forthcoming events planned this year by IMC’s MSME committee are: - SMEs: Alternate Funding strategy - Workshop on ‘Skill Development and Enhancing Employability for the Youth - To promote Entrepreneurship among MSMEs - SME Clinic