Tuesday, April 21, 2020

Make in India Needs to Account for Make in MSMEs Too



Pic Courtesy: Times of India
News came in today of the government going all out to woo industries willing to move out of China. While I like the effort going on and find out timely, there are a few things that people really need to ponder over as we move forward. A step back is also needed to understand just where we stand and what we need, especially with respect to potential wave of industrial expansion that we are aiming for.

Market Size and Currency Valuation
People in government machinery cotinue to overestimate the ability of Indian market to absorb things is overstated. Some of our best industries were really earning from exports. Textiles, auto, ceramics, pharma - you name it, the export earning is big.  Also, analysts like Sajid Chenoy and several others have regularly pointed out also that India has really seen growth in the past two decades when two factors converged:

1. Export oriented units, especially MSME sector boomed and got big orders
2. Rupee's real value came down, and was not artificially propped up, enabling cheap exports.

These thoughts really need to be considered by the government as a hard political choice. Whether the government can digest it needs to be seen.

High Production Costs and Raw Materials- A Bugbear
Keeping these factors aside, one has to realize that the cost of several things remain high. You haven't been able to reduce cost of automotive component parts in India. Or ensure that even bicycle spokes are cheap - Sri Lanka and Bangladesh  makethem cheaper, to give you context. This, when the cycle industry in India was a happy story. FTAs are one thing but we really have to figure out how to leverage scale.

Another issue, raw materials, are a true challenge. An industry like chemicals gives a sobering assessment about the entire world, not just India - China produces almost fifty per cent of the most commonly demanded chemicals. Even in industries like pharmaceuticals, China captured the Active Pharmaceutical Ingredient (API) space. We don't even necessarily make Vitamin C in India, just think about it. Both of these industries essentially closed down in India with time. Whether we can revive them is a question mark that needs to be seen.

Low Cost Manufacturing - Nowhere to Be Seen
The inability to do low end manufacturing of raw materials and basic goods at low enough costs is something that can harm India's ability to attract investors. Big companies don't make buttons and zips, but small ones. Nearly every button sewn, every zipper.attached to a pair of denims in India today is Chinese, to put things in perspective.

This is where a refocus on the MSME sector is critical in India. I am not saying we should become mom and pop stores; however, the need to get more such MSMEs who actually manufacture at low costs with quality is essential to create the hub needed. Question is, are we ready?

Concluding Thoughts - Paradigm Shift on MSME Needed
I had recently stated that the MSME sector is literally in doldrums. COVID 19 had definitely hurt it, and the sector needs support. It is in the government's interest if it really wants to create jobs now to ensure this sector doesn't collapse.

https://www.twitter.com/Rohit79564935/status/1249977802801025024?s=19

Moreover, the government machinery's understanding of MSME really needs to change. ₹5 crores turnover criteria really need to be revised - not everyone is making papad and churan, and even those have higher turnovers than that. Manufacturing based MSMEs will certainly have far bigger turnovers, and so all kinds of benefits that have to be given really need to be given to such MSMEs as well.


Make in India has to start again. But for that to happen the MSME sector really needs to be treated better. Government babus need to stop treating MSME as an afterthought. Viet Nam and Bangladesh have become big precisely because of their local MSMEs. We could too, but conditions apply.

No comments:

Popular Front of India - What is The Organization All About?

Image Courtesy (DNA) As the Delhi Police filed a chargesheet in the court with respect to the mayhem resulting from the Delhi Violenc...