AMC Theme of the year 2013-14

17TH ANNUAL MANAGEMENT CONVENTION

ENTREPRENEURSHIP, INNOVATION AND START-UPS

– REKINDLING GROWTH AND DEVELOPMENT

Introduction

At the micro level, entrepreneurship is a culture, an arena to test one’s product ideas for market acceptance and skills in managing people and markets. At the macro level, it is a mark of the level of socio-cultural and economic sophistication of a society. All societies cannot claim to be equally supportive and appreciative of private enterprises. Entrepreneurship is a great driver of economic growth and development. Any society that appreciates entrepreneurs and their sweat will accumulate more wealth and prosper faster than those which do not. For example, China, with 30 odd years of liberalisation, has seen the unleashing of its entrepreneurial potential. The private enterprises contribute 65% to its GDP of USD 8 trillion. It is an incredible growth.

Entrepreneur in India has to overcome a mountain of obstacles before he/she  can start operations or manufacturing. It is a long fight to cut the maze of bureaucratic rigmarole. But the one who overcomes this ordeal gets toughened by the process. That is, anyone who wades through the maze successfully is likely to last a while in business in spite of the cutthroat competition as it hardens him and makes him infinitely patient, though it saps much of his energy! The Government of India has taken this very seriously and a committee had been constituted to revamp legal and regulatory environment of the MSME sector. The Madhav Lal Committee submitted its report in September 2013.  That gives a glimmer of hope for the sector.

Kerala has a long history of aggressive search for new careers, new ventures and new land of opportunities. People had always been mobile and gone outside the borders of the state and the nation in search of jobs and ventures. But today, it seems the people have lost the tenacity to pursue the entrepreneurial mission, or the perseverance to accept the pressures of risky ways of business. The result is seen in economic sphere; the state is nowhere near the top entrepreneurial states in the country. There is a need to redouble the effort to promote entrepreneurial culture and a radical change in the society’s view of private enterprises.

Malabar has been lying low in spite of its long history of international trade and relations with countries in the Europe and Middle East. Travancore and Kochi were better positioned as they had the right mix of factors for industrial adventures. Malabar has been waiting all along with its sail for a wind to take it afar. But that did not happen. The people had pinned their hopes on the state and had been expecting successive governments to take the challenge of industrialising the geography. A number of industrial estates were set up, yet the entrepreneurial thrust was missing. The estates, though good in concept, were not the right place for start ups, at lease in hindsight. The state went on its own and set up ventures, though they were very few and they could not achieve the scale and prominence they should have to make any substantial impact. Finally, it was the turn of individual entrepreneurs to take the industry further on its growth path. The environment has not been that favourable to nurture entrepreneurship in a big way in the northern Malabar area. The youth preferred to work for others rather than working and earning for themselves as entrepreneurs.

The country faces a grim situation on export front. Imports cannot be cut without hurting domestic production and consumption. Unless the country exports more than it imports, the current account, balance of payment and the exchange rate will come under severe strain. India need to increase its share exports. For that it has to immediate address one of the gravest problems of declining manufacturing output. For that, there is a growing need to kick start more enterprises for manufacturing exportable products. The youth need to be taking up the challenge of raising industrial output of the country. The state may create a more conducive environment to stimulate industrial growth and ensure robust growth of its output. It is here the recommendations of the Madhav Lal Committee become relevant and significant.

Micro, Small and Medium enterprises are the most dynamic and vibrant segment of industrial economy. MSME sector, numbering over 48.8 million enterprises (2.6 million registered units, that is 95% unregistered) making up 80% of total number of industrial enterprises, employs 40% of the workforce, contributes 38.48% to the manufacturing output, 40% to exports and 7.42% (2010-11) to the GDP of the country with 8000 odd value added products and 84 million employment (Report of the Inter-ministerial Committee for Accelerating Manufacturing  in MSME Sector, September 2013, Madhav Lal, Chairman).

 

MSMEs have historically followed a kind of concentration geographically. TN, Maharashtra, Haryana have auto or auto ancillaries, Gujarat and Karnataka have textiles,  Andhra Pradhesh has more Pharma companies and UP, Cement firms. Kerala has a dominant share of traditional industries forming the MSME sector.

Kerala is still largely trade oriented. The much touted Kerala model of development has been making a virtue out of a major weakness of Kerala’s economic history of leap-frogging the industrial stage from agrarian to service economy.  The story is actually one of labour export out of the state and the country. The remittances helped the state to stimulate the demand for services. So what it should have experienced internally has been indirectly happening externally. That is, instead of working in industries inside Kerala, they gave their labour to industrial ventures outside the state and the country.

Now, Kerala has to have its own industries to sustain its economic activities and ensure growth in services in spite of its limitations. Trade has been the major forte for the state. Of late, Jewellery, textile shops, education and healthcare have been the fast growing areas in the state.  But they cannot sustain themselves unless manufacturing provides a backbone to them to lean on for support. Industrial sprouts are seen in IT and tourism. But a domestic manufacturing base should always be more desirable economically than services.

Innovation and Start Ups

It is here innovation props up to make life more comfortable and economic activities more efficient.  The word ‘innovate’ means to introduce new things, ideas or ways of doing something.  It makes superior quality products and services at lower costs. Creativity is at the heart of innovation. It is trying new ideas and proving that things can be done differently and more efficiently. Innovative societies forge ahead economically faster than less innovative. US, Japan and Philippines are more innovative than most other countries. In a recent survey of innovative nations, India was ranked 15th. Considering the number of people in the nation, this is quite unacceptably low. Our society needs to be more innovative. Not that we are intellectually low graded, but the enabling factors are woefully missing here. This is evident from the Indian Diaspora’s meteoric rise outside the country in the last two and a half decades. Microsoft, Pepsi etc. have Indian CEOs now. Indian women are breaking glass ceilings too frequently in large business firms as well. Our largest banks have woman stewards at the top.

The country has different problems compared to the Western or European countries. We need our own native and cost effective innovations to solve our problems. Jugaad innovations have the potential to collectively address grave issues. Yet the scale of such innovations is still low. MSME sector is actually the testing ground of innovations.

The Madhav Lal Committee Report on MSME  (Sept 2013) points towards a grim situation in MSME sector. It states that the MSME sector contributes just 7.42% to the GDP; its share in GDP, manufacturing output and exports has been slowly declining. This is an alarming situation. The report has recommended a long list of changes required to stimulate MSMEs in manufacturing.

MSMEs can bring in the required technology, innovations and much wanted management skills to achieve larger share of  manufacturing output. The World Bank Report 2013 on ‘Ease of Doing Business’ ranks India lower in easing regulations for start-ups, particularly with respect to construction permits, payment of taxes and enforcing contracts.

The Mitra Committee has estimated that promoting growth oriented entrepreneurship will require infusion of capital both in the form of equity and debt through angel investors, incubators, venture capital funds and banks and financial institutions to the tune of Rs 3 lakh crore (or around $55 billion) over the next decade.

94% of the total MSMEs (both organised and unorganised sectors) are micro enterprises with investment of less than Rs.25 lakh in plant and machinery. They need to be helped in scaling up. The sector needs more infusion of capital and talent.

Table 1:, Investment in  Plant & Machinery of MSMEs.

Type Manufacturing Rs.Mn) Services (Rs.Mn)
Micro <=2.5 <=1 mn
Small >2.5 to 50 >1 – 20
Medium >50 – 100 >20 – 50

Source: Micro, Small and Medium Enterprises Development (MSMED) Act, 2006

There should also urgent attention to introduce new technologies into the sector as the share of high tech products in the total industrial output is too low as can be seen from the table below.

Table 2:  MSME Share of High Technology Products in Total MSME Output

Country Share of High-tech products in Total output (%)
China

83

USA

76

Japan

66

India

23

Conclusion

Thank you

The right time for unleashing entrepreneurship was yesterday for India. The country needs to catch up fast with our larger neighbour in industrial and economic growth for a better and sustainable future. The country is fortunate to have a significant proportion of vibrant and talented youth. A substantial number of them have to be attracted to the MSME sector to meet the challenges of the time. The environment for the start ups has to be made conducive and inviting for the young Indians. Let us do what is possible at our level to help the country overcome its challenges.

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