13 Rules that would Facilitate Vertical Growth and help Gain Competitiveness

b. Promoting linkages between large and small industries is vital for future development

c. Identifying strategic sectors of proven comparative advantage – as targeted in the medium – term cannot effectively be spread too thin over a wide range of sectors. Selective strategies need to be adopted to build on the strengths of SME sector.

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d. Total R and D expenditures in SME sector is 8.6% of total national industrial R and D expenditure. There are only 258 in-house R and D units in the SME sector. Any significant increase in this item of expenditure does not come under the actionable subsidies. Such expenditure also enhances the competitiveness of the SMEs.

e. A detailed study of the implications of the WTO provisions, conditionality’s and deadlines need to be made to make associations fully aware of the real opportunities and challenges as against the perceived ones.

f. Sub-contracting exchanges and franchises have tremendous scope as no multi­national company would produce any intermediary product or spares that can be out-sourced to a more economically producing SME. It is, however, impor­tant that they should learn to conform to quality uniformly and on a sustainable basis.

g. Government can develop a database with updated information about changes in the flows of world trade, foreign markets, international commodity prices, demand patterns in exports and imports from developed and developing countries

h. SMEs have to be encouraged to take advantage of the immense potential of e-commerce on the aspect of rules and regulations, simplification of procedures is a long- felt need and there have been several initiatives taken by states with regard to clearances – Single Window System. These initiatives are to be pursued and made more effective.

i. It is essential that entrepreneurs are aware of all the important policy interven­tions initiated for SMEs and the changes at the domestic and international levels.

j. There is also a need for policies to be designed to deal with sub-sector-specific problems within the SME sector. This would constitute a more effective targeted, industry-wise segmented approach which would be tailored for each sub-sector’s requirements.

This requires identifying industries exposed to different degrees of risk from international competition based on their competitiveness. Support to low-risk industries by way of promotional measures would differ from longer- term interventions for high-risk industries (such as those facing stiff competition from TNCs for example).

A study by WASME has examined selected sub-sectors within the SSI sector which are worth watching, which need active encourage­ment from the Government and institutions for SSI development, though it is recognised that the potential of a sub-sector to become globally competitive will change as a result of changes in the domestic and global economy. Sub- sectors which may have a major role to play in the future are: readymade garments, leather footwear and goods, electronic components, processed foods, and automotive components.

k. Tiny industries (with fixed investment below Rs. 2.5million) are likely to emerge as the dynamic segment within the small industries category. Their flexibility will prove to be an advantage at a time of rapid economic change bringing about changes in demand patterns.

l. The future outlook will also provide an impetus to women entrepreneurial activity and the development of entrepreneurial centres targeted specifically for women.

There is clearly immense scope for framing policies aimed at promoting the development of SMEs in the changing economic environment. What is at issue is not whether supportive policies go against free market norms, as there is no such economic category as a complete free market existing anywhere in the world; what are important are the kinds of policies or policy combinations that would be appropriate to enable SMEs to reposition themselves for the economic challenges ahead.

The future outlook is one where the role of the State in individual economies is beginning to change significantly, and where the WTO, as a supra-national body regulating international trade through legally enforceable agreements can have a direct bearing on the domestic policies of member countries.

The shift of the State’s role to facilitator is certain to have an impact on the development of the small sector that has been accustomed to receiving some degree of protection and promotion from the State. It is for this reason that the choice of regulatory and promotional policies, the balance between the two, and their overall effectiveness will determine the future of the SME sector in India.