During my road trip to the country, I have observed that many SMEs in India are in bad shape. Short-sighted government policies in the past is one of the major reasons is for this.
Local governments driven by vote-bank politics had promoted such industries with subsidies and tax incentives, which were not viable due to lack of proximity to markets or nearby input material availability and other reasons. And SMEs got established because of initial subsidies. Subsidies gone, businesses does not make commercial sense for those products.
However my observations may not be correct for many SMEs in coastal areas.
So for the industries which are completely unviable without subsidies should not be supported in these areas.
Subsidies and encouragement, that too only in the beginning, are needed for viable industry clusters & value chains.
The SMEs or such sick industries who were there for subsidies usually have recouped their investment and made the money in good time so government should try to help them to adapt to new technology, products & markets rather than giving unending subsidies so that local employment does not get affected by their closure.
Businesspersons in India always Complain when they make losses for one or two years, they never count that for six years in past they would have made hefty profits and bought land, houses and luxury SUVs, part of which should have been invested by them in R&D. The Government should put level-playing field for even foreign SME players in India and you will see that Indian SMEs get competition. And Indian SMEs will do well in competition and ride to global markets. Given the protected environ in India, they don’t do that.
More than ill-thought out government policies, existing businesses in India resist foreign companies establishing factories in India as they fear they will lose business. Many such examples are there in India.
In my view, foreign companies should be encouraged even in those areas where India is strong at present. It will benefit Indian labour, educated unemployed, Indian banks, Indian revenue department, Indian investors and many stakeholders. It will only be negative for inefficient, family owned, rigid Indian factory owners. Foreign competition will bring in higher productivity, better quality and more exports.
That’s what china did for the first 20-25 years. At that time, China did not have many local entrepreneurs. So they welcomed and supported every foreign company, even job seekers that helped them build today’s China.
India is way behind in Quality. Many Indian SME owners do not want to invest in new technology, new equipments and R&D and hence can’t compete in exports. Its true mostly for family-owned single decision maker company.
India needs a paradigm shift. Highly talented, educated technocrats in India from non-business families hardly move to manufacturing. They should be encouraged and supported to be entrepreneurs.
India needs free for all entry for 5 -10 years and afterwards may control, like China did.
India should have a pilot-free zone similar to what was Shenzen had 30 years back. We should allow every investor without any government or local business resistance. Make it global.
India needs a paradigm shift. Highly talented, educated technocrats in India from non-business families hardly move to manufacturing. They should be encouraged and supported to be entrepreneurs. They will take care of labour, technology, environment, quality and exports better than traditional entrepreneurs. Such measures however will negatively impact rigid family-owned businesses. But positive benefit will go to over 20 people for every negatively impacted person.
With more educated urban mass voters, such policies suit the development politics agenda rather than earlier vote bank politics.
China hardly had many millionaires by 1990s & today officially they have over 350 billionaires, mostly did start from scratch. We should try and understand and replicate what ground level work China did to make this happen.
The comments from many Indians that China is not a democracy so they can do it and India cannot do so — is only an excuse.
(The author is Jagat Shah, CEO & Mentor, Global Network)