WANTED: a level playing field for micro, small and medium enterprises

A National Workshop on the provisions, linkages and possible impacts related to India’s Free Trade Agreements and Micro Small and Medium Enterprises (MSMEs) was recently organized in Delhi, by Third World Network, in partnership with Traidcraft Exchange (UK) and Shramik Bharti, (Kanpur) and supported by the Commonwealth Foundation, Network for Social Change and the Heinrich Boll Foundation. The purpose of the workshop was to flag issues related to free trade agreements (FTAs) and facilitate a dialogue between different stakeholders with a view to protect the interests of MSMEs in FTA negotiations, by playing a role of intermediaries between government and entrepreneurs. However, the presence of a mere 5 entrepreneurs in the workshop, did rob it off some valuable inputs.

The lively discussion brought forth several diverse viewpoints on the ability (or inability) of MSMEs to compete in the domestic as well as international markets despite the FTAs. It was agreed by all that MSMEs are important bricks of our economy, and as most of them are in the informal sector, (with about 94% of them still unregistered), they must be given a proper environment and infrastructure to develop and equip themselves to face new challenges. Entrepreneurs like Ms Rama Devi of Association of Ladies Entrepreneurs of Andhra Pradesh, and Mr Anil Gupta, Past President, Indian Industries Association, Lucknow, lamented the existing unfriendly/faulty government policies plaguing these labour intensive enterprises. They pleaded to get rid of the hidden FTAs existing between different states of the country (by way of difference in taxation rules) and to ‘let us set our own house in order first to enable us to compete globally.’

Ms Rama Devi wondered how MSMEs could compete in the world market with the existing 14.5% high interest rate of borrowing in the country. She wanted the government to act as a facilitator by making friendly policy interventions to help them to grow vertically rather than horizontally. According to her, “Capacity building is not happening in our country. Fair trade practices do not happen in our country. We forget that the consumer is important and has a right to access properly certified products. Many small industrialists do not know the importance of IPRs and do not care for IPR certification. So we need facilitating centres, not only in Delhi but in all regions. We should also have agencies that give globally recognized certification.  Also, there are appalling gender biases in a sector which employs 10 million women. Instead of being gender sensitive, we allow for wide spread disparity between male and female workers even in wages. Such and other unfair trade practices need to be removed.”

Ashim Roy, NTUI, New Delhi, also felt that unless minimum wages are paid to workers, labour intensive businesses cannot excel. So there is a need for wage subsidy, to have a synergy between capital and labour.

Mr Anil Gupta wanted a level playing field, and not subsidies. Holding the government responsible for the current dismal situation of MSMEs, he admitted candidly that, “We are fighting with our own government for infrastructural facilities. Our inputs are costly and products are cheap. I have to pay 13.5% tax, but the same goods from another state invite just 2% tax. We have become very brand conscious when it comes to buying, but we do not make any brands of our own. Gen Next is not coming in the manufacturing sector which is a scary thing, and something drastic needs to be done to reverse this trend.”

Abijit Das, Director, Centre for WTO Studies, New Delhi, strongly felt that “Poor finances, lack of business linkages, and absence of strong lobbying voices are major handicaps plaguing MSMEs. Still, by putting proper government policies in place, and by disseminating available information (like the Inverted Duty Structure software) they can become aware of the export opportunities which FTAs may throw open to them. He was upbeat about the gains they can make from Intellectual Property rights and niche markets based on geographical indicators. This is a protection accorded to communities which produce products unique in character, with the uniqueness arising from the place where they are produced-- like the Benarasi Sarees, Bhadohi Carpets, Lucknow Chikan embroidery, just to name a few. Production of these niche products can give them a considerable share in the foreign markets. They also have the opportunity of becoming part of the international production network which will help them to increase exports. Within the country, the best practices of SME clusters doing well in particular areas (like tourist service providers of Rajasthan, or pottery makers of Khurja) will have to be adopted by the others after proper modification by learning from and emulating leaders—like tourism service providers in Rajasthan and pottery producers of Khurja.

According to Professor Dev Nathan from Institute of Human Development, New Delhi, the main concern should be how to upgrade these enterprises, and not how to protect them. There can be a temporary period of protection (subsidy) which must be phased out gradually over a maximum period of 5 years, during which time the enterprise will have to upgrade. The culture of permanent subsidies will have to go, and the policy should centre on increasing their generally low productivity and improving their appalling labour conditions.

Manab Majumdar, Assistant Secretary General, FICCI, New Delhi, dispelled the notion that MSMEs cannot withstand the onslaught of free market concept and bilateral trade agreements which are there to stay. His sane advice is to adopt and adapt in order to minimize the risks and maximize the benefits, and not have a defeatist attitude. According to him, “MSMEs stand to benefit from FTAs for two fundamental reasons—(i) A regional/global production network and (ii) New trade dynamics resulting in diversification of the new trade markets. Trade diversification can only help MSMEs. We must participate in the production network and become part of the global value chain. We need to emulate Korea and other countries of Asia where small enterprises have gained more from FTAs than the big players.”

Dr Biswajit Nag, Associate Professor, Indian Institute of Foreign Trade, New Delhi, felt that, “There are opportunities for Indian MSMEs but they are not able to take advantage of them. Information gaps create problems for entrepreneurs to take advantage and procedural hazards are cumbersome. Funds allocated are often underutilized and not flowing to the sector for which they were meant.
Major problem is lack of awareness about FTAs in MSMEs, who are resource and technology hungry.”

So it seems that the biggest challenge these small enterprises face is from our own domestic policy and not from FTAs alone. Bilateral trade agreements bring challenges as well as confidences. Assured domestic markets should not make MSMEs lethargic in improving performances. It is for the MSMEs to decide whether they want to dilute standards or upgrade them to international levels. They should use evidence based tools and take innovative steps to improve their working practices in order to protect their interests in FTA negotiations and enable them to take advantage of the opportunities that may arise. Information and awareness is vital. The government should extend facilities and provide an integrated approach for uplifting MSMEs so that they can stand on their own feet and face the challenges posed by FTAs.

In the words of Mr B.L.Das, India’s former Ambassador to WTO—“This is the right time to come forward and be vocal to pressurize the government to formulate proper policies and provide necessary infrastructure for proper functioning of MSMEs. With elections round the corner, the government is sensitive to public opinion. So it is high time the MSMEs shouted hoarse in order to get heard. The baby who cries the loudest gets the milk.”

Shobha Shukla - CNS
(The author is the Managing Editor of Citizen News Service (CNS). She is a J2J Fellow of National Press Foundation (NPF) USA. She has worked earlier with State Planning Institute, UP and taught physics at India's prestigious Loreto Convent. Email: shobha@citizen-news.org, website: http://www.citizen-news.org)

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