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MSMEs closing down a warning sign to the government
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Some of the reasons for the shutting of MSMEs are soaring raw material shortage, rising labour costs, scarcity of skilled labour, harassment by officials, delayed payments and lack of timely, adequate and sustained governmental intervention

March 23, 2023 11:45 pm | Updated March 24, 2023 07:58 am IST

A view of the Peenya Industrial Area in Bengaluru.

A view of the Peenya Industrial Area in Bengaluru. | Photo Credit: K. MURALI KUMAR

The industry fraternity has always had concerns that remain unaddressed, but the present situation, as far as micro and small-scale industries (MSEs) are concerned, is such that one wonders if this general trend has hit a critical mass. In Peenya Industrial Area, nearly 15-20% of over 16,000 MSEs have shut, according to a rough estimate. If you survey all the MSEs State-wide, you may find the situation even more alarming.

There are many reasons for this, like soaring raw material shortage, rising labour costs, scarcity of skilled labour, harassment by officials, delayed payments and lack of timely, adequate and sustained governmental intervention.

Systemic problems

At the outset, we have to also acknowledge that the State government is indisputably well-intentioned. However, the problem is more of a systemic nature, and we need to go beyond good intentions.

The Karnataka State Small Industries Development Corporation (KSSIDC), which is one of the reliable suppliers of raw materials at affordable rates to the MSEs, has stopped supplying them for the past nearly two years now. The other source — the National Small Industries Corporation (NSIC) — is seen to be irregular and unreliable, due to inadequate stocks, and not customising the quantity of supplies needed.

Labour costs have risen mainly due to inflation, the high price of fuel and bus/metro fares, the continuing increase in prices of essential commodities and also high rentals. Many people are reluctant to work in MSEs because of the IT culture and they demand high salaries as an incentive.

On top of this, there is a stark scarcity of skilled hands. While the government has taken a lot of steps towards skill development, it will take more time for the results to percolate to the ground level, assuming that they will indeed pay off.

Add to this, the thinning margins for a small entrepreneur due to high overhead costs, like frequent hikes in power tariff, property tax, and high rentals. The latter is perhaps the biggest disincentive because nearly 90% of the MSEs operate in private industrial areas as government industrial estates set up by KSSIDC/ KIADB cater to barely 10% of the demand for industrial sheds/plots.

Plight of small entrepreneur

The government has repeatedly assured us that industrial estates will be set up in all districts and taluks, but there’s a wide gap between assurance and implementation.

The ordinary citizen is probably unaware of the sacrifices and the plight of the small entrepreneur. To give an example, industries in Peenya were told to shift to Greater Peenya Industrial Estate in Nelamangala as part of efforts to decongest Bengaluru. Now, who would imagine that an entrepreneur, with a settled business, clients and workers, would agree to shift to a far-off place, as it would have clear repercussions on all these factors that drive their business?

But many agreed and shifted to Nelamangala, paying an exorbitant sum for allotment of an industrial plot, for which they borrowed heavily at high interest. Even the allotment was delayed for years and their business was virtually left high and dry for years! The situation has improved now, but the state of infrastructure at Nelamangala is a far cry from what was committed to by the government.

Harassment by officials of the Karnataka State Pollution Control Board is another common complaint. The MSEs are slapped with a notice on some or the other ground and the industry owner is left to handle such prickly problems at the cost of the productivity in his factory.

Another perennial problem is the delayed payments for supplies made to PSUs, large organisations, etc. Despite government initiatives to ameliorate this situation, delayed payments continue to haunt the MSEs and affect their cash flows and their bottom line.

What govt. should do

The critical question to ponder over is: what should the government do to bail out the MSEs? The answer is not in announcing more schemes but to tighten the implementation and monitoring mechanism so that good intentions turn into reality.

The best way to improve the implementation architecture is to involve industry associations in the monitoring mechanism. This has to be done in mission mode and systemically, reducing the scope for arbitrary human intervention, and at the same time, allowing for creative ways to handle the grievances of the small entrepreneur.

(The writer is President, KASSIA, and a veteran entrepreneur)

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