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Exim Bank study calls for greater institutional support to SMEs

S.D. Naik

THE recent Exim Bank study `Institutional support to SMEs: A study of select sectors' (Occasional Paper No.76) has once again highlighted the need for greater institutional support to small and medium enterprises in the country. The latest study build s upon the findings of Exim Bank's previous Occasional Paper entitled `Institutional support system for SMEs in India and international experience'.

It concentrates on three important sectors namely, leather, auto-components and ready-made garments and examines the role of institutional support infrastructure in three key areas of finance, marketing and technology.

The Exim Bank study is based on a primary survey of 50 Small and Medium Enterprises (SMEs) across three industry sectors with `in-depth interviews' with a representative sample of SMEs selected from clusters of leather, auto-components and readymade garm ent sectors located at Mumbai, Bangalore, Chennai and Tirupur.

All the three sectors occupy not only an important place in the Indian economy but have great export potential. The study comes up with some valuable suggestions based on the comments made by the SMEs contacted.

In the case of leather industry, it is among the major providers of employment and foreign exchange earners for the country. It employs some 1.4 million people and accounts for seven per cent of the country's foreign exchange earnings.

Within the leather industry, the Exim Bank study focuses on leather footwear and footwear components which constitutes about 34 per cent of the total leather and leather products exports of the country. As the study points out, leather industry is much b etter placed compared to many others so far as the institutional support system is concerned.

However, the study found a surprising degree of consensus among the surveyed firms about the limited use and efficacy of the national level associations like the Council for Leather Exports (CLE) or the All-India Leather Product Association (ALPA) in res olving the problems faced by them. Most respondents felt the need to develop strong local level associations around their cluster to take care of common problems.

The study suggests undertaking quality upgradation and certification programmes to help tanneries reach ISO 14000 standards so as to enhance the export competitiveness of the industry. It also wants Government to promote formation of consortium marketing infrastructure to help SMEs get better price realisations.

In the case of the auto-components industry, the study highlights the absence of dedicated support institutions in the field of marketing and technology. Absence of contemporary technology, small market size and non-availability of inexpensive world-clas s testing and product certification services are some of the problems faced by the SMEs in this sector.

The study, therefore, recommends setting up of institutions for process engineering research to help upgrade the level of production technology, while encouraging tie-ups and joint ventures to facilitate access to modern technology.

In the case of readymade garments, a major constraint encountered by SMEs relates to timely availability of quality fabrics, trimmings and embellishments. The study, therefore, suggests setting up of facilities near clusters to make availability of impor ted inputs easier.

It suggests promotion of industrial parks for apparel/garment manufacturing to encourage evolution of new production clusters with specialised infrastructural facilities and common services for providing cost-effective support to SMEs.

The findings of the study highlight the need for better and more effective co-ordination among the various institutions that have been set up over the years to help the SMEs in their production and export efforts. The suggestions and recommendations are timely in the context of the business environment becoming increasingly harsh for the small-scale industries (SSI) sector, post-liberalisation, thanks to increased internal and external competition.

The Minister of State for SSI, Agro and Rural Industries, Ms. Vasundhara Raje, has stated that the Centre is committed to announce a comprehensive policy for small and tiny industries within the next three months.

In the context of the WTO conditionalities and the phasing out of quantitative restrictions on imports, the concept of reservation of products for the SSI sector has lost its relevance altogether.

Hence the policy focus will have to shift from protection to promotion as already suggested by a number of expert committees. Hence the Exim Bank study's recommendation for enhanced institutional support to SMEs assumes significance.