The success of SME will determine how far Corporate India will contribute to the India Story
-By Ravi Vishvanathan, Director, PayMate (@ravivishi)
The question — What drives an economy: Large Enterprises or SME?
The Answer — It is always Enterprises AND SME.
Why Small Businesses are important for Corporate India?
Medium & Large Enterprises have the advantage of large pool of capital, easy access to credit, huge marketing reach, access to best of human resources, ability to withstand downturns etc. Does it mean that over a period of SME role in the economy will diminish and SME will be marginalized as a sector?
Corporate India’s growth story is largely fueled by internal consumption and this is one of the prime reasons why a large economy like ours can be relatively immune to global shocks compared to export driven economies. With Trade Balance between countries becoming a major factor in their commercial relationship, in the medium to long term large internally driven economies will be better placed than export driven economies.
Civilisations that thrived in the past had one thing in common. A strong base of entrepreneurs who were willing to take risks, identify opportunities, provide employment and generally drive consumption. Such skills have been passed on through generations of Indians and to a large extent still drives the economy from an employment and consumption perspective.
With technology disrupting businesses all the time, any country that thrives only on large businesses and has an insignificant SME runs the risk of decline in job opportunities from a medium to long term perspective. For the best part of its history, Indian civilization thrived mainly due its large pool of small entrepreneurs who had trade and commerce in their DNA and spread their wings as far as Sumatra, Indonesia, South Korea etc.
In the current scenario, the large enterprises derive their consumption demand from the masses who to a large extent find gainful employment in the jobs provided by SMB. Corporate India can no longer be looked up to for gainfully employing the large number of engineers, accountants and other skilled and semi-skilled people who come out oven fresh from our universities year after year. And the large SME sector encourages many of these youngsters to don the entrepreneurial cap pretty early in their lives. This reduces the burden on the economy from a job perspective and also opens up the window of employment by these small businesses.
The effective leader understands that a disruption to stability is sometimes necessary for growth (or even survival)
Small Business Entrepreneur — How to support and encourage?
The two most important elements of any small entrepreneur are:
a) Availability of Finance
b) The regulatory and business environment
Easy availability of small ticket loans and innovative working capital finance at a reasonably competitive rate is extremely important for small businesses. Banks have been unable to devise suitable products to finance the SME sector. Where the banking sector has provided finance, it has been accompanied by lot of paper work and requirement of collateral security. SMEs are weak on both and asking a small entrepreneur who is jut commencing his/her journey to provide collateral security is a big discouragement for entrepreneurship.
Government has largely grasped the need to address this issue and has devised schemes to address the finance needs of SME. Govt schemes always have their own limitations and is largely a top down scheme which has its own challenges. The Working Capital Gap in the SME sector, as per a RBI Report is a whopping 365B USD. The existing banking set up is ill equipped to address the need. The mushrooming Fintech sector is coming out with innovative finance products for SME and can address this gap to a large extent. It is important not to over regulate Fintech lending as technology based digital lending is still evolving and needs to go through several rounds of successes and failures before it matures. The interesting thing is that the fintech lending space tries to address the finance requirement of SME and at the same time is also largely in SME sector itself. Thus, it plays a dual role of generating employment and also simultaneously helping SME to grow and provide further employment. While Fintech lenders may be regulated from a funding perspective to ensure that gullible small savers are not caught in any devious schemes, it is important that such fintechs are actively encouraged through less interference by govt and its tax and inspection agencies. And most importantly with a tax regime that is transparent and just.
We shouldn’t be afraid to be disruptive — we should be in charge of our own disruption — Alberto Aguayo, Cisco
