'SMEs have not suffered for want of policy initiatives'

Dr Krishna Tanuku, who steers the Wadhwani Center for Entrepreneurship Development at the ISB, is clear that there has been no dearth of policy initiatives for the SME sector in India. While course-corrections may be warranted, SMEs must focus on value creation and linkages among themselves to face the challenges of global competition. The renowned computer scientist spoke to ET on the challenges and the road ahead for this sector.

What are the challenges of the SME sector during a downturn?
The sector faces several challenges including such as limited access to finance and credit, besides hindrances in the form of taxation. These cannot flourish as standalone entities. The critical challenge is the process of value creation and establishment of linkages among SMEs. We need have an ecosystem that fosters linkages especially in sectors like agro-processing. Creative use of technology and adapting to IT services models like pay-as-you-use will help SMEs scale-up.

Have policy initiatives delivered?
SMEs have not suffered for want of policy initiatives but there is a case for re-directing archaic ones. Take the case of over 1,500 firms that have been declared sick in Andhra Pradesh. Some of them turned sick, perhaps, due to lack of proper management inputs. Once we understand the systemic problems, it would be much easier to revive these firms through working capital support from banks. Policy initiatives are not the panacea and perhaps the government could set a time frame to end outdated incentives.
What has been the impact of the economic downturn on SMEs?
Too much is being made out of the downturn considering the economy is expected to grow by around 6-6.5% this fiscal. I envisage a significant growth in the SME space over the next four to six years. Opportunities abound in education, manufacturing, transportation and agro-processing. While innovation will foster growth, brick and mortar firms need to adopt simple practices like managing their inventories and improving their supply-chain management to become more efficient.

What about innovations?
Technological innovation was, perhaps, not the key driver for growth of small businesses in countries such as China, Korea, Thailand and Malaysia. In Taiwan, the business model revolved around making electronic components at low cost to swamp the market. SMEs in India lack innovation in many areas, especially in the manufacturing sector. We need to have a transparent system of rating SMEs on their ability to innovate. These enterprises need to have a sound business plan that will ensure value creation to compete in the global market. Academic institutions like the IITs, IIMs and ISB can facilitate their scrutiny to improve their effectiveness.

What is the road ahead for SMEs?
Entrepreneurs running small businesses often tend to be inward looking. But the spin-offs will come only when the pie grows. There has to be greater awareness among SMEs to move up the value chain. Entrepreneurs also need mentors to help them understand business models to penetrate markets. The government, on its part, can play a supportive role in creating a proper eco system. Finally, the government, industry and academia should work in tandem to help these businesses grow.