Slow growth of SMEs attributed to flooding of cheap foreign goods

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Anand Choudhary | 05 May, 2008
India is today emerging as a global player and is being wooed by the world. Its economy is on the fulcrum of an ever increasing growth curve. With positive indicators such as 9 percent annual growth, rising foreign exchange reserves, a booming capital market and a rapid rise in foreign direct investment (FDI), India is seen as the second fastest growing major economy in the world.

In 2007, over 200 delegations brought more than 2,000 businessmen to India, and over 50 Trade missions travelled out of India. This exchange resulted in the signing of more than 200 MoUs. The division further stepped up its engagement on a wide range of issues, identified by its national and corporate India's priorities.

Foreign Direct Investment (FDI) equity capital inflow during the year 2007-08 till February 2008 has reached a record level of US $ 20.1 billion. This is the highest FDI into equity in the country during any year. FDI inflows received in the month of February 2008 are an unprecedented US $ 5.671 billion. The inflows in the month of February have surpassed the inflows received in any single year since 1991 barring last year i.e. 2006-07.

The FDI inflows received in February 2008 is an increase of 712% over that in February 2007. The inflows for April 2006-February 2007 were US $ 11.88 billion. The inflows for April 2007-February 2008 at US $ 20.137 billion is thus an increase of about 70% over the corresponding period of last financial year.

Similarly, India's exports during February, 2008 were valued at $14237.43 million which was 35.25 percent higher than the level of $10526.67 million during February, 2007. In rupee terms, exports touched Rs. 56569 crore, which was 21.7 percent higher than the value of exports during February, 2007. Cumulative value of exports for the period April-February, 2008 was $138427.83 million (Rs. 556686.15 crore) as against US$ 112636.95 million (Rs. 511016.19 crore) registering a growth of 22.9 percent in Dollar terms and 8.94 percent in Rupee terms over the same period last year.

Whether it's the BPOs, Multinational companies (MNCs) or Information Technology (IT) sector, India seems to be the global hub of business and investment.

However, among all this hoopla and jamboree there is one sector for which very little seems to have changed.

It's the Small and Medium Enterprises (SMEs) sector. In spite of all the development, SMEs are still lagging behind in this race. It's not that the Indian SMEs lack in something or don't have the ability for growth. The reason behind the slow growth of SMEs can be attributed to the fact that while the Indian markets are getting flooded by cheap goods and products from foreign players from China, Korea and other countries, the Indian SMEs get little or no finance from banks or other financial institutions to face the challenge posed by foreign players.

Finance which is so important for a SMEs, is still very difficult to get. Which severely limits the growth of these enterprises.

Thus, it's high time that the government takes note of it and takes the initiatives to make policies so that an average Small and Medium level entrepreneur does not have to face a plethora of hurdles in procuring loans from the banks for the growth and development of its enterprise.

This is of paramount importance, if the government wants its SMEs to develop and sustain itself against the foreign players in the market.