VOTE FOR SMALL BIZ

In these elections, political parties have shown concern for small business owners and startup entrepreneurs. Partha Ghosh checks out the ballot points

In the run up to the elections, India’s Joe the Plumber hasn’t found his moment of glory yet. His concerns-about his small business-and how the next government will address them, have been diffused by the gratuitous political rhetoric of our leaders. He hasn’t been as lucky as Samuel Joseph Wurzelbacher, a former plumber, who was shown on national television questioning Senator Barack Obama about his small business tax policy during the 2008 US election campaign. During one of his debates, Republican Senator John McCain called Wurzelbacher as ‘Joe the Plumber’ and since then Joe… became a metaphor for the American middle class and small business owners.

The plight of small businessmen and startups may not be a burning issue in the Indian elections, but with the global meltdown impacting business like never before, politicians here cannot afford to ignore their problems entirely. To begin with, India’s top three political parties (in terms of the number of MPs they sent to the last Lok Sabha) have indicated their plans for small companies and startups in their respective election manifestos.

The CPI(M) has promised specific relief packages for affected sectors like textiles and garments, gems and jewellery, leather, handicrafts, coir, cashew, marine products, software and IT, aimed mainly at SMEs. The BJP’s manifesto says it will promote SMEs and the retail sector, which can generate a large number of jobs and make a meaningful contribution to the nation’s economy. It also proposes to review the criteria for classifying businesses as SMEs. The Congress, on the other hand, has promised in its manifesto that there will be a special focus on small entrepreneurs and SMEs-”The Indian National Congress pledges a ‘new deal’ for SMEs and for first-generation entrepreneurs.”

That evidently doesn’t cut ice with trade bodies that represent small business. The sense among the SME fraternity is that these pre-poll ‘promises’ hardly address the real issues at hand. “It seems both the major political parties are blissfully ignorant of challenges that Indian entrepreneurs are confronted with. Leadership at the helm of parties either lacks the vision or the will needed to make India an entrepreneurial society,” says Anil Bhardwaj, secretary general of the Federation of Indian Small and Medium Enterprises (FISME), which represents close to 5 lakh SMEs.

Congress spokesperson, Abhishek Manu Singhvi counters that his party’s promise regarding SMEs is clear enough. “It is essential to appreciate the nature, character and purpose of a manifesto. A manifesto does not lay down a detailed plan of action for implementation. On the one hand it lists the concrete achievements of the past; on the other it gives broad but genuine declarations and promises for the future.” Fellow Congress leader and industrialist Naveen Jindal is more forthcoming, though. “The Congress manifesto not only talks about collateral-free credit, it also mentions a multiplicity of laws and forms for freeing SMEs from the clutches of inspectors. The focus is thus on simplifying procedures for SMEs in general, not just in credit matters,” he says. Jindal points out that the party’s manifesto also mentions cluster development, which provides for synergies in access to finance, technology and marketing, and implementation of recommendations by the National Commission on Enterprises in the Unorganised Sector and the National Manufacturing Competitiveness Council.

On what his party will do to facilitate credit for SMEs, Jindal says, “There is a more permanent credit problem and indeed, SMEs and farmers often lack access to institutional credit. The inclusive agenda mentioned in the Congress manifesto incorporates financial inclusion as well. More than the cost of credit, which is high in informal borrowing, the key is availability of credit and the new Congress government will ensure that this financial inclusion progressively happens.”

Issues relating to farmers are top on the agenda for most political parties mainly because of their electoral significance. But the problems that SMEs are battling today have far-reaching economic implications as well, admits Sudheendra Kulkarni, election strategist for the BJP and advisor to the party’s Prime Ministerial candidate LK Advani. The BJP, which is seen to represent the trader community more than other parties, has promised to ensure that the credit requirements of SMEs are adequately fulfilled. “We recognise that economic reforms in the past have only helped the big entrepreneurs. The small business sector is still in the shackles of the Inspector Raj, the capital markets are a no-go for them and barely 4% of small business owners have access to institutional funds.”

If the BJP came to power, Kulkarni says it would create a more liberal and market-friendly environment, including better infrastructure-roads, ports, airports, etc-that will reduce the cost of setting up and running a small business: “In a major course correction, we’ll revive the domestic sector as our dependence on the international market will have to be curtailed at least in the foreseeable future. A vibrant domestic market will also help growth of the agriculture, rural and unorganised sectors.”

While talk of better terms for SMEs is music to the ears of political leaders at the CPI(M), it clearly doesn’t subscribe to the rest of the economic agenda espoused by the other two parties. Having helped the UPA come to power by providing outside support and then parting ways on the Indo-US nuclear deal, the CPI(M) is critical of the Congress and the BJP for having left the country’s economy to market forces during their tenure. Says Nilotpal Basu, member of the central secretariat of the CPI(M), “Left to themselves, SMEs cannot survive. Our party believes there is a need for specific government intervention to boost growth of the sector. The neo-liberal paradigm of the past few years needs to be reversed and there should be a renewed focus on public sector growth and micro and small sectors.”

The CPI(M)’s proposal of setting up a third alternative-which hopes to form a non-Congress, non-BJP government at the Centre-has given rise to apprehensions in industry that such an arrangement could negatively impact economic sentiment, scare foreign investors and send the Rupee into a tailspin. Basu however insists that his party isn’t against growth. “Our approach will be different. Even the Congress and BJP will have to do a rethink. Governments will be forced to assume a bigger role. Relying too much on market forces will not help.” Like the BJP, the CPI (M) too is advocating the need to gear production towards the domestic market. And this, says Basu, will propel growth of micro and small businesses. Banks will be made more competitive, though reforms will not mean more privatisation or FDI, especially in retail.

Expectations, nonetheless, are still high from the new government. The Federation of Indian Chambers of Commerce and Industry (FICCI) is hopeful that SMEs will get their due from whichever party comes to power. “The fact that all manifestos have mentions of SMEs is proof that they recognise the importance of this sector,” says Dr Amit Mitra, secretary general, FICCI. The new government, according to him, should ensure SME lending at rates lower than even the prime lending rate: “In the US, for small businesses, they have a very soft (sub-PLR) loan.” FISME’s Bhardwaj says irrespective of which government comes to power, he expects that a PSU procurement target of 20% from SMEs will be made mandatory. Presently, the figure stands at less than 1%. He also hopes that the Competition Commission will be strengthened.

This election season is quite unlike others. Thick in the middle of an unprecedented economic downturn, political leaders can ignore the hardhit foot soldiers of India Inc at their own peril. For India’s Joe the Plumber, there could be a silver lining to the dark recessionary clouds, after all.

CONGRESS

Will give special focus to small entrepreneurs and SMEs Pledges a ‘new deal’ for SMEs and for first-generation entrepreneurs by assuring them greater access to collateral-free credit Will untangle multiplicity of laws and forms, and also Inspector Raj

BJP

Promote SMEs and the retail sector to create jobs Will review criteria for classifying SMEs Enhance the use of IT in SMEs and retail trade Credit for small and tiny retail vendors at 4% interest Introduce a pension scheme for small traders

CPI(M)

Specific relief packages for sectors affected by recession like textiles and garments, gems and jewellery, aimed mainly at SMEs Encouragement to SMEs in labour intensive sectors Adequate incentives, infrastructure support and sufficient credit from banks Prohibition of FDI in retail trade with inputs from Ravi Teja Sharma

Courtesy: The Economic Times (April 17, 2009)