By. V. N Prasad
The 2014-notified Corporate social Responsibility (CSR) rules, under the Companies Act, mandating all corporate entities in the country with a “three-year average annual net profit” of Rs. five crore (50 million) and above to spend two percent of it on CSR, can aid the development and growth of Micro and Small Enterprises’ (MSEs) sector, if desired so .
“Activities such as promoting preventive health care and sanitation, setting up homes and hostels for women and orphans and livelihood enhancement projects” are presently treated as part of CSR. As a purpose of these rules is to ensure that business establishments take part in improving the society/community life/conditions, supporting MSEs to grow on sustainable basis can help address both the social and economic concerns.
Some of the reasons as to why MSEs’ development is proposed to be counted as CSR activity are briefly listed below. Firstly, the sector (including medium-sized – about 5%), has over the years consolidated itself to account for about 40 per cent of manufactured output and about seven percent of Gross Domestic Product (GDP). 40-45 per cent of India’s export earnings come from products of this sector. This segment of the total enterprise population is the largest one, accounting for nearly 95 per cent of total enterprises
With its characteristics of agility and dynamism, the sector could steer through comfortably even in times of economic downturn. In fact, the sector has become indispensible for a balanced growth and industrialisation of the economy.
Secondly, because of their numbers and being spread throughout the country, with pockets of concentration in some places (clusters), the MSEs are a significant source of employment - both self and wage – next only to the agriculture sector. 26 million enterprises employ 60 million persons. Since a little over half them are located in rural areas, it can be said MSEs also help in developing rural economy and, thus, contain, to that extent, the migration of population to urban areas. MSEs can be a good tool to develop a viable rural non-farm sector, including IT-enabled service (ITES) enterprises.
Thirdly, the micro Own-account enterprises (OAEs) are basically a self-employment activity, generating income for the self and family. Such enterprises ease the social tension in a society by addressing the problem of poverty. The financial assistance extended under several welfare programmes, such as employment generation, poverty alleviation and women development/empowerment, have also resulted in the establishment of enterprises, mostly service and trading. MSEs can be a medium to empower women and weaker sections of the Society.
Lastly, since MSEs generally have a better perception of local culture, issues, requirements, and also association with neighbouring civil society, the corporate world can reach far-flung areas through them. MSEs being mostly a one-man show, a corporate entity can easily reach its targets. In fact, several of them are already into social activities.
The present market-oriented policies have considerably restrained small enterprises’ promotional agencies from providing the kind of support they were doing prior to 1991. (Pre-reform era). They, unfortunately, now are constrained to reflect more on their own continued existence than preparing MSEs to gear up to new competitive atmosphere and exploit the prospects it offered. Consequently, MSEs find a vacuum in the support-mechanism, which needs to be filled.
Large companies can help promising manufacturing MSEs to build their capacities in terms of: (i) accessing finance by extending assistance (their requirements are usually small amounts and most of them remain outside the formal financial network); (ii) technical capabilities through technology development/adoption; (iii) providing marketing support (e-business, trade fairs and exhibition, brand development, publicity, etc): (iv) developing managerial and workers’ skill; (v) establishing common facility centers at industrial estates; and (vi) developing MSE clusters.
The non-manufacturing MSEs, on the other hand, needs to be supported in getting small doses of finance, facing competition from the organised sector, etc. . The repair and service entrepreneurs have to regularly upgrade their skills to survive in the market, characterised by ever shrinking shelf-life of a product. The trade and service component of MSEs are mainly income-generating activity for the operator.
Besides, mentoring start-ups/first-generation entrepreneurs, who are in need of support, can be considered as societal work or activity, and supporting them is to be seen as activity beyond the normal business pursuit. The capacity building of MSE Associations’ is, yet, another area. Such activities on the part of large enterprises can help forge a long-term linkage with MSEs and can boost up their confidence.
This proposed channel, on the top of the recently announced MUDRA Bank, can be an addition to the policy initiatives that have already been put in place over the years to facilitate MSEs, particularly micro ones, surmount their problems, especially those relating to accessing finance.
About the author*
Mr. V. N Prasad is an economist and SME expert. He has vast experience working on projects related to micro, small and medium enterprises. He is the Principal Advisor Institute for Enterprise Research & Development(IERD), Editorial Advisor, GSME News. Formerly Senior Economic Advisor, World Association for SMEs. He can be reached at <firstname.lastname@example.org>