From Gujarat Kite Industry to MUDRA bank: Focus on developing small and micro businesses

Indian economy is unique in many ways. One of its   major features is the dominant role played by the non- corporate sector, comprising of millions of micro, small and medium enterprises. The non-corporate sector plays the most crucial role in the economy, contributing the largest share to the GDP and more than 90 per cent of employment.   

The 67^th round of National Sample Survey carried out during July 2010- June 2011 reveal that there were 5.77 crore unincorporated non-agricultural enterprises (excluding construction) employing 10.8 crore workers.  85% of them were Own Account Enterprises, promoted and run by the owners themselves.

Of the total number of enterprises functioning in the country, about 54 % are located in rural areas. 62% of the enterprises are owned by persons belonging to the Scheduled Tribes, Scheduled Castes and the Other Backward Castes. This proportion was more in the rural areas (69%) and in own enterprises (65%).

The Fourth All India Census of Micro, Small and Medium Enterprises for 2006-07 reveals that 95% of the units are micro enterprises in the MSME sector. Micro and small enterprises provide 95% of the total employment, with most of them having no access to external finance.

The MSME sector has consistently registered a higher growth rate than the overall growth of the industrial sector during the previous decade. The smaller enterprises employ lesser capital, use least resources, but provide more benefits to the economy.

The promoters of small businesses come from less privileged backgrounds. They struggle a lot to mobilize whatever little funds they could through their families and personal networks.  They continue in their business despite all odds and in spite of lack of support from the authorities.

 Studies show that they do not have much educational backgrounds. In fact a significant proportion of them are either illiterates or have studied only up to the primary levels. Besides, they do not have access to financial assistance from the organized system. Only four per cent of the banking finance goes to the smaller businesses.

The academic institutions and policy making circles continue to be obsessed with the western theories. Indian economy is being viewed only from the approaches. There is very little understanding of the functioning of the non-corporate sector and small businesses.

The neta-babu raj curtailed the growth of entrepreneurship during the earlier decades after independence. The later periods concentrated mainly on the organized and the corporate sectors, without giving the attention that the smaller businesses deserved.

There has not been adequate efforts to understand the functioning of the non-corporate sector and smaller businesses. As a result there is no proper understanding of the ground realities at the policy making levels. Hence the growth of the non-corporate sector and small business suffer. In the process, the entrepreneurship at the lower levels has not progressed beyond certain levels.

In this respect, the special initiative taken by the Gujarat Government to encourage the growth of kite industry during 2003- 04 deserves a special mention. At that time the state Government under the leadership of Shri.Narendra Modi was taking concerted efforts to develop the various sectors of the economy in a systematic way.

The Gujarat Government invited a team of academicians and professionals in Tamil Nadu who were involved in studying the much neglected non-corporate sector, clusters and the small businesses and asked them to study the kite industry to improve its prospects. It was the first invitation for the team from a Government. More important was the realization by the Chief Minister that a small business activity such as kite making has the potential to grow further.

A report was made after studying the industry, visiting different kite making centres and meeting with various stake holders. Subsequently a work shop was organized in which all the stakeholders of the kite industry, experts, senior officials of the banks and financial institutions, officials and the Ministers of the Government took part actively. Later a concept note on the kite industry and the International Kite Festival, 2014 was prepared and circulated to all concerned.

The team submitted the findings of the study detailing different issues and problems, along with the suggestions for the development of the industry. It is important to note that kite making in Gujarat is dominated by women, with people from the Muslim community playing a major role. The Chief Minister acted fast on the findings of the study and took immediate steps to help the entrepreneurs and develop the industry.  

As a result, the entrepreneurs felt happy and the business increased manifold. Hence the kite industry witnessed fast development and reports mention that the turnover of the industry during last year was around Rs. 700 crore. It was just Rs.35 crore during 2003. It is a great   achievement for a business that was not even a cottage industry till then. It is all because of a proactive government under the leadership of a visionary who wanted to develop the smaller businesses.

For the size of the Indian economy, the requirements of smaller businesses are not large. Most of them require small amounts of funds at reasonable rates of interest without much difficulty.  But they are not able to get it in the present system. Besides, the share of credit distributed by banks to smaller businesses has been coming down beginning from 1990. Figures show that the share to the household sector has gone down from 58.3 per cent in 1990 to 36.2 per cent between in 2011.

In the fast changing environment, the survival and growth of smaller businesses require assistance. The most important of them is finance. Studies show that apart from own funds and family support, local finance is the most important avenue for promotion and running of enterprises. At present entrepreneurs pay a very high rates of interest to the local financiers. With the result, most of their income go towards servicing debts. Hence the entrepreneurs are not able to develop their businesses. 

It is in this context, the launching MUDRA bank by the central Government assumes significance. It is to fund the unfunded entrepreneurs who remain neglected from the organized financial systems even after sixty seven years of independence. First of all, the Government needs to be congratulated for this timely initiative.

Field studies in different parts of the country clearly reveal that many of the people running the smaller businesses have extra ordinary levels of entrepreneurship.  They have very good talents, possess high technical abilities, have enormous common sense and lots of financial wisdom. In fact most of the owners of medium enterprises and builders of the two thousand and odd clusters in the country have all started their lives as small businessmen a few decades ago. Many of the corporate houses were promoted by people who began their lives as small entrepreneurs.  

Encouragement of small entrepreneurs help the nation in many ways. It contributes a lot to the overall development due to its reach and depth. People living in rural areas, poor urban localities and far off places get benefited when small businesses flourish. More employment opportunities are generated at the local levels, with lesser investments. Many social problems get solved with increasing economic opportunities.

Non-corporate sector in India is largely self- functioning. Their dependence on the state is less. In the case of smaller businesses it is almost nil. Small businesses are promoted and run by entrepreneurs on their own, with the support of their families and personal connections. The small business do not give any burden to the state.

So MUDRA initiative is an important mile stone in the economic history of independent India. It shows the resolve of the government to encourage entrepreneurship at the lower levels and integrate all the sections in the development journey. It is hoped that the MUDRA initiative will transform the lives of people involved in different entrepreneurial activities across the country and create new employment opportunities for millions of people.  

India is basically an entrepreneurial nation. It has   remained so since the ancient periods. India’s prosperity during the earlier periods was fuelled by the superior entrepreneurship in manufacturing and service activities. Contemporary field studies reveal that India has high   levels of entrepreneurship even now. This is the reason why we are one of the highest entrepreneurial nations in the world.

In spite of all the difficulties, about half of our population still remains self-employed. Self-employment is very less in the developed countries, where most of the population prefer to go for jobs as they do not want to take risk. In the US for example, only about 7.5 per cent of the population is engaged self- employment. But large sections of Indians even today consider self-employment as the best status in life.

With all our fundamentals and a proactive leadership, India is expected to grow fast in the coming years. What we require is an inclusive development approach. People from different regions and the neglected segments, especially those belonging to the Dalit and the back ward communities, should be encouraged to become wealth creators. In this connection MUDRA is expected to fill the huge gap that persists now and make the small entrepreneurs the leading stakeholders in the new development process. 

( Redefining Governance: Essays on One year of Narendra Modi Government, Dr.Anirban Ganguly (Ed),  Prabhat Prakashan, New Delhi, 2015, pp. 217-221)