The fact that the Karnataka Small Scale Industries Association recently submitted a memorandum about the plight of Small Scale Industry (SSI) sector to Union Finance Minister Nirmala Sitharaman in August suggests problems in the state’s economy. These problems pertain to finance, infrastructure, regulatory bottlenecks, logistics etc., which hamper SSI development.
SSIs are generally labour-intensive industries and therefore create much employment. They also aid per capita income and resource utilisation in the economy.
The SSIs support Karnataka’s economy which constitutes diverse sectors namely agriculture, education, healthcare, manufacture, marine, services and trade. The SSIs in Bengaluru have an inherent advantage owing to the presence of several heavy engineering, medium scale and other public and private sector units, unlike the rest of Karnataka.
At the end of December 2017, the state witnessed the closure of 47,581 units out of the 6,07,854 micro and small-scale industries registered with the government. The government had then identified 24,785 sick units for rehabilitation. Out of them, 19,619 units had been declared non-viable for rehabilitation.
Today, small industries employ over 70 lakh people who will be affected by the economic slowdown that has hit the country. A significant proportion of 30 lakh workers in the auto ancillary industry in the state are likely to be impacted adversely following the government announcement about the need to transition to electric vehicles by 2030. So what plan does the state government have for this sector today?
All these problems persist despite the myriad state government agencies constituted to promote the SSI sector. For instance, the Karnataka State Finance Corporation (KSFC) over the last six decades has provided financial assistance of about Rs 15,276 crore to over 1,71,414 units.
Today, the state government only pursues a policy that showcases the number of SSI registrations along with subsidies and loans disbursed to micro, small and medium enterprises -- but lacks any mechanism to assess the performance of these units aimed at business sustainability. The policy of the state government appears to be employment generation only through initial support to SSIs without considering long-term business sustainability.
The different state government agencies tasked to support SSIs are staffed with bureaucrats who lack expertise in the sector. They are not trained to undertake studies on market potential, comprehend market dynamics in the various sectors or absorb the nuances of entrepreneurs who have a risk appetite.
To that extent, government agencies are not geared to mentor entrepreneurs to scale up their business models to evolve into independent profit centres.
The state government policies should evolve an ecosystem for entrepreneurs to take risks, innovate and develop independent profitable businesses that no longer drain the state exchequer.
(The writer is a professor at the Institute of Management, Christ, Bengaluru)