Amartya Sen had discussed the ‘argumentative Indian’ and his/her ability in disputations.

This ability is best witnessed in the ongoing macroeconomic debates regarding crony capitalism, trade deficits, gold imports, vulnerability of the Indian rupee to the moves of the ‘US Fed’, need to or not to reduce interest rates and whether we should promote ‘make in India’ or ‘make for India’. Lost somewhere in all these erudite disputations is the significance of India in the world economy.

True, we are the third or fourth largest economy in the world, but only in terms of the nebulous ‘purchasing power parity’, not in terms of ‘real dollars’.

Looked at in terms of hard cash, India has a less than 2 per cent share in world exports. We do not figure in the top 10 exporting countries. Our share in manufacturing exports is even lower: petroleum products/agricultural and mining products account for almost half our total exports.

We are such a small world player that the UK, a country recently described by an eminent public figure as not being able to produce a pin, tots up more manufacturing exports than our total exports.

Lost too, in these debates, is the ‘lonely Indian’ — our entrepreneurs. Flayed by many for their cronyism and by others for lumping our banks with NPAs, can we not spare a thought for their predicament? How does our system treat them?

Studying the system

Let’s take a look at micro, small and medium enterprises (MSMEs). In the US and EU, companies with a capital investment in excess of ₹300 crore are called MSMEs. In India, it is investment at or below ₹10 crore.

In terms of Reserve Bank data, outstanding bank credit to industry grew with a CAGR of 20 per cent during 2008-14.

Credit to manufacturing grew at 15 per cent. MSME credit growth grew by 18 per cent. This seems reasonable since capital output ratios here are intuitively better than for large Industry.

But the equivalent of a caste system operates within MSMEs in India, with their segregation into micro, small and medium. The credit growth of micro and small industries was at the above-stated respectable level. To qualify as a ‘medium’ MSME, investment in plant and machinery has to be between ₹5 and ₹10 crore.

This industry segment showed a credit growth of only 2 per cent in this reporting period. If this is the case with ‘protected’ MSMEs, what would be the fate of bigger companies, the ₹50-100 crore-sized ones?

It needs to be kept in mind that during the same six-year period, India was in active dialogue with the EU for an FTA and was also agonising over trade deficits.

Most industrially advanced countries talk of their MSMEs being the backbone of their manufacturing prowess. A lot of medium/high technology manufacture gets generated from this segment. This is where value additions, and consequent benefits to the domestic economy are highest.

These are also the products where growth in consumer demand is highest.

Read the signals Even if India does experience a growth revival in the coming months, what will its shape be? What happens to an entrepreneur bigger than small/micro but not big enough to be a ‘crony’?

Take for example the definitions of MSME. Is it in line with global best practices?

How can we engage with industrially advanced nations while holding back our entrepreneurs to global pygmy levels?

Then again, should only micro and small be considered priority? The well intentioned credit guarantee facility for supporting credit to MSMEs is available only for advances up to ₹1 crore a borrower and was set up in FY 2000.

What was the dollar-rupee equation then and what is it now? What about engineering companies, not MSMEs but say with investment of about ₹50 to 100 crore? Are these not priority sectors?

Would not an ordinary worker, whatever his legal rights or remedies, be better treated in an enterprise sized at ₹50-100 crore than in an industrial sized ₹5-10 crore?

Shouldn’t we really be worried about our ability to compete given such a stunted, anachronistic system?

Should it not change?

The writer is a former chairman of the Exim Bank of India

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