Small Business Development Initiatives and Constraints By: Dr. Shalini Gupta Director General Desh Bhagat Group of Institutes. Mandi Gobindgarh, Punjab INDIA Co- Author: Er. Ajay Gupta #104, Sec. 21-C, Street No. 5. Gandhi Nagar, Mandi Gobindgarh

Summary Across the globe Small businesses are a critical component of economies. Effective small business development on the scale needed requires a new, sustained engagement between the private sector and government at all levels. There is a large and pressing agenda, but crucial issues include improving the regulatory, administrative and operating environment, and ways to expand market development for small businesses. Most important of all, small business development initiatives must get down to the level where small businesses actually operate, and must be closely targeted in different sectors and value chains, and in specific localities – in our cities, small towns and rural areas – to grapple with their diverse characteristics, needs, constraints and opportunities. Among the broad range of mechanisms available to support the growth and development of entrepreneurial enterprises into competitive businesses, some of the most effective are private sector led initiatives that broaden big companies’ value chains to incorporate small businesses. ‘Vertical’ business linkage can involve backward linkages (where large companies acquire goods and services from small enterprises) as well as forward linkages (where large companies sell goods and services to small enterprises or distribute goods and services through them e.g. franchise or retailing arrangements). Vertical linkages can also be a strong stimulus for ‘horizontal’ linkages, where small enterprises work together to increase their capacity to access markets, for example through shared production of large orders, collective purchasing or group leasing equipment. Keywords: - Business, Environment, Mechanism, Vertical Linkages

Across the globe Small businesses are a critical component of economies. Small Businesses have been accepted as the engine of economic growth and for promoting equitable development. It constitutes over 90% of total enterprises in most of the economies and is credited with generating the highest rates of employment growth and account for a major share of industrial production and exports. In India too, the small businesses play a pivotal role in the overall industrial economy of the country. It accounts for more than 80% of the total number of industrial enterprises and produce over 8000 value-added products. It is estimated that in terms of value, the sector accounts for 45% of the manufacturing output and 40% of the total export of the country and employs over 6 crore people. Despite constituting more than 80 % of the total number of industrial enterprises and supporting industrial development, many small businesses in India have problems such as sub-optimal scale of operation, technological obsolescence, supply chain inefficiencies, increasing domestic and global competition, fund shortages, change in manufacturing strategies and turbulent and uncertain market scenario. Small Business sector faces a number of problems - absence of adequate and timely banking finance, limited knowledge and non-availability of suitable technology, low production capacity, ineffective marketing and identification of new markets, constraints on modernization and expansions, non- availability of highly skilled labour at affordable cost, follow up with various agencies in solving regular activities and lack of interaction with government agencies on various matters.

In the current economic slowdown small business sector has been hit very hard due to raising interest rates and financial crunch. The small size and capacity of the firms and their lack of awareness have bred many hindrances to their growth such as Under-utilization of capacity, Inadequate and untimely credit flows, Inability in technology upgradation, Insufficient rawmaterial procurement Inability to market finished goods and ineffective monitoring and feedback mechanism. The problem which continues to be a big hurdle for the development of the sector is the lack of access to timely and adequate credit.The small business sector has slowly come into the limelight, with increased focus from the government and other government institutions, corporate bodies and banks. Policy based changes; investments into the sector; globalization and India’s robust economic growth have opened up several latent business opportunities for this sector. Initiatives from within the sector to lobby favorable policies and increasing credit flow are credible. The sector has also realized the need for technological and modernization initiatives. However, with economic liberalization and changes in the trade policy, Small businesses have now started facing increased competition from foreign companies. As global competitiveness becomes intensive, Small businesses are transitioning to a new business environment with emergence of global supply chains. Small Businesses form an integral part of almost every value chain and there is a symbiotic relationship between the large corporations and their relatively smaller sized suppliers However in a liberalized world the relationships between the suppliers. However, in a liberalized world, the relationships between the suppliers and buyers are undergoing dynamic changes with the dissolution of existing relationships and formation of new trade linkages that transcend the barriers of nationality and boundaries.

Despite the sector’s strategic importance in overall industrialization strategy and employment generation, as well as the opportunities that the Indian landscape presents, the Small business sector confronts several challenges. Technological obsolescence and financing problems have been associated with the sector since long. Also, constraints such as high cost of credit, low access to new technology, poor adaptability to changing trends, lack of access to international markets, lack of skilled manpower inadequate infrastructure facilities including power water and roads etc. and regulatory issues related to taxation (state-central), labour laws, environmental issues etc. are also linked with its growth process.

There is a need to develop potential strategies in order to improve linkages and coordination between the Government, Industry and Academia. There is also a need to develop an alternate delivery channels through capacity building of the small business Associations and the publicprivate partnerships in the institutional structure as also the schemes. Given the nature of the enterprises, there is a need to facilitate start-ups and evolve a time-bound exit mechanism. Effective small business development on the scale needed requires a new, sustained engagement between the private sector and government at all levels.There is a large and pressing agenda, but crucial issues include improving the regulatory, administrative and operating environment, and ways to expand market development for small businesses.Most important of all, small business development initiatives must get down to the level where small businesses actually operate, and must be closely targeted in different sectors and value chains, and in specific localities – in our cities, small towns and rural areas – to grapple with their diverse characteristics, needs, constraints and opportunities.

Among the broad range of mechanisms available to support the growth and development of entrepreneurial enterprises into competitive businesses, some of the most effective are private sector led initiatives that broaden big companies’ value chains to incorporate small businesses. ‘Vertical’ business linkage can involve backward linkages (where large companies acquire goods and services from small enterprises) as well as forward linkages (where large companies sell goods and services to small enterprises or distribute goods and services through them e.g. franchise or retailing arrangements). Vertical linkages can also be a strong stimulus

for

‘horizontal’ linkages, where small enterprises work together to increase their capacity to access markets, for example through shared production of large orders, collective purchasing or group leasing equipment.The government must work to ensure that we have a regulatory environment that encourages and supports entrepreneurs and small business owners who want to grow, create jobs, and continue leading our economic development process. It means we need to take a hard look at regulations – both new and existing – to ensure that they aren’t a burden on small businesses, and to make changes as necessary. There are a number of ways by which regulatory burdens on small businesses can eased . They can extend compliance deadlines for small businesses. They can allow more online filing of forms.

They can create different, more

achievable requirements for small firms. And sometimes, they can exempt small firms altogether. When government agencies formulate or start thinking about implementing a new rule or policies, the different stakeholders such as Councils, clusters, association etc. must be given opportunity for serious consideration as to what impact the new rule or policies might have on small businesses ability to grow and innovate. And if a policy or so called reforms does not provide flexibility to small businesses when they have opportunity to do so, then the viewpoints must be analyzed and considered logically.This will help ensure that the regulatory process is

more transparent, coordinated, and simplified. The Simple objective shall be : to simplify existing rules and policies, identifying places where we can ease burdens and help strengthen entrepreneurship.Administrative environment in India provides excellent scope for corrupt practices in business.As a result unless the government policies and the businesses are committed to be honest and observe the principles of propriety, the atmosphere is too tempting to observe good small business governance in practice.The ethical business depends on individual's sense of values, social values accepted by the businesses and industry and the system itself. Public servants have very wide discretionary powers which offer the occasion to extorting undue payments from businesses and ordinary citizens. Government initiatives to curb corruption at the institutional level face an enormous implementation gap when it comes to their practical effects.India has a decentralized federal government system and regulation and corruption vary widely from area to area.Although clusters have been developed, and it may play a vital role in highlighting such practices to strengthen the system, there is little doubt that corruption affects the business climate throughout India. Most of the businesses in India expect to pay bribes 'to get things done'. Corruption in the form of bribery, kickbacks from procurement deals, and tax evasion is widespread .The Government Policies must look at strengthening our administrative Environment as an ongoing and never ending process.There is also a strong need to find ways to manage modern technology and labour market constraints,which impede the productivity of small businesses. Policy-makers and research institutions have repeatedly pointed out to the need for extensive research on the small businesses.What is needed today is knowledge and access to new technology, adequate financial aid,high levels of R&D and adaptability to the changing trends in their respective industries.With the increasing competition, globalization and the uncertainty due to the global downturn,small businesses will have to continuously incorporate

the latest technology into their production processes as well as in their marketing and management functions, to cut costs, gain efficiency and consistency.This will help them become successful, and contribute to the Indian economy in the long run.