November 20, 2002
New Delhi

Speech of Prime Minister Shri Atal Bihari Vajpayee at the Global Summit for Small and Medium Enterprises

At the outset let me wish all of you Merry Christmas. Also, my greetings to you for the New Year.

I do hope that the foreign delegates will have a pleasant and comfortable stay in India.

Small and medium enterprises have always been the engine of growth for every country, in developing as well as in transition economies. Their role in building a solid industrial base can be gauged from the fact that they represent over 80 percent of industrial enterprises of most developing countries. They, along with micro enterprises, have been identified as high potential sector for employment generation and source of livelihood to millions of people in Asian, African, and Latin American countries.

There is a popular misconception that Small and Medium Enterprises do not count for much in developed countries. Facts, however, reveal that they are almost as dominant in the economies of the most developed countries as in the least developed countries.

Many developed economies owe their industrialization to Small and Medium Enterprises. Around 99 percent of seven million units in Japan -- one of the most industrially advanced nations of the world -- are Small and Medium Enterprises. They account for about 80 percent of total employment of around 55 million persons. Around 52 percent of the Japanese total exports emerge from this sector.

Similarly, Small and Medium Enterprises constitute around 99 percent of all businesses, employ over half of the workforce and generate 54 percent of the sales revenues in USA.

The same is more or less true about other developed economies.

Therefore, it is a bit of a misnomer when we call them small-scale industries or enterprises. The size of the individual industry or service enterprise may be small, but together contribution is truly big. Hence, the attention that governments and financial institutions ought to pay to them has also to be great.

While achievements in this sector are many, these, however, are dwarfed by the task that is ahead of us. This sector today is at a crossroads in our country and the world over. True, it has the flexibility to adapt to the changes much better than its larger counterparts. But it is also true that the process of globalisation and has impacted Small and Medium Enterprises much more than larger business enterprises.

The opening up of national economies, the coming down of trade barriers, the constant arrival of new range of products, and the introduction of ever new processes of production and service provision, have transformed the business operations of Small and Medium Enterprises. The unprecedented strides in information and communication technologies have also necessitated readjustments.

It is not that this process has only created problems for Small and Medium Enterprises. No. It has also opened up boundless new opportunities to innovative enterprises. It has practically reduced the entire world to a boundary-less single large market. The challenge before Small and Medium Enterprises is how to capture these opportunities and, at the same time, to reduce the chances of failure.

Today, margins across industries are rather thin and a slight change in costs abroad, or even within a nation, can undercut one's competitiveness. Small and Medium Enterprises are particularly vulnerable to such volatile developments because of their low resource base. Frequently, this causes sickness in the sector and sometimes leads to closure of units.

The turbulence is both in terms of new start-ups and closures. Globally, it has been estimated that up to 50 percent of SME start-ups in most economies do not survive the first 5 years of operation. India is no exception and we too have our share of sick industries.

Friends, you will agree that mere numbers and economic terminologies cannot adequately capture the underlying meaning of this phenomenon. Like all economic phenomena, it leaves behind a profound social and psychological impact. When enterprises close, or when the specter of unemployment looms over workers, it affects the livelihood and the quality of life of their families.

This is a global phenomenon, although its severity may be felt less in some places and more in others. Hence, there is a need for serious global thinking on how to ensure greater stability of Small and Medium Enterprises, how to provide greater social security for those working in this sector, and, at the same time, how to retain the dynamic force that drives this sector.

I am sure that your conference will address many aspects of this challenge. In doing so, I would urge you to especially consider the problems before Small and Medium Enterprises in developing and least developed countries.

The huge resources available with the transnational financial institutions controlled by the developed economies are not adequately serving the needs of the SME sector. Even national financial institutions are not sufficiently responsive to the needs of this sector.

For example, in India Small and Medium Enterprises today pay the highest rates of interest on the moneys that they borrow, and which only the banks can give them. It is somewhat ironical that individuals who want to borrow to buy a house today pay around 10 per cent interest; many big companies can get money from the market directly at less than 10 percent; but a small business has to pay 13 percent or more.

How is it that an individual borrower can get his expensive housing loan refinanced by another bank at a lower rate, but a Small and Medium Enterprise that borrowed two years ago at 15 or more, cannot?

Of course, it will be said that there is greater risk involved in lending to Small and Medium Enterprises. No doubt, there is much truth in it. Yet, the challenge before all of us is how to reduce that risk, and how to increase stability, sustainability and the success rate of this sector.

Many people in this gathering know that India has consciously promoted the development of the Small Scale Industry. We introduced a new comprehensive policy package for small-scale industry and the tiny sector in August 2000. These include support on fiscal, credit and infrastructure aspects, technology and quality improvement, marketing assistance and streamlining rules and regulations.

At the same time, governmental and semi-governmental agencies need to do much more to act as facilitators, so as to make our Small and Medium Enterprises more competitive. While eleven years of liberalization have given big businesses much more freedom to operate, the Inspector Raj still stifles small businesses. While the big can still afford to deal with a myriad of rules and rulings, those whose whole business often comprises only a dozen people (or less) cannot afford to have even one of them tied down in filling forms and “managing” the governmental system.

Therefore, I would like to reiterate what I have often said before. All enterprises – but especially Small and Medium Enterprises – must be speedily liberated from the heavy burden of untenable constraints and hurdles they face.

This should be done by making necessary changes in the legal and administrative framework. Wherever necessary, rules, regulations, procedures and guidelines should be amended and simplified after taking Small and Medium Enterprises into confidence.

This global summit is an appropriate forum to address these and other relevant issues and chart out a workable action plan for the development of Small and Medium Enterprises. I extend my best wishes for the success of this conference.

Thank you.