Editorial August 2018

Today, India is the fastest growing economy attracting many international companies, financial institutions etc. It is natural that these companies would want to participate in the growing Indian economy. The fiscal 2017-18 was shadowed by currency ban first and then implementation of much awaited GST. One may debate the long-term necessity of these measures but its tremors felt immediately by the economy. Thus last fiscal performance of Indian economy was somewhat depressed. But now the industry and the economy seems to have recovered from the jolt and look, last quarter growth of Indian economy was 7.5 %. Further, it is expected that GDP growth for the next quarter will be better than this. This is surely a very encouraging signal for the economy as well as for the industry. It also ensures a positive industry sentiment and an attractive environment for overseas companies and capital.

Here is a catch. A good GDP growth is welcome but not enough for a healthy growing economy. Let me explain this. GDP only tells you how much the economy has earned but it does not tell you who contributed to this earnings. Thus a handful big companies doing superlative performance may boost the GDP while rest of the economy may still be struggling. I think the Indian growth story is somewhat similar to this. (Here, one may recall an old comment about Indian economy – Islands of prosperity surrounded by oceans of poverty !)  Few mega companies are doing extremely well while most of the other companies, especially from MSME sector are fighting for survival. We all know that MSME sector is the backbone of any economy. It rolls the maximum capital and it generates the maximum employment. Unfortunately this very sector is struggling for its existence. Stagnated markets, no access to soft capital, severe competition especially from China. This is the reason why Indian GDP growth is not accompanied by a similar growth in the employment index. Many years back, when overseas automakers wanted to set up their manufacturing hub in India, it was made mandatory for them to source components from Indian manufacturers. This policy provided a big trigger to Indian auto component industry.

Let’s have a look at the structure of Indian metals sector. Apart from very few primary producers, most of the downstream companies are quite small in size. Auto component sector, rolling mills, extrusion companies, foundries, all these typically fall in SME sector and face most of the problems mentioned above. Further these companies are sandwiched between big primary producers at one end and big OEMs (such as automakers) at the other. Needless to mention that these companies are squeezed from both the ends.

One may argue that in today’s liberalized and globalised economy, what role can government play apart from making policies? How can they support SMEs? They can support this sector by starting common R & D centres and inspection labs, organising overseas events to facilitate exports, extending soft loans, the list can be very long. There has to be a strong will and clear understanding of the industry !

 

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