Small businesses create big impact on economy

Kathmandu, June 27

The country has witnessed an encouraging expansion of micro-, small- and medium-sized enterprises (MSMEs) in the last one decade as the number of such enterprises increased to 400,000 in between 2006-07 to 2015-16 as compared to 69,431 till fiscal 2005-06, according to the Department of Cottage and Small Industries (DCSI).

Though the industrial climate had been deteriorating and big industries were adversely affected due to various reasons like political instability, power outage and labour hassles, among others, in the last decade, the number of MSMEs grew exponentially in the same period.

According to economist Shankar Sharma, such expansion was mainly due to expansion of road and communications network and increased inflow of remittances.

“Programmes conducted by the government and development partners to promote MSMEs also contributed to this rapid expansion,” he said, adding, “Likewise, small enterprises that were established to produce carpets and garments following the closure of large-scale industries also raised the number of MSMEs.”

Those employed with mass scale industries like carpet, garment and other handicraft products also started setting up their own businesses as MSMEs can be operated with less capital, labour and power compared to large industries, as per Sharma.

The growth in the number of MSMEs has also been contributing to the concept of inclusive economic growth as it is the women who are running most of the micro, small and medium enterprises. MSMEs have been playing a vital role in the economy as they have been contributing over 22 per cent in country’s economy and generating around 1.75 million jobs, as per data of the Ministry of Industry.

Shyam Giri, president of the Federation of Nepal Cottage and Small Industries (FNCSI), said that though there has been rapid expansion in the number of such enterprises, comparatively productivity growth has not been very encouraging.

“Sustainability of the MSMEs is a major concern and the government should provide necessary facilities for them to sustain,” Giri said, adding, “Market linkages, easy availability of credit and soft loans, and promotion of products and services produced by MSMEs could help them in boosting their productivity.”

Though the government’s Trade Policy and Industrial Enterprises Act both have laid emphasis on the development of MSMEs to address the supply-side constraints, the government is mum about providing facilities to them. The trade policy has envisioned channelising the government’s support in value chain development of products and services of comparative and competitive advantage. However, MSMEs have not been able to reap benefits of the government’s policy due to lack of proper mechanism to incentivise MSMEs, explained Giri. “Some of the incentives offered by Industrial Enterprises Act for small-scale industries have also been cut by the tax policies.”

FNCSI has urged for harmonisation in government policies and coordination among them to promote MSMEs in the country.