The Big Invisible; Fifteen years after the economy was opened up to global competition, India's small scale industry is still struggling to find its feet. Ironically, it is a policy meant to protect them (read: reservation of products) that has come back to haunt them. However, all may not be lost yet

• Published in: Business today (New Delhi, India) India), 2006-09, p.100
• Main Authors: R. Sridharan additional reporting by Shaleen Agrawal, Sachitanand, Rahul, Sharma, E Kumar, Mukherjee, Ritwik, Varadarajan, Nitya
• Format: Magazinearticle
• Language: English
• Subjects: Exports; Manufacturers; Small & medium sized enterprises-SME; Small business; Toy industry
• ISSN: 0974-3650

Ahead of complete dereservation, the government has tried to clean up the regulatory framework for the sector. Until now, only small scale industries were legally defined; there were no definitions for micro or medium enterprises. Besides, there were multiple laws governing the sector. For instance, there is a separate act that governs delayed payments to small enterprises. With effect from October 2, 2006, not only will the three categories be clearly defined (micro would cover all enterprises with investment in plant and machinery of less than Rs 25 lakh; small, Rs 25 lakh plus to Rs 5 crore; and medium, between Rs 5 crore and Rs 10 crore), but an overarching act, called the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, come into force. Significantly, the Act also provides for a National Board that will recommend ways to improve competitiveness of the sector. Back in 1960, D.V.S. Raju returned from England to set up India's first pH metre manufacturer in Hyderabad. But like it happens with so many small enterprises, Raju's Elico Ltd remained small for the next 38 years. But in 1998, Raju decided to retire and sell his firm to Ramesh Datla, his nephew who had joined the family business as a manager six years earlier. Datla quickly shifted Elico's focus from low-end (chemical) analytical instruments to high-value devices such as atomic absorption spectrophotometers and water analysers. Datla hasn't looked back since. Elico's revenues are up from Rs 3.5 crore in 1998 to Rs 25 crore and the "focus today is on design and development of high technology, high value-added instruments that involve optics, fine mechanics, hardware and software", says a proud Datla. What did Datla do right? Although his company was small, Datla took the risk of increasing investment in R&D. In 2000, for instance, he spun Elico's small R&D department into a separate division (to make it a profit centre), and began investing in building competencies required to tap global markets. In 2002, Elico invested Rs 1 crore in R&D, compared to the Rs 50 lakh it had invested over the previous four years. Also, Datla set up a healthcare BPO (medical transcription, claims processing) that last year contributed Rs 5 crore to Elico's topline. "We will focus on retaining our #1 position in analytical instrumentation products in the country by continuously innovating," says Datla. Clusters can be a powerful tool of competitiveness, but only if exploited systematically. Nothing ill