In the space of less than six months,swathes of industrial clusters that service the export markets have been laid low. Yet at the same time their counterparts that depend on the home markets have done rather well. So you have the brass metal workers in Moradabad gasping for breath,but their brethren in Varanasi are much better off in their saree handicrafts that are essentially driven by domestic demand. No organisation can really paint a complete picture in numbers,but anecdotal experience of development workers confirms this trend substantially. That the Indian market is better situated to handle the global meltdown has become quite evident,but that the impact has become so differentiated in towns far away from Mumbai and Delhi is a very key input the new government will have to understand. Unfortunately that level of understanding is quite clearly missing from the political debate in the run-up to the elections. To illustrate the contention,here is an examination of four issues that are as relevant for small and micro industries as for big factories in the current slump,but which are at best likely to be addressed the wrong way up or ignored in the election campaigns. Understanding them is crucial to making sense of the problems that have beset the economy and will continue through 2009. The biggest chunk of the missing link is interest rates. Hardly any political party has chosen to articulate its position on how interest rates have become key determinants in the economy. The role is far more nuanced than the interest subsidy culture for farmers spawned by the largesse from state-controlled banks. Small and micro industries respond to interest rates just as promptly as large industries do. That is expected. Half of all loans to the sector come from the banking channels,as shown by figures from the ministry of small-scale and micro enterprises. Even more interesting is that almost half of the incremental credit for the sector comes from external funding. This includes private equity and venture capital. Micro finance institutions too are equally keenly rate sensitive. So one should expect a rather interested look from the parties on how the interest rates would move. It would also seem that in a field where the parties are unable to rustle up adequate level of resonance on issues to engage the voters,this should do the trick as each cluster is potentially a massive vote bank. The other topic that engages small industry as well is the exchange rate. The corpus of loans from overseas markets contracted dramatically as the rupee dipped badly against the US dollar and most other major currencies. It has been among the worst performers in the Asian zone in 2008 and till now in 2009. Yet the connect between the parties on the rupee debate has again been dismal,so far. While there have been vigorous calls to protect exporters,the role of the currency has not been appreciated at all. The only issue that seems to resonate well at all times is inflation. Parties have for long used the bogey of inflation to score against ruling formations. But it would surprise them this time to find out that collapsing inflation is not a happy phenomenon for manufacturers,big or small. The fall means that prices of products would have to be cut down,cutting back on employment and resulting in consequent social disturbances. It also means the demand for their products is unlikely to pick up any time soon. Just as real estate companies have sensed,in a deflationary spiral,cutting back on prices does not push up demand; the workers and small time entrepreneurs in hinterland India too are arriving at the same realisation. The other related topic is the drying up of demand for credit. It is true that banks are just not willing to give credit despite ample liquidity. But gradually as the growth rate slows down,the demand for credit from industry too has begun to tank. It has happened in the United States and Europe and threatens to become a big challenge for the Indian economy as well. Remember,for Indian banks,if they fail to find farmers and small industry to lend to,they can park the funds in the Rural Infrastructure Development Fund papers from Nabard. Figures show the demand for the latest RIDF window has shot up. Credit is just not happening. Still its a no-brainer that no political leader would be out chatting with his audience on interest rates,exchange value,dipping inflation or even credit disbursal. If they do talk about credit it would be more in terms of corruption in the disbursement mechanism. There is therefore a problem of connection. In the year when the Indian economy is facing the implications of the massive global economic crisis,political parties are just not in sync with what the economy needs. It is that same limited understanding that would possibly colour the discussions after the next government is formed. Instead what they need to grasp is the deep connections that the small and even micro sectors have developed with the rest of the economy. The prescriptions too therefore have to be the same. Since not all units or all clusters will need help,if any government works out a one-size-fits-all formula,those just would not work. The question to ask of the parties therefore is how sharp the learning curve they are on is to match with the demands of an economy which is highly globalised and needs the same sort of stimulus. The writer is deputy executive editor,The Financial Express subhomoy.bhattacharjee@expressindia.com
