Kerala's small and medium enterprises sector has played a crucial role in the holistic economic development, witnessing around 12 per cent industrial growth in the past four years – much higher when compared with other states.

The State, with excellent connectivity, communication and abundance of human resources, has turned out to be a well-suited model for the growth of the SMEs. Better infrastructure and the presence of industrial clusters are now a unique contribution the State has to offer for the SME sector. The industries coming under the SME sector include handicrafts, handloom, garments, food processing, rubber, textiles and leather.

The Kerala government, through its Industries Department, lined up several new initiatives with the sole objective to revamp the God's Own Country into an entrepreneurial state by encouraging private investments in all sectors, particularly in agro processing, services and commercial and new emerging areas. Plans are also afoot to market Kerala as a destination for FDI in services and emerging industrial sectors such as biotechnology and nanotechnology.

Catering to the SME sector, a senior official in the State Industries Department said they are in the process of setting up a technology centre in Angamaly near Kochi at an investment of Rs 120 crore for advanced precision tooling, skill development and technology development.

"Kerala needs a change in its development paradigm and the strategic approach. The change needs to be from an investment approach towards an inclusive entrepreneurship approach," says PM Mathew, Director of the Kochi-based Institute of Small Enterprises Development.

This approach envisages two things: Recognition of entrepreneurship as a critical resource; and Aligning entrepreneurship with a 'triple bottom line principle' (which, in a sense, will help to add value to the Kerala Model of Development). This new approach would enable Kerala achieve a higher growth and quality of life, without forgoing its achievement of the past, he said.

Quoting the Kerala Enterprise Development Report 2016 brought out by ISED, he said there has been a significant increase in the number of SMEs. But there has been a declining trend in the per unit employment rate. As the extent of sickness declines, he said the expectations are high for a possible rise in employment opportunities unless major technological changes have taken place in the sector as a whole.

However, the available data and information do not suggest such major changes especially when the majority units are in the tiny sector, he said.

For the sustenance of SMEs, Savio Mathew, Head, FICCI Kerala State Council, emphasised the need for aggressive marketing campaigns for the sale of products. The focus should be there for conducting exhibitions, expos in neighbouring states with special focus on traditional sectors of handloom, bamboo, palmyra and handicrafts.

Kerala's industrial infrastructure has multiple facilities created by the government which include cooperative societies, industrial estates, development areas/plots and industrial parks. Amidst all of these initiatives, industry experts pointed out that SME exports posted discouraging trends. Only 3.36 per cent of the total SME exports from the country are from Kerala. These enterprises — even when enjoying many policy measures and support — fail to perform with efficiency to offer export competitiveness to the State. Hence, there is a need to provide higher rate of investment subsidies to 100 per cent export oriented units.

Inability to survive competition from large domestic firms and MNCs, not being able to discard poor and primitive technology with old methods, lack of managerial expertise to control high overhead costs, poor marketing strategies, prevailing mindset of entrepreneurs expecting protection and preferential treatment from government rather than being proactive are cited as reasons for the challenges that affect the growth momentum. For the improved performance of SMEs, there were suggestions to create MSME equity support fund from government financial institutions to finance new entrepreneurs. A sizeable number of SMEs in the manufacturing sector are located in the development areas/plots and the industrial parks. Therefore, a uniform policy for allotment and usage should also be formulated.

Though the state has identified SME clusters it is generally felt that cluster development activity in Kerala is yet to attain a remarkable success level. To achieve this objective, experts suggested financial and other support to 100 per cent export oriented clusters. Currently around 75 SME clusters have been identified in the state and they are at various stages of development.