B'lore IT.in: SMEs must move to rural areas

Bangalore, Oct 31: Toeing the line of other States wooing IT companies to tier-II and III cities by offering various facilities, Karnataka Deputy Chief Minister B S Yediyurappa today appealed to the IT majors and the Small and Medium Enterprises (SMEs) to move to smaller towns.

Inaugurating the SME Forum, organised as part of the State-sponsored IT event Bangalore IT.in, he said the smaller towns, apart from being cost-effective, would also help the State bridge the urban-rural divide.

The Deputy Chief Minister said Karnataka had the largest number of SMEs in the IT and ITeS sector at 1,500. The Government, under its new Industrial Policy, had set up a separate fund to help the SMEs in general achieve higher rate of success. With the tax collections being satisfactory this year, the Government had set GDP growth target of nine per cent from last year's 8.75 per cent.

IBM India Managing Director Shankar Annaswamy, speaking at the forum, called upon the IT-based SMEs to think big as size was not critical in this field, but innovation was what mattered the most.

''Ninety per cent of the IT companies coming under SME tag are small companies, but the revenues contributed by these companies remained little over 40 per cent,'' he said.

Speaking at a session titled 'Need for Balanced Eco-system to Support SMEs', Mr Vivek Kulkarni, Chairman and Managing Director of software consultancy firm Brikwork India, said the SMEs were contributing 40 per cent of the Rs 100,000 crore IT-based exports the country had achieved last year. The exports stood at 23 billion US Dollars, which had to be scaled up to 60 billion Dollars by the end of the decade. While there were 800 large IT companies contributing 13 billion dollars in revenue, the SMEs amounted to over 4,000 in the country.

However, SMEs had failed to match the growth rates of big companies. While big companies accounted for 30 to 31 per cent growth, the growth rate of small companies remained at 17 per cent.

The profit after tax achieved by the SMEs was also 30 to 40 per cent less than the big companies, he said.

Mr Kulkarni said the three main problems dogging the SMEs were human resources, branding and marketing, and infrastructure. The SMEs could shift to clusters like ITPL or STPI, thereby reducing the land and other infrastructural costs. SMEs were not getting the cost advantages which the large companies were deriving and the SMEs were incurring 25 per cent higher cost on HR and land, he added.

Mr Vishal Goel, Vice-President of leading consultancy firm Ernst and Young, which had conducted an extensive study for STPI on IT-based SMEs, said the overall contribution of the IT industry to the country included creating of one million jobs, contributing five per cent of the GDP and ten per cent of forex revenues. In this, the SMEs' share was 42 per cent. The SMEs were contributing greatly to the economies of various States, achieving disciplined growth even in non-IT hubs, thus helping development of urban centres other than metros. This was possible due to proactive State Governments like Karnataka, Andhra Pradesh and Maharashtra, besides help extended by agencies like STPI, he added.

However, continuous rise in attrition had affected the SMEs badly. While the national average of attrition rate in SMEs was 15.4 per cent, some suffered even up to 40 to 50 per cent, he said.

Stating that cluster type of set up was best suited for IT-based SMEs, he said this would bring large scale advantages. With tax holiday for export revenue in STPI-based units coming to an end in 2009, the SMEs were expected to lose a hefty nine to ten per cent of their profits, compared to three to four per cent of big companies.

SMEs badly need the tax holiday to be extended to sustain their profits, he opined.

UNI

Related Stories