Pain at the Bottom of Pyramid

Fortune lies at the bottom of pyramid. This is being told to us repeatedly by reports, books, media etc. Yet, why there is so much lackadaisical attitude by the authorities towards the bottom? There are reports which says that MSME sector was not that much affected during the crisis as is the common perception (see this)

The paper says:

Comparative performance measure index for micro and small scale (MSEs) items and non- small scale (Non-MSEs) items is constructed to evaluate the performance of the industry groups during the period 2001-09, with a particular focus on the slowdown period of 2007-09. Econometric analysis is then performed to explain the causal factors behind variations in the MSE production index. The paper finds evidence that the cyclical slowdown in the industry that set in during 2007-08Q1, retarded the pace of growth in MSEs as well as Non-MSEs. However, MSEs have recorded relatively better performance than Non-MSEs during the slowdown period at least in the ten items under review. Econometric analysis shows that both domestic and external demand bears a statistically significant influence on MSE output. However, the impact of domestic demand is comparatively stronger. Interestingly, credit to MSEs has been found to be very significant, although the sign of the coefficient (negative in this case) is contrary to theoretical expectations.

I have one reservation. How can you club Micro with Small and look at them at an aggregate level? The statistics may hide the pain at the real bottom or at the bottom of bottom. See today's Busines Line editorial. It says:

The Karnataka numbers point to what one might have suspected anyway — that the bulk of the credit has been cornered by medium-scale units.

I suspect this may be a pan India phenomena. We need to nurture the bottom. The data must be available at a very disaggregated level in regular frequency by RBI or by Ministry of MSME. Let's segregate the first M from the MSME. Fortune lies there and we must focus on Micro enterprises. That is the way to provide employment to vast rural youth.

In the name of Reform

Much water has flown under the bridge since my last post. There are signs of growth stabilization. Developing countries are recovering at a faster rate than the OECD countries. EU nations are again under a debt trap. Lot of stabilization measures have been initiated. We need to wait and watch the unfolding of this new debt ridden problems. There are lots of talks about REFORMS. It has become a buzz word. The latest being the cut of power of FSA (Financial Services Authority) of U.K. It has become a kind of subsidiary to the Bank of England. Seemingly impossible are now becoming possible. It reminds me of the view of the Austrian Economists - they view the economic calamities as Tuneup Cleaner - it cleans the unnecessary elements from your system. There is a lot of noise in India also to streamline the regulations (latest being the SEBI-IRDA spat and the Ordinance). Do we need to overhaul our system? I will continue to write on this subject.For the time being I would like you to go through a paper (I am not adding any adjective). The title of the paper is: Financial Sector Reform: Realities and Myths by R H Patil (Download the paper).