The launching of the Nu. 1.2 billion CSI and startup flagship has been a major initiative undertaken by the present government that has professed the motto of “Narrowing the Gap.”
As the Himalayan nation looks to tide over the health emergency presented by the COVID-19 pandemic and crawl back to normalcy, concerted efforts are needed to revive different sectors of the economy. Here, the Cottage and Small-scale Industries (CSI) and startups have an important role in reviving the economy.
As of June 2018, there were about 20,000 CSI registered in the country, employing over 92,000 people. About 79 percent of the CSI is dominated by the service sector, while the production and manufacturing sector accounts for only about 10 percent and the remaining 10 percent comprised the contract sector.
Economic diversification of the small nation of Bhutan requires ‘leap forward’ in CSI and startups that constitutes 95 percent of the industrial sector of the country. Reckoning with the importance of CSI and startups in economic diversification, the government has launched a flagship programme.
The launching of the Nu. 1.2 billion CSI and startup flagship has been a major initiative undertaken by the present government that has professed the motto of “Narrowing the Gap.” The flagship is part of the ongoing 12th Five Year Plan (2018-23) and aims at replacing 10 imported products by the end of 2023.
The programme aims at setting up an autonomous business startup by June this year. The programme is focused on creating about 2,000 job opportunities to young people in both the CSI sector and startup centres.
The flagship programme is divided into different phases, each phase focusing on developing a set of products that may later be replaced with imports. In February this year, the government announced the establishment of the National CSI Development Bank Limited, a wholly-owned state-owned enterprise.
Of paramount importance for helping CSI’s catalyse economic progress is the need to create a conducive environment, regulations and infrastructure. There is a need to bridge the trust deficit between the lending agencies and entrepreneurs.
Country-watchers argue that lack of continuity between government policies is affecting the growth of business. They vouch for the government to turn towards the second phase of the business cycle, i.e. of addressing the need of both human and financial capital. This is felt as a major reform that can leverage the CSI potential.
The CSI and startups need to explore partnership, technology and capital to attract foreign interest and investment in the CSI sector. To sustain this requirement, Bhutan launched the bilateral partnership with India to interact, exchange and develop inter-business networks and cooperation in startups.
Indian Minister of Railways, and Commerce and Industry, Piyush Goyal, who headed a business delegation for the Bhutan-India bilateral summit announced, has sponsored training of 100 Bhutanese trainers and entrepreneurs at the Entrepreneurship Development Institute of India.
A feasibility study for setting up an Entrepreneurship Development Institute in Bhutan to serve as a training hub for mentorship and economic activities would also be undertaken by India.
During the summit, the Confederation of Indian Industry (CII) and Bhutan Chamber of Commerce and Industry signed a memorandum of understanding facilitating enhanced cooperation and collaboration between the business communities of both countries.
It was also made public that CII would establish its first office in South Asia in Thimphu soon. The office is expected to provide hands-on training, guidance, mentorship and work closely with the Bhutan Chamber of Commerce and Industry for entrepreneurship development.
Economic Affairs Minister Loknath Sharma, speaking at the summit, said that diversification of economy was an essential concept for Bhutan, as the country is challenged by a small economy and market, which was both against the economy of scale.
A study by the Gross National Happiness Commission in 2013 had indicated that the country is faced with a narrow economic base and high dependency on external trade. Bhutan has the highest trade-to-GDP ratio in the region (82 percent).
Furthermore, Bhutan’s exports are concentrated, increasing her exposure to trade shocks since more than 40 percent of exports are hydropower exports to India. Mineral and metal-based products that constitute the second major exports are highly dependent on the availability of low-cost hydropower, which is also subject to considerable hydrological risks.
In 2018, the UN Committee for Development Policy recommended Bhutan’s graduation from a Least Developed Country to a Developing Country by 2023. The assessment was based on three criteria — Gross National Income (GNI) per capita, Human Assent Index (HAI) and Economic Vulnerability Index (EVI).
Bhutan successfully completed two of the three thresholds required for attaining eligibility for graduation. It crossed the threshold on GNI and HAI, but failed on the third recording a high economic vulnerability index (EVI). Bhutan’s EVI was 40.2 in 2018 above the threshold score of 32 or below.
The CSI and startup flagship remain extremely important for Bhutan’s economic diversification. If executed well, it will incrementally prepare the pathway of Bhutan’s graduation into a developing economy by 2023 with confidence in its economy and minimise the economic vulnerability of the country.
This commentary originally appeared in South Asia Weekly.
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Mihir Bhonsale was a Junior Fellow in the Strategic Studies Programme and Indian Neighbourhood Initiative of ORF.
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